Even though the U.S. Federal Reserve cut short term interest rates in the U.S. by a half point last month, longer term interest rates seem to have other ideas. Those rates increased in the past week. The bearish change spooked investors into backing off some of their recent bullish investments in stocks that would benefit from falling interest rates.

That change resulted in the S&P 500 (Index: SPX) falling by one percent from the record high it set a week earlier. The index closed at 5,805.03 on Friday, 27 October 2024.

That decrease pushed the trajectory of the S&P 500 closer to the middle of the alternative future chart's redzone forecast range. The latest update to the chart shows the level of the S&P is consistent with the redzone forecast, which now has just one more week to go.

Here are the past week's market-moving headlines.

Monday, 21 October 2024

• Signs and portents for the U.S. economy:
• Oil prices rise nearly 2%, recovers some of last week's 7% decline
• Speedy US corn and soy harvests strain farmers, storage capacity
• Why Are Long-Term Bond Yields Rising Despite Rate Cuts?
• Fed minions talk up modest rate cuts along with balance sheet reduction, say more weakness in job market would make them cut rates faster:
• Fed's Logan eyes more gradual rate cuts amid more balance sheet cuts
• Fed's Kashkari: Job market weakness could mean faster rate-cut pace
• Bigger stimulus developing in China:
• China cuts key lending rates to support growth
• Dow, S&P, Nasdaq close mixed as attention shifts to earnings
• Dow, S&P end down as Treasury yields rise, investors eye earnings

Tuesday, 22 October 2024

• Signs and portents for the U.S. economy:
• Oil settles up 2% as Middle East war rages and supplies tighten
• Fed minions excited to cut rates, not sure how fast:
• Four Fed policymakers favor more rate cuts, but differ on pace
• Fed needs to continue to cut rates, Daly says
• Mixed signals developing in China:
• China's youth unemployment rate falls after climbing for two straight months
• China's Singles' Day sales festival fails to inspire consumers
• China stimulus slammed as inadequate by U.S., IMF officials counting on them:
• China's stimulus measures not enough, Yellen and IMF chief economist say
• Focus: China's exporters run for cover as US election nears
• ECB minions claim Eurozone inflation is going exactly as they expect, say they need to communicate better:
• No signs that euro zone inflation will deviate from current projections, ECB's Escriva says
• ECB's Kazimir: increasingly confident in disinflation path
• ECB needs clearer communication - but not dot plots, Nagel says
• Wall St closes little changed while investors digest yields, earnings
• S&P 500 posts two-day losing streak for first time since early September
• Polymarket Is Singlehandedly Moving The Entire US Bond Market

Wednesday, 23 October 2024

• Signs and portents for the U.S. economy:
• The elusive number keeping Treasury yields at their highest levels in 3 months
• Oil prices rise more than 1% amid concerns on Mideast tensions
• US fuelmakers to report lower Q3 profits on weaker margins, fuel demand
• US existing home sales slide to 14-year low; prices stay elevated
• Fed minions starting to worry about "extend and pretend" banking practices on bad loans:
• NY Fed says banks obscuring commercial real estate risks by extending loan terms
• Fed hawks and doves: what US central bankers are saying
• Bigger stimulus developing in China:
• China think tank proposes $280 billion stock market stabilisation fund
• BOJ minions think inflation is running behind their schedule:
• BOJ chief says it is 'still taking time' to hit inflation goal
• ECB minions thinking about whether they need to deliver bigger rate cuts in Eurozone:
• ECB starting to debate if rates have to go below neutral, sources say
• Wall Street closes down, pressured by tech losses and worries about rates
• Nasdaq posts worst day since early September as tech slides ahead of Tesla results

