The current macroeconomic scenario remains rather uncertain looking ahead to the coming months as the economy does not seem to have taken a concrete direction on which to base future economic forecasts. In fact, by analysing different themes, we can see that the economic indicators are not aligned in signalling a market direction.

The first graph that underlines this anomaly is the obvious difference between the sharp decline in industrial production compared to the strength of the services component, which remained stable in last months. The reason could be found in both the post-pandemic recovery and the government stimulus unrelated to the purchase of physical goods. These two aspects have created this marked difference between the two categories (industrial production and services component) in the recent period.

The decline of the industrial production caused a negative impact on the labour market, as shown in Graph 2 that illustrates the growth of layoff announcements. However, the extreme strength of the labour market that characterised the post-pandemic economy seems to not be affected by this growth as highlighted in Graph 3, which shows that the ratio of unemployed versus the open job positions is close to historical minimums.

The robustness of the labour market is also confirmed by the employers' continuous search for qualified personnel and for whom Companies are willing to offer higher salaries by disregarding the unemployed segment of the population, that needs further investments in term of training. This phenomenon has generated a large mismatch between the job positions open for those who are already employed and trained (dashed line) and those who are unemployed (solid line below) as we can see in graph 4.

The willingness Companies to offer higher wages will probably continue to push the wage level upwards, as is shown in Graph 5. The dot in the upper right-hand corner indicates the percentage change in hourly wages in last four months compared to the annualised figure (line) minus the inflation component (not including the Shelter sector). This phenomenon, with the income accumulated by households thanks to the post-pandemic government stimulus, is likely to keep the propensity to consume at stable levels for another year, even though the propensity to save (Graph 6) has fallen dramatically in the last period.

Looking at the housing market we find a diametrically opposite situation. This market is currently characterised by a significant weakness caused by a large mismatch between supply and demand. Graph 7 shows how the demand for houses (new and existing) has clearly plummeted over the past year, compared to a rather high supply of new houses.

This trend is also confirmed by other indicators such as the American Builders Association announcements of poor sales conditions and the sharp drop in the 'traffic' of people visiting homes or new construction sites for investment purposes. The main reasons are:

• The high level of the ratio of the average cost of new homes to the average household income, which in the post-pandemic period has skyrocketed to new highs, reaching 6.2, as illustrated by Figure 8.
• The banks' tighten criteria required to obtain a new mortgage/loan (Chart 9).

These two conditions, together with the FED's massive rate hike over the past year, have eroded much of the monthly disposable income of households because of housing; it is estimated now that people are forced to use 1/3 of their income to pay the mortgage on their home each month (Chart 10). Therefore, the affordability level to change/buy a new home is at its lowest level since the 1980s.

Fortunately, the current housing market conditions are not like those of 2008, when too many housing units were built compared to the demand. In recent years new constructions have been relatively low compared to the demand dictated by natural population growth, as shown by the Vacancy Rate (rate for unoccupied existing homes). In conclusion, the market imbalance is probably a temporary and not a structural problem, and a future combination of lower house prices and lower interest rates will bring supply and demand back into alignment.

By changing the subject and focusing on the margin situation of US companies, Chart 11 shows how the S&P500's corporate earnings estimates have been supported by the growth of technology companies' margins over the last few years.

Consequently, in order not to incur significant revisions of these estimates, it will be necessary for the profitability of tech companies to remain around current levels, although the first signs of declining margins have already been noted following the analysis of the basket of the largest capitalised technology companies within the index. This thesis is confirmed by the BCA US Strategy EPS model (Chart 12), which shows a possible contraction of corporate profits during 2023 around double digits due to the strong pressure resulting from the loss of Companies’ pricing power and the increase of production costs. If this is the case, we will likely face a further reduction in the valuation of US companies.