I read something the other day that resonated: “You run the first 13 miles of a marathon with your legs, the second 13 miles with your head, and the last 385 yards with your heart.” The implication is this: As long as you’ve put in the work, the first half of any long effort can feel easy; the second half is a little tougher, but if you’re careful and use your brain, you’ll get through it. But by the time you get to the last quarter mile — that awful little “point two” they dangle at the end on the “26.2” sticker in the window of the Subaru Outback that’s in front of you in traffic — your legs are shot, your lungs are empty, and you’ve chafed through all the skin on parts of your body that are best left undiscussed. The only way to get through that is by calling on a deeper reserve that neither training nor presence of mind alone can provide.

I have no idea if Jerome Powell is a runner, but the good folks at the Boston Athletic Association might consider awarding him an honorary finisher’s medal during next April’s running of the Boston Marathon, because I think he’s starting to chafe through. Case-in-point: Inflation. Powell’s Federal Reserve (The Fed) put in the work early by tightening rates aggressively enough to bring the Consumer Price Index (CPI) down from its post-pandemic peak of 9.1% to around 3% in fairly short-order. And at first, it seemed easy. But somewhere around the middle of last year, the road got a lot tougher: The economy started to look a little shaky and pundits started to question whether the Fed had over-tightened the economy and pushed it toward the brink of recession. But Powell trusted his training, persisted, and eventually got markets comfortable with the “higher for longer” mantra that was necessary to get him through the second half of his rate-raising marathon.

Fast forward to last week, and the pain is starting to bleed through. Wednesday’s CPI and Thursday’s Producer Price Index (PPI) were both sort of a non-event: Each advanced 0.2% from last month, more or less spot-on with economists’ expectations.^1,2 Not surprisingly, markets didn’t really take much notice at first — even though the data showed that progress against inflation had stalled at a level meaningfully above (but nonetheless tantalizingly close) to the Fed’s official target. Unnoticed that is, until Thursday afternoon when Powell did something that almost any recreational runner would recognize: He stopped at the final aid station before the finish line, gingerly sipped some Gatorade, threw up his hands in frustration, and acknowledged how far away the finish line still is by warning markets that the Fed wasn’t in a rush to continue cutting rates when it meets in December.³

To be clear, that was actually good news, and Powell was essentially just repeating something he had already said months ago when he was still warning investors that the Fed wasn’t quite ready to start cutting — basically, that the US economy’s persistent strength had given the Fed the luxury of time with regard to the pace of normalizing rates. Still, that current lack of urgency to continue loosening rates — plus the petering-out of the prior week’s ‘Trump Bump’ — was enough to send U.S. equity markets (and market expectations for a December rate-cut) meaningfully lower on Friday during a week that was already pretty anemic to begin with. So inflation isn’t really getting worse, but it’s not getting a whole lot better, either. And was enough to keep markets at least somewhat on edge last week.

You could also say the same thing about the supply and demand for credit: Not getting a whole lot worse, but also not staging a roaring comeback just yet. Beginning about the same time that the Fed started aggressively raising rates, banks started getting stingier with their balance sheets by tightening lending standards and becoming less willing to extend credit to a whole range of borrowers. That often portends recession (or at least a significant slowdown in growth) and became obvious in the last several editions of the Fed’s quarterly Senior Loan Officer Opinion Survey (or “SLOOS”), the most recent update of which we got last Tuesday.⁴ That update showed that banks have indeed relented a little bit, and the supply and demand for credit in areas like business loans have improved almost all the way back toward levels that could be interpreted as neutral to economic growth. But in key areas like commercial real estate and consumer loans, banks are still being a little cautious.

That matters, because if the consumer spending spree is to continue (and based on October’s retail sales release, it is — albeit in somewhat more muted fashion⁵), it will have to be done with the cooperation of banks. And so far, banks appear to be following inflation’s (and the Fed’s) lead: Playing it cool until we get a few more answers about the direction of the economy, interest rates, and a whole bunch of other uncertainties still floating around in the ecosphere.