Thursday, 24 October 2024

• Signs and portents for the U.S. economy:
• US labor market plodding along, but jobs becoming more scarce
• US 30-year fixed-rate mortgage rises to 6.54%
• Why mortgage rates are back up to nearly 7%
• 10-year Treasury yield slips from 3-month closing high as buyers step in
• US new home sales highest in nearly 1-1/2 years in September
• Fed minions starting to think inflation may still be a problem:
• Fed's Hammack: Work to bring inflation to target not complete
• Bigger trouble developing in Japan, BOJ minions staring to think they might get away with another rate hike:
• Japan's factory activity dips for 4th straight month, PMI shows
• BOJ may offer less dovish signs as US recession fears ease, rates on hold
• Bigger trouble developing in Eurozone, ECB minions too early to consider cutting rates faster:
• Euro zone business activity stuck in a rut, survey shows
• German business activity contracts at slower pace in October, PMI shows
• ECB does not need to contemplate below-neutral rates now, Latvia c.bank chief says
• Tesla helps S&P snap three-day losing streak, boosts Nasdaq; Dow ends in the red
• Tesla rallies most in over a decade on Musk's bold EV forecast

Friday, 25 October 2024

• Signs and portents for the U.S. economy:
• Oil settles up, weekly gain 4% as investors weigh Middle East risk and US election
• BOJ minions get old problem:
• Core inflation in Japan's capital slips below BOJ's target
• ECB minions expected to deliver another Eurozone interest rate cut, told to not stand in way of banks looking to avoid failures through mergers:
• ECB probably to cut rates by 25 basis points in Dec, Bloomberg News reports
• Euro zone governments should not interfere with bank consolidation, bank execs say
• Nasdaq pulls back after new record, ends higher; S&P snaps six-week win streak
• Nvidia catches Apple in race to world's most valuable company

The CME Group's FedWatch Tool anticipates a 0.25% rate cut on 7 November 2024 with additional 0.25% cuts at 6-to-12-week intervals through 17 September 2025. The CME FedWatch tool sees the Federal Funds Rate bottoming at a target range of 3.25-3.50% at that time.

The Atlanta Fed's GDPNow tool's projection of the real GDP growth rate for the current quarter of 2024-Q3 ticked up to +3.4% from the previous week's forecast of +3.3% growth.

Image credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a bear wearing a Halloween costume and scaring a Wall Street bull".

How much and on what do American households spend money each year?

The answers to these questions can be found in the Consumer Expenditure Survey, which have been updated to include the results from 2023. In this article, we'll visualize that spending data and present its historic trends, which now spans the last four decades.

Let's start with some background. Starting in 1984, the U.S. Bureau of Labor Statistics conducts multiple surveys each year to capture the spending of American "consumer units", the affectionate nickname the BLS' data jocks apply to what is pretty close to, but isn't quite, American households. In addition to describing how much and on what they spend money on, the results of the Consumer Expenditures surveys are used to determine the weighting of various consumer spending categories within the Consumer Price Index (CPI), the most commonly cited measure of inflation for the U.S. economy.

Because the data is used this way, it's important to track how the composition of consumer spending changes over time. For example, because the Affordable Care Act of 2010 (ACA) made health insurance much more costly, changes in the cost of health insurance has a bigger effect on consumer price inflation today than they did before the ACA was passed. Meanwhile, the amount that Americans spending on apparel has declined over time, so changes in apparel prices have a smaller effect on the consumer price index than what they had in the 1980s.

Our first chart presents the average annual amount of consumer expenditures by American "consumer unit" households for each year from 1984 through 2023.

These figures represent the nominal, or non-inflation adjusted, total average consumer spending in each year. Starting in 2021, the amount the average American household consumer units has risen sharply because of the high inflation unleashed during this period, which has boosted household consumer spending from 2020's $61,334 to 2023's $77,280.

The next chart breaks out that spending into major expenditure categories, such as housing, transportation, food, life insurance & pension savings & Social Security, health insurance & medical expenses, entertainment, charitable contributions, apparel & other products, and education, to put them in order from highest to lowest:

This chart verifies the amount of spending is up in nearly every major consumer expenditure category, with housing, transportation, and food seeing some of the fastest escalation from 2021 through 2023. Only the elective categories of charitable contributions and entertainment have seen decreases during these years.

