AiN Executive Insights – May 2024

May 17, 2024 | Uncategorized

Welcome to the latest edition of AiN Executive Insights! I’m Diana Rotondo, Executive Vice President of AiN Group, and I’m excited to guide you through this month’s update packed with essential economic insights. We’ll start with the latest on inflation, which has shown slight improvement, followed by the surprising resurgence of meme stocks. We’ll also delve into the complexities of the U.S. budget deficit and the impact of rising mortgage rates on home sales.

Our journey continues with an examination of rent deflation, the surge in build-for-rent homes, and the ongoing decline in used car prices. We’ll also highlight Amazon’s impressive growth as it closes in on Walmart, the recovery of labor force participation rates, and the rising costs of college housing. Additionally, we’ll analyze China’s economic growth slowdown and the critical role of immigration in maintaining U.S. population growth.

Finally, we’ll share some lighter yet intriguing insights, such as the most popular baby names and the vegetables with the highest protein content. These topics provide a comprehensive overview of the economic conditions shaping our present and future. Join us as we unpack these pivotal developments and navigate through the intricacies of our economy together.

Inflation Eases Slightly in April

April brought some relief as inflation showed signs of easing. The Consumer Price Index (CPI) rose by 3.4% year-over-year, slightly down from March’s 3.5%. Core CPI, which excludes volatile food and energy prices, increased by 3.6%, marking its lowest rate since April 2021. However, both the CPI and core CPI experienced a monthly rise of 0.3%, a rate still too high to meet the Federal Reserve’s 2% annual inflation target. This data suggests that while a rate cut by the Fed isn’t imminent, it remains a possibility for later this year (source: FFF Research).

Meme Stocks Surge Again

In a surprising turn of events, meme stocks like GameStop, AMC, Blackberry, and Beyond Meat have once again captured headlines with their rapid price increases. Between May 1 and May 15, 2024, GameStop’s stock skyrocketed by an astounding 175%. This dramatic rise is likely due to a short squeeze, as fundamental changes in the market for these stocks rarely happen this quickly (source: WSJ).

Political Stalemate on Deficit Reduction

The U.S. budget deficit continues to grow, driven in part by a bipartisan agreement to avoid changes to Social Security and Medicare. Both Republicans and Democrats have committed to maintaining these programs while also resisting significant tax increases, except for those earning over $400,000 annually. This political compromise has locked in a large portion of the budget, limiting opportunities for meaningful fiscal reform (source: Douglas Elmendorf).

Mortgage Rates Impact Home Sales

Research indicates that for every percentage point increase in mortgage rates above current homeowner rates, the probability of a home sale drops by 18.1%. This trend led to a reduction of 1.33 million home sales between the second quarter of 2022 and the fourth quarter of 2023. The resulting decrease in housing supply pushed home prices up by 5.7%, overshadowing the 3.3% price reduction caused by higher rates (source: FHFA).

Rent Deflation Slows

While inflation is slowing, housing costs, which account for a third of the CPI, are declining at a slower pace. This is partly due to a significant increase in the number of renters during the COVID-19 pandemic. With housing affordability at its lowest level in decades, more renters are renewing their leases, reducing the rate of rent deflation (source: Rosenberg Research).

Build-for-Rent Homes on the Rise

The construction of build-for-rent (BFR) homes has surged. From 2000-2007, an average of 40,000 new single-family homes were built annually for rent. This number declined to 30,000 per year from 2009-2016 but began to rise again, reaching 93,000 in 2023. Projections for 2024 estimate 99,000 new BFR starts. While BFR homes provide a short-term solution to housing shortages, they may exacerbate long-term affordability issues (source: John Burns Research and FFF Research).

Used Car Prices Decline

Wholesale used car prices in April 2024 dropped by 14% year-over-year. Since peaking in December 2021, these prices have steadily decreased but still remain 28% higher than pre-COVID levels. For comparison, the overall CPI has risen by nearly 21% since the pandemic began (source: Manheim).

Amazon Closes in on Walmart

Amazon’s growth continues to outpace Walmart’s. In 2013, Walmart’s annual sales were $476 billion, over six times Amazon’s $75 billion. A decade later, Walmart’s sales reached $648 billion, while Amazon’s surged to $575 billion. Last year, Amazon’s sales increased by $61 billion (12%), compared to Walmart’s $37 billion (6%). By early 2026, Amazon is projected to surpass Walmart as the world’s largest company by revenue, with sales exceeding $700 billion (source: WSJ).

Labor Force Participation Rates Recover

The U.S. labor force participation rate for native-born individuals has nearly recovered to its pre-COVID level of around 62.5%, after falling to 59.6% in April 2020. The participation rate for foreign-born individuals, which was about 66% before the pandemic, also dropped but has fully recovered (source: BLS).

Rising College Housing Costs

The median rent for off-campus student apartments hit $801 per month last year at 70 large public universities, slightly above the $800 monthly average for on-campus dorm rooms. In 2019, these rents were $685 and $743, respectively. Between 2019 and 2023, universities added 8,000 beds while investors contributed 44,600. Investors are particularly attracted to student housing due to the steady rent increases and the availability of student loans to cover these costs (source: WSJ).

China’s Economic Growth Slows

China’s economy, once growing rapidly, has seen its rate of growth slow. In 1992, China’s GDP was less than 10% of the U.S. GDP. By 2008, it reached 30%, and by 2012, 50%. The ratio peaked at 70% in 2021 but has since declined to 64% in 2023 (source: Arbor Research).

Immigration’s Role in Population Growth

In 2023, U.S. births totaled 3.59 million, the lowest number since 1979. The fertility rate was 1.62, well below the replacement rate of 2.1, which would have resulted in 4.65 million births. To make up for this shortfall, increased immigration is essential if birth rates do not rise (source: FFF Research).

Popular Baby Names

For the fifth consecutive year, the most popular baby names in the U.S. were Olivia for girls and Liam for boys. Liam has held the top spot for seven years, having unseated Noah, while Olivia took over from Emma, who was the top name for five years (source: SSA).

High-Protein Vegetables

Ending on a fun note, lima beans are the vegetable with the highest protein content, with one cup providing 11.6 grams of protein, or 23% of the daily recommended amount. Following lima beans are soybean sprouts (9.2 grams), green peas (8.6 grams), spinach (5.3 grams), and sweet corn (4.7 grams) (source: Buzzfeed).