QI TAKEAWAY — Dallas is America’s Fed District. Texas growth leads that of the broader domestic economy. Signs of both slower growth and higher inflation in the Dallas Fed’s final factory survey of 2021 suggest rates traders maintain their flattening stance.
- In the last decade, Texas gross state product growth has become tightly connected to overall U.S. real GDP growth; though their correlation was a scant 0.07 from 2010-2014, the relationship tightened to 0.88 from 2014-2019 and has been a near perfect 0.999 since 2020
- December’s Dallas Fed Manufacturing Survey revealed future backlogs compressed in 2021’s second half, pointing toward a slowdown that’s yet to unfold; if past is precedent, 2022 should bring a downshift in the future workweek & further flattening in the 2s10s curve
- When asked to what extent cost increases are being passed on to consumers, December 2021 saw just 24.1% of those surveyed saying “none”, a record low; meanwhile, 11.1% said “all” and 24.1% said “most”, signaling rising prices in 2022, which should push up shorter rates