Meanwhile, the economy continues to lurch along in fits-and-starts like runners trying to negotiate the final fatigued miles of any road race. For example, manufacturers in the New York Fed’s area of operations surprised almost everyone by reporting that current manufacturing production and future order activity had suddenly lurched higher⁶ — a dramatic, endorphin-fueled turn in the NY Fed’s Empire Manufacturing survey that might suggest a big improvement in PMIs for the goods-producing sector if other regions follow-through with improvements of their own. Likewise, small business sentiment improved last month and is now inching its way back closer to normal. That result was far less surprising than the big turn in Empire given September’s inaugural rate cut and how sensitive small businesses are to changes in interest rates (as well as the political temperature,) but it was nonetheless encouraging progress toward normal.

But as has often been the case during this cycle, there were plenty of raw spots to focus on if you choose to. For example, respondents to both the NFIB’s small business survey and the New York Fed’s Empire manufacturing survey both reported that hiring activity was flat in spite of the apparent improvement. Moreover, the NFIB’s survey also highlighted that uncertainty about the coming months hit an all-time high (an impressive feat for a survey that spans more than five decades.) Together, flat hiring and spiking uncertainty raise legitimate questions about whether survey respondents really believe themselves and trust the improving tone of business enough to fully commit to things with longer-term implications, like hiring.

For now, though, we’ll take the good news at face value – and hope that each time Powell’s shoes slap the pavement we’re truly making progress toward the long-awaited finish line.

What to watch this week

Yeah, sure, last week’s retail sales report was interesting and all, but if you really want to understand what’s happening with the American consumer, visit your friendly neighborhood Walmart on a Saturday afternoon (just kidding — I don’t actually recommend that unless you really can’t wait until past peak hours to get those eggs, or milk, or new pair of sneakers). More than a year ago, executives for the retail behemoth began noticing something interesting: High-income consumers were increasingly shunning the boutiques and double-parking their BMWs and Lexuses (uh, Lexi...? Not sure what the proper plural is there...) in Walmart’s parking lots nationwide as inflation began to bite and economic growth looked like it was cooling off. We’ll get an update on that price-seeking trend on Tuesday, when the world’s biggest retailer — who makes up an unimaginably large percentage of the Department of Census’ retail sales report all by itself — reports quarterly earnings.

Other retailers are on tap this week, too, including Lowe’s (who is no doubt hoping to echo competitor Home Depot’s slightly-less-worse-than-feared results last week) and Target, scheduled for Wednesday. Of particular interest might be the extent to which discount retailers other than Wal-Mart (TJ Maxx reports on Wednesday and Ross Dress-for-Less on Thursday) are taking market share from their more expensive counterparts.

But the biggest headlines this week will no doubt come from Nvidia when it reports results on Wednesday. The company needs no introduction — at least not for anyone who can correctly spell “AI” — and its quarterly reports have grown in importance to rank alongside macroeconomic heavyweights like non-farm payrolls for their ability to influence markets. As discussed last week, Nvidia recently knocked out Apple as the world’s biggest company by market cap. This week’s report will suggest whether or not the company still deserves the title.

The rest of the week will belong mostly to the housing market, with the National Association of Homebuilders due to release its monthly survey of builder sentiment on Monday. Then on Tuesday, we’ll get fresh housing starts and permits data, rounding out the near-term supply picture for housing. Continued improvement in the inventory situation might help the housing market by restraining home price growth (see next week’s calendar for those figures), but in the meantime Thursday’s existing home sales release will provide color on how dauntless homebuyers are (or aren’t) in the current environment.

We’ll also get another look at regional manufacturing trends on Thursday when the Philadelphia Fed and the Kansas City Fed each release their own versions of last week’s surprisingly strong Empire State Manufacturing Survey from the New York Fed. Watch also for Thursday’s index of leading economic indicators, or LEI, from the Conference Board (particularly how the LEI compares to its more here-and-now focused sibling, the Coincident Economic Index), as well as S&P Global’s mid-month ‘flash’ release of its November purchasing managers’ indices for an indication of how growth is holding up in the real economy. A key to understanding all of these reports will be whether they support (or refute) recent strengthening in other survey-based data like Empire.