The third chart reveals the trends for these categories, showing how their individual share of total average annual consumer expenditures has been changing since 1984.

The final chart puts all these changing trends together. The major categories of consumer spending that have had a falling share of total consumer spending over time are shown in shades of green, those claiming a rising share over time are shown in shades of purple.

If you want to know specifically how spending on these major categories of consumer spending have changed since last year, we'll close with the following excerpt from the BLS' press release for 2023's consumer expenditures (boldface emphasis ours).

Selected spending patterns, 2023

• Housing expenditures (32.9 percent of total expenditures) increased 4.7 percent in 2023, after a 7.4-percent increase in 2022. Expenditures on rented dwellings and owned dwellings both increased, by 7.6 percent and 5.7 percent, respectively. (For more information on how owned dwellings are defined see the methodology section.) Other lodging also increased 11.1 percent in this same period.
• Transportation expenditures (17.0 percent of total expenditures) increased 7.1 percent in 2023, after an increase of 12.2 percent in 2022. This increase was driven by a large increase in public and other transportation spending (+29.7 percent), followed by a 23.2-percent increase in vehicle purchases (net outlay). (For more information on how net outlay is defined see the methodology section.) In contrast, partially offsetting the increase in total transportation expenditures, gasoline spending was down 12.7 percent in 2023, after a 44.0 percent increase in 2022.
• Spending on food (12.9 percent of total expenditures) increased 6.9 percent in 2023, compared to an increase of 12.7 percent in 2022. Increases in both food at home (+6.1 percent) and food away from home (+8.1 percent) led to this increase in overall food spending.
• Personal insurance and pensions spending (12.4 percent of total expenditures) increased 9.3 percent in 2023, after increasing 11.0 percent in 2022. A 9.6-percent increase in contributions to pensions and Social Security largely contributed to this increase. Within contributions to pensions and Social Security, there was a 16.8-percent increase in deductions for private pensions, as well as a 13.3-percent increase in contributions to retirement plans (such as 401(k)s or Individual Retirement Accounts). At the same time, spending on life and other personal insurance increased by 5.2 percent.
• Spending on cash contributions (3.1 percent of total expenditures) decreased by 13.7 percent in 2023, after a 14.1-percent increase in 2022. Cash contributions comprise cash contributed to persons or organizations outside the consumer unit, including alimony and child support payments; care of students away from home; and contributions to religious, educational, charitable, or political organizations.
• Education expenditures (2.1 percent of total expenditures) increased 24.0 percent in 2023, after rising 8.9 percent in 2022. This increase was driven by a 39.2-percent increase in elementary and high school tuition, after being unchanged from 2021 to 2022. The categories of test preparation and tutoring services (+29.6 percent) and school supplies, etc., unspecified (+38.6 percent) also contributed to this increase.
• Spending on miscellaneous expenditures (1.5 percent of total expenditures) increased 17.3 percent in 2023, after an increase of 2.3 percent in 2022, mainly due to a 63.5-percent increase in legal fees. In addition to these fees, miscellaneous expenditures include safety deposit box rental, checking account fees and other bank service charges, credit card memberships, accounting fees, funerals, cemetery lots, union dues, occupational expenses, expenses for other properties, and finance charges other than those for mortgages and vehicles.

The data confirms American consumers experienced the fastest growth in inflation of the last 40 years in the years from 2021 through 2023.

References

U.S. Bureau of Labor Statistics. Consumer Expenditure Survey. Multiyear Tables. [PDF Documents: 1984-1991, 1992-1999, 2000-2005, 2006-2012, 2013-2020. Excel spreadsheet: 2021-2023]. Reference URL: https://www.bls.gov/cex/home.htm. 25 September 2024. 

September 2024 saw the seasonally-adjusted number of employed teens rise in the U.S. economy after having declined in each of the three previous months. The seasonally-adjusted number of employed teens Age 16-19 increased by 231,000 to 5,624,000.

