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ALEX BRUMMER: US housing leads economic tumble across the pond

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ALEX BRUMMER: Sources of US economic weakness could provide clues to what’s going to occur here – as housing leads tumble across the pond

  • In US, refinancing of mortgages is a national hobby
  • So higher home loan rates quickly feed into behaviour
  • Britain’s booming residential market has shown little sign of cooling 
  • That might be all the way down to the preponderance of fixed-rate loans 

There isn’t a disguising the proven fact that america has now suffered two successive quarters of declining output, defined as a technical recession. At such moments, the aphorism ‘when America sneezes, the world catches a chilly’ involves mind. 

The annualised fall in output within the second quarter, coming on top of the drop of 1.6 per cent in the primary three months of the 12 months, got here as a surprise with economists predicting an upturn. 

The idea is that the Fed chairman Jay Powell has some sight of the numbers before raising rates of interest by 0.75 of a percentage point on Wednesday. 

Taking a tumble: Within the US, refinancing of mortgages is a national hobby, so higher home loan rates quickly feed into behaviour

If that’s the case, there should be enormous concern that inflation, running at a 9.1 per cent clip, is embedded deeply and it is simply too soon to ease the brakes. 

President Biden’s problems are those of Britain too. The US is Britain’s biggest single trading partner. We run a surplus in our commerce with the US and it’s also the largest inward investor within the UK. Prefer it or not, several of the present raids on aerospace industries, including the bids for Inmarsat and Meggitt, are from US buyers. 

As worrying is the political fallout from an unexpected American downturn this week, with Donald Trump in Washington teasing his supporters a couple of fresh run for the White House. 

The sources of the US economic weakness could provide clues to what’s going to occur here. An enormous contributor to the slowdown was a buckling housing market, under pressure from rising mortgage rates. Consumer spending is hurting from the associated fee of living. 

If there may be a puzzle, it’s one shared with the UK. 

How is it possible that America is in recession when the roles market is so buoyant, with 456,700 a month joining the workforce in the primary half of the 12 months, resulting in strong wage gains and spending power? One posible explanation is that the work-shy labour force of Covid-19 is finally returning to the land of the living. 

Britain’s booming residential market has shown little sign of being cooled by higher rates of interest. That might be all the way down to the preponderance of fixed-rate loans. Within the US, refinancing of mortgages is a national hobby, so higher home loan rates quickly feed into behaviour. 

Earlier this week, the International Monetary Fund slashed its forecasts for global output, citing Ukraine and China. Those projections are already looking dated.

Whisky galore 

US inflation and recession isn’t to this point having much impact on demand for Johnnie Walker scotch or Casamigos tequila. 

Amid the gloom, American families are still coming out to the liquor store 5 or 6 times a 12 months, tempted by Diageo’s top brands. When chief executive Ivan Menezes splashed £1billion or so on Casamigos back in 2017, he encountered criticism. 

Within the 2022 financial 12 months, Casamigos sales sprinted 89 per cent, contributing to net sales growth of 14 per cent. Appetite for the group’s most famous brand, Johnnie Walker, is undiminished with premium Blue Label, selling for about £200 a bottle, showing a 60 per cent increase. 

Diageo has grow to be a money machine with operating profits of £4.4billion last 12 months up 18.2 per cent. It, like other global corporations, faces higher input costs. Margins slipped barely with the corporate absorbing a few of the cost moderately than raising prices on a portfolio of very premium products. 

Marketing spend continues to rise and this 12 months Diageo is doubling its capital spend on distilleries and breweries to some £1billion. There remains to be loads of money within the kitty to lift the dividend by 5 per cent and snap up brands as the style for brand new wave spirits gathers momentum. 

As for Menezes, after nine years within the job he has reinforced the chief team by promoting former US boss Debra Crew to chief operating officer to push efficiency. 

But he’s showing no signs of putting away his snifter just yet.

Moral maze

Investment banking is each the virtue of Barclays and its downfall. 

It continued to consolidate its position as Europe’s top player, with income up 35 per cent within the second quarter, when Wall Street rivals reported declines. The primary half was spoiled by £1.9billion of regulatory costs. If only newish boss CS Venkatakrishnan could eliminate ethical mishaps, Barclays might be essentially the most exciting firm within the sector. The mixed legacies of Bob Diamond and Jes Staley continue to exist. 

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