Thank you for joining us for another edition of AiN Executive Insights. I’m Diana Rotondo, Executive Vice President of AiN Group, delighted to navigate you through a diverse array of economic updates and insights, curated alongside the esteemed Economist Elliot Eisenberg. In this issue, we dissect critical economic indicators including a sustained inflationary trend and robust job additions in key sectors, alongside a comprehensive review of Federal Reserve strategies in response to shifting economic signals. We delve into the nuances of labor productivity, potential recession timelines, and variations in Federal funds rate expectations. Additionally, we’ll explore consumer credit dynamics, real estate commissions, discriminatory patterns in housing, and the wealth distribution across socioeconomic groups. These topics not only reflect the ongoing economic conditions but also prepare us for future financial landscapes. Join us as we unpack these pivotal developments shaping our economy. Let’s journey through these insights together.
Your 14 Fast Facts…
1. Inflationary Increase – March CPI rose 3.5% Y-o-Y, the 10th month in a row that headline CPI has been trendless and rangebound between 3.1% and 3.7%. The lowest reading since the 2021 inflationary rise was 3.1% in June 2023. Moreover, core CPI rose from 3.76% to 3.80%. Fed rate relief remains on hold (source: BLS).
2. Rockin’ Report – U.S. employers added 303,000 net jobs in March, the best level since May 2023, with upward revisions to January and February of 22,000. The workweek rose, the labor force participation rate increased from 62.5% to 62.7%, and wage growth slid from 4.28% to 4.14% M-o-M. Strong employment growth means no June Fed rate cut (source: FFF Research).
3. Concentration Concern – Three sectors continue to generate almost all job growth, and the March report was no exception. Education/healthcare was responsible for 88,000 jobs, government, 71,000, and leisure/hospitality, 49,000. Outside of these sectors there has been no real job growth since November 2022. It would be nice to see broader employment growth, especially outside the public sector (source: Rosenberg Research).
4. Productivity Possibility – Data show labor productivity rising substantially in CY23, but that may be somewhat distorted. In 2022 and 2023, undocumented immigration dramatically increased. If the output of these people is being tracked and recognized where they work, but their pay is not being reported, it looks like productivity is rising when it isn’t (source: CBO).
5. Recession Return – In 1989, the Fed’s last rate hike was in June, and 13 months later a recession began. In 2000, the lag between the Fed’s last hike and the recession was 10 months. In 2006, the lag was 18 months, and in 2018, 14 months. The median and mean are both about 14 months. This time, the last hike was in July 2023, suggesting a fall 2024 recession (source: Rosenberg Research).
6. Percentage Pause – Since the late 1980s, there have been six Fed funds rate pauses after rate hikes, excluding the current cycle. The average length of a pause is 8.5 meetings or 12.75 months. The shortest was 4.5 months and the longest was 25.5 months. So far, we are eight months into the current pause, and it will be 12 months at the late July meeting (source: Truist Advisory Services).
7. Fed Funds – In January 2024, markets expected Fed funds to end 2024 at 3.65%, meaning seven 25bps cuts. Currently, expectations are for Fed funds to close out 2024 at 4.9%, meaning just two cuts. Expected rate cuts boost equities, so fewer expected rate cuts should weaken stocks, making the upcoming earnings season critical, as higher earnings can compensate for higher rates and justify high/rising prices (source: WSJ).
8. Credit Crunch – Pre-Covid, revolving consumer credit totaled $1.10 trillion, was growing by $3.5 billion/month, and was 6.6% of disposable income. After collapsing through April 2021, it’s increasing at a rate of nearly $10 billion/month and is now $1.34 trillion, or 6.5% of disposable income (source: Federal Reserve).
9. Realtor Rates – The current average U.S. real estate commission is 5.49%. The listing agent receives an average of 2.83%, the buyer’s agent, 2.66%. For a $400,000 home, it equates to a commission of $21,960. Hawaii has the lowest average commission at 4.78%, while the highest is in West Virginia at 6.67% (source: Clever).
10. Lousy Landlords – Eviction moratoria were enacted to protect tenants during Covid. However, data show that African American rental applicants with the same characteristics as white applicants were 11% less likely to receive responses from landlords when the moratoria were active. The same applicants were only 4% less likely after the moratoria were lifted, suggesting landlords discriminate more when they cannot evict tenants (sources: NBER).
11. Wild Worth – Household net worth rose $4.8 trillion in 23Q4, $11.6 trillion since 22Q4, and is now $156.2 trillion, slightly above its previous peak of $152.3 trillion set in 22Q1. While the top 20% of the population saw their wealth rise by $4.1 trillion, the bottom 50% saw a trivial $34 billion rise (source: Federal Reserve).
12. Older Opportunities – While Bill Gates, Steve Jobs, Jeff Bezos, and Jensen Huang were all under 31 when they founded firms, they are the exceptions. Between 2007 and 2014, the average age of persons who started companies was 41.9. 50-year-olds were twice as likely to succeed as 30-year-olds, and the lowest chances of success resided with founders in their early 20s (source: American Economic Review).
13. Sino Struggles – Annual residential square footage sold in China peaked in late 2020 at about 1.73 billion square feet. It’s since steadily declined and is now 961 million square feet, a 44% drop. Chinese new home sales are at their lowest level on record, new home prices fell 2% Y-o-Y in February, and existing home prices fell 6.3%, their worst decline ever (source: Arcano Economics).
14. Crazy Coasters – The Fun Finale: The first American roller coaster was a stretch of repurposed railroad track from a coal mine in Pennsylvania’s Lehigh Valley in 1873. The chuch-chuch sound comes from the 1910 invention of the safety ratchet that prevents coasters from rolling backwards. Coney Island’s wooden Cyclone debuted in 1927, while Disney’s Matterhorn pioneered steel coasters in 1959, and Knott’s Berry Farm was the first to turn riders upside down in 1975 (source: WSJ).
Thank you for reading…
Stay tuned for the next edition of AiN Executive Insights!