Most of that increase took place among younger teens Age 16-17, whose numbers increased 159,000 to 2,193,000. Older teens Age 18-19 experienced a much smaller increase, with their totals increasing by 71,000 to 3,398,000.

If you're following along at home, you'll notice the numbers for each of these demographic subgroups don't quite add up to the total for the combined group. That's because the Bureau of Labor Statistics applies unique seasonal adjustment factors to each of these data series. If you want numbers that do add up, you'll need to pull the non-seasonally adjusted data for each demographic group. When you do, you'll find the following for the initial employment estimates for September 2024:

• Age 16-17: 2,217,000 (a decrease of 58,000 from August 2024)
• Age 18-19: 3,141,000 (a decrease of 367,000 from August 2024)
• Age 16-19: 5,357,000 (a decrease of 425,000 from August 2024)

The reported total for the Age 16-19 is 1,000 less than what you would get by adding numbers of employed 16-to-17 year olds to the number of employed 18-to-19 year olds, but that's attributable to rounding errors resulting from the BLS' practice of reporting the employment numbers to the nearest thousand.

Although all the changes in the unadjusted employment figures are negative, the seasonally adjusted numbers are all positive because the decline in September 2024's teen payrolls was smaller than is typical for the regular seasonal pattern for teen employment. Teen employment spikes upward from May through July each year before falling back in August through October as many teens leave the workforce and return to school after their summer break. The seasonal adjustments applied by the BLS take this regular pattern for teen employment into account in smoothing out the seasonal swings in the number of employed teens

The following pair of charts shows the trends for the seasonally-adjusted teen employment and the teen employment-to-population figures from January 2016 through September 2024.

Both charts show that even with the seasonally-adjusted rebound, teen employment levels in September 2024 are well off their peaks from earlier in the year. As rebounds go, it's welcome but not enough to offset the declines.

References

U.S. Bureau of Labor Statistics. Labor Force Statistics (Current Population Survey - CPS). [Online Database]. Accessed: 14 September 2024.

Image Credit: Microsoft Copilot Designer. Prompt: "An editorial cartoon of a single high school student looking exhausted on their first day back to school, reminiscing about their summer job". We think the generated image conveys more boredom at being back in school than it does exhaustion, but that kind of fits the experience a lot of teenagers have.

The rising outlook for dividends may be the most underrated story underscoring the rally in the S&P 500 (Index: SPX) during the past year.

We're almost to the one year anniversary of when the S&P 500 bottomed at 4,117.37 on 27 October 2024. From that date through the latest record high close of 5,864.67 on Friday, 18 October 2024, the value of the S&P 500 has risen by over 42%.

We thought now would be a good time to recap how the improvement in the expected future for the index' dividends per share accompanied the rise in stock prices. In the following animation, we've presented the regular snapshots we've previously presented of the S&P 500's quarterly dividend futures from mid-October 2023 through mid-October 2024.

In particular, check out how the outlook for the fourth quarter of 2024's dividends has changed over the past year. The expectation of a dividend payout of $17.05 per share on 13 October 2023 has grown into the more current expectation of a $19.08 per share dividend payout through 18 October 2024.

How changes in the outlook for dividends at specific points of time in the future affects stock prices is described by this math.

More About Dividend Futures Data

For this series, we have been taking a snapshot of the CME Group's S&P 500 quarterly dividend futures data shortly after the second or third week of each month.

Dividend futures indicate the amount of dividends per share to be paid out over the period covered by each quarter's dividend futures contracts, which start on the day after the preceding quarter's dividend futures contracts expire and end on the third Friday of the month ending the indicated quarter. So for example, as determined by dividend futures contracts, the now "current" quarter of 2024-Q4 began on Saturday, 21 September 2024 and will end on Friday, 20 December 2024.

