Today's Scoop:

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Here’s what you need to know today…

1. The real estate market is stalling, but home prices aren’t falling.

2. Small businesses are struggling.

3. Small banks face more problems with high interest rates.

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S&P 500: 4,387.55
1Mo: -4% | 1Yr: +6% | 5Yr: +53%

The market drifted lower today after Macy's and Dick's raised concerns about the financial health of the American consumer. [👇]

Small businesses are struggling. The National Federation of Independent Business reported more than half of all small businesses think we’re already in a recession. [🤓] While that’s not great, the percentage is slightly lower than it was four months ago. Borrowing money remains the biggest concern for business owners. Policymakers’ rapid increase in interest rates has made loans significantly more expensive.

Home sales have stalled, but prices keep climbing. The National Association of Realtors said the number of existing homes sold in July fell by 2.2% to a six-month low. Mortgage rates are higher than they have been in decades, so homeowners have opted to hang on to their cheaper rates. There are about half as many homes on the market as there were pre-pandemic. The limited supply of homes pushed median home prices up to $406,700 in July, 1.9% higher than a year ago.

High interest rates pose challenges for smaller banks as they need more cash flow to pay savings accounts. Credit ratings agencies have reduced their scores for several banks in recent weeks. S&P Global reduced its rating for Associated Banc-Corp, Valley National Bancorp, UMB Financial, Comerica Bank, and KeyCorp.

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• American Airlines pilots get a 46% pay and benefits bump

• Dick’s Sporting Goods says shoplifters are denting profits

• Tesla goes to court over fatal crashes tied to its autopilot

• Zoom’s new features aren’t boosting sales much

• Macy’s warns shoppers are missing credit card payments

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What exactly is a recession?

For many of us, the word recession means global crisis. The last two recessions were the most severe economic disasters of the last half-century. In 2008, the global financial system collapsed. In 2020, the global economy was completely shut down.

Not every recession is a financial crisis. Recessions are a natural part of the economic cycle. The economy grows, slows, and contracts. Just like all squares are rectangles, but not all rectangles are squares. The same is with recessions and financial crises. We're in unprecedented times, so it's hard to say what comes next, but economists aren't really talking about an impending economic collapse.

A recession can be defined as two quarters of less economic production (GDP) than the previous. That technically occurred in the first half of 2022, but no one has named that an official recession yet because unemployment was at historic lows. The whole situation is unusual.

Don’t get too hung up on the semantics. By most economic measures, the economy is doing well. If you think it feels like a recession, it might just be inequality. Big corporations and wealthy families can do well and support the overall economy while small businesses and lower-income families struggle.

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