That makes these figures different from the quarterly dividends per share figures reported by Standard and Poor. S&P reports the amount of dividends per share paid out during regular calendar quarters after the end of each quarter. This term mismatch accounts for the differences in dividends reported by both sources, with the biggest differences between the two typically seen in the first and fourth quarters of each year.

Image Credit: Microsoft Copilot Designer. Prompt: "A crystal ball with the word 'SP 500' written inside it". And 'Dividends' written above it, which we added.

The U.S. national debt is a truly large number. With the nation's total public debt outstanding of $35,464,673,929,171.69 as of the end of its fiscal year on 30 September 2024, the U.S. government is truly indebted to its major creditors.

During FY 2024, the U.S. national debt increased by $2.3 billion, or 6.9%, to reach that number. The national debt at the end of FY 2023 was just $33.167 trillion.

So to whom does the U.S. government owe $35.465 trillion?

The following chart provides a first estimate of who the U.S. government's biggest creditors are at the end of its 2024 fiscal year, along with the portion of the national debt they are owed.

It will be months before all the numbers for 2024 are finalized. This chart presents a first estimate of who owns the U.S. national debt, which should be within a few tenths of a percent for most of the major holders of debt securities issued by the U.S. government.

The Overall Picture

The U.S. Federal Reserve is once again the U.S. government's single largest creditor holding U.S. government-issued debt securities worth 12.4% of the U.S. government's entire total public debt outstanding. However, its share of the national debt is down from the 18.3% it held in 2022 and the 15% recorded last year as the Federal Reserve has continued reducing its holdings. In doing so, the Fed is still following the monetary policy of shrinking its balance sheet that it initiated in March 2022 when it began hiking interest rates to combat inflation unleashed by President Biden's policies.

Speaking of interest rates, on 19 September 2024, the Federal Reserve initiated a new series of interest rate reductions after holding them steady at an elevated level for over a year. Those higher rates have attracted U.S. individuals and institutions such as banks, insurance companies, investment funds, corporations, and individuals to collectively increase their share of the national debt from 47.1% in 2023 to 48.8% in 2024.

Social Security's share of the national debt plunged from 8.1% in 2023 to 7.3% in 2024. This decline coincides with the ongoing depletion of its Old Age and Survivors Insurance trust fund, which has run in the red in every year since 2009.

The combined share of the U.S. national debt held by the government's military (4.5%) and civilian (3.0%) employee retirement trust funds swelled from 7.2% to 7.5% from FY 2023 to FY 2024.

Altogether, the portion of the U.S. national debt held by U.S. entities in 2024 is 76.0%, a small dip from the 77.4% in 2023, but up slightly from 75.7% share in 2022.

Foreign Holdings

The portion of the U.S. total public debt outstanding held by foreign individuals and institutions is 24.0%. While this is not the largest percentage of the national debt that foreigners have ever held, the amount of their holdings is at a record level. Reuters describes the mid-2024 surge in those holdings:

Foreign holdings of U.S. Treasuries surged to a record high in August, data from the Treasury Department showed on Thursday, rising for four straight months.

Holdings of U.S. Treasuries by foreigners rose to $8.503 trillion in August, up from $8.338 trillion in the previous month. They were up 11.5% from holdings a year earlier.

And yet the share of the national debt held by Japan and China, the two largest foreign holders of U.S. government-issued debt securities, declined. Japan's share fell from 3.3% to 3.2% from 2023 to 2024. China and Hong Kong's combined share likewise dipped from 2.9% to 2.8%.

In fact, most of the increase in foreign holdings was driven by nations with a much smaller share of the U.S. national debt, with the category in which we group "all other foreign nations" rising from 11.7% in 2023 to 12.9% in 2024.

About the Data

The U.S. government's total public debt outstanding is the value recorded for 30 September 2024, the final day of the government's 2024 fiscal year, which also applies for the portion of the national debt held by the government-operated trust funds for Social Security, military and civilian government employees. Data for foreign holdings is based on estimates through August 2024 that was released on 17 October 2024. The Federal Reserve's holdings are those recorded on 25 September 2024.