Dallas After Midnight! Dallas Fed Manufacturing Contracts, Every Month Since May 2022 (Stagflation Warning!!!)

Dallas … and the US economy … after midnight.

The Dallas Fed Manufacturing Outlook survey has now been in contraction (below zero) every month since May 2022, falling modestly to -14.5 in April (worse than the -11.2 expected).

New Orders also remain negative (but did improve) and prices continue to rise (though at a slower pace). Labor market measures suggested flat employment and slightly shorter workweeks (hours worked index remained negative for a seventh month in a row) this month.

However, wit that said, wage pressure picked up dramatically this week to a seven-month high…

Source: Bloomberg

However, as always, we glean the most informative perspective from the respondents completed surveys where the pessimism shines through…

The business and political environment is terrible.
Business has not been this slow since COVID, and I’m worried.
Consumer confidence for consumer goods has noticeably worsened.
Customer orders have dropped. The indication is the economy is hurting spending in our area specifically. Customer uncertainty is worsening.
I keep thinking we’ll hit bottom and either level out or turn up, but we keep pushing those hopes out a month, and another month, and another.
There has been a decrease in new orders for three weeks now. Currently, we think this will come around, but we get more concerned as time goes on.
Industrial manufacturing is showing signs of positivity due to the possibility of an interest rate decrease. Please do it. Manufacturing is really hurting.

High prices remain problem for many businesses:

Inflationary pressures on raw materials and construction costs are driving up the cost of public projects. This is causing states to delay or scramble for funding for projects that have long lead times.
Business is generally good, but we’re starting to see more customer resistance to prices. Our costs have increased dramatically over the last two years, and we have customers asking to hold prices to last year’s level, which we just can’t do. We continue to make capital investments to improve productivity and reduce unit labor cost.

And finally, many are fearful of another four years of Bidenomics:

Political instability and politicization have hampered growth. We are entering stagflation.
Fewer governmental regulations would lower our cost of doing business. An example is the 332 report, which we must fill out for the U.S. government; it has no value for us, just expense.
Business is extremely slow, and we see no signs of improvement. We think it will stay slow until after the presidential election, after which, we will either have four more years of slow business or an improving economy.

US Treasury Bond Issue Set To Increase To $1.9 Trillion In 2024 As Personal Saving Rate Crashes To Near Low Since 2010 (Goverment Displacing Households)

Joe Biden could barely eat his dinner at the White House Correspondents’ Dinner. And we think he is calling the shots in The White House?? Oh well. Perhaps it is Treasury Secretary Janet Yellen or Klaus Schwab of the World Economic Forum.

In any case, Treasury bond issuance in 2024 is expected to hit $1.9 TRILLION. Surpassing levels seen even during the 2008 financial crisis.

And with inflation, the US personal saving rate is near the lowest level since Obama (2010).

And with the core inflation rate still higher than anytime since 2010, households are paying more for … everything depleting their savings.

With Biden and Congress spending like drunken sailors on shore leave, and no end in sight, this will eventually explode. Ukraine, foreign aid, no border security, virtually no money for Maui fire, E. Palestine Ohio is still a wreck, etc. They always have money for someone else. And if Trump is elected in November, watch CNN and MSNBC and Biden/Congress blame Trump.

Commodities are a way to protect yourself against the government and their insane spending and debt.

My point? Gold keeps rising!

The leading foreign holder of US debt is Japan, which is following the insane path as the US and resembles a banana republic.

Former Fed chair under Obama and current Treasury Secretary Janet Yellen under Biden is Doctor Wonderful. NOT!!

I don’t know what Biden thinks is so funny. Maybe it is because House “Majority” Leader Mike Johnson (RINO-LA) gave Biden and Schumer everything they wanted (Ukraine, Israel funding but nada for security our borders). Life is good when you are stupid and mean-spiritied like Joe Biden!

Biden is so vain: capped teeth, hair plugs, constant tan, face lifts, etc.

Bidenomics Warning! Fed’s Favorite Inflation Indicator Prints Hotter-Than-Expected As Savings Rate Plunges (Govt Wages Rose To 8.5% YoY, Private Sector Wages Up 5.5% YoY)

Today’s economic news highlights “Government Power.” Unproductive government jobs saw wages rise 8.5% YoY while productive private sector jobs saw wages rise by only 5.5% YoY. This is Bidenomics!!!

With inflation data surprising to the upside recently…

Source: Bloomberg

…the doves’ last chance for sooner than later rate-cuts is today’s Core PCE Deflator – often described as The Fed’s favorite inflation signal. Last month saw an uptick in the headline deflator and following yesterday’s core PCE rise for Q1, all eyes are on the March data released this morning.

However, both the headline and core PCE Deflator data printed hotter than expected (+2.7% vs +2.6% exp vs +2.5% prior and +2.8% vs +2.7% exp vs +2.8% prior respectively)…

Source: Bloomberg

The silver lining is that this hot PCE print is ‘dovish’ relative to the GDP-based data we saw yesterday, with whisper numbers of +0.4 to +0.5% MoM (vs the +0.3% print).

But still – it’s not good for the doves.

As WSJ Fed Whisperer Nick Timiraos notes, the 3-Month annualized core PCE jumped to 4.4%…

The Service sector led the MoM and YoY acceleration in headline PCE…

Source: Bloomberg

And for Core PCE, it was Services prices too that drove the acceleration…

Source: Bloomberg

The so-called SuperCore – Services inflation ex-Shelter – rose once again, and was revised higher…

Source: Bloomberg

Stripping it back even further, Transportation Services and ‘Other Services’ were the biggest gainers in SuperCore…

Source: Bloomberg

Income and Spending both rose again on a MoM basis with spending outpacing income (again). The 0.8% MoM rise in spending was the highest since Jan 2023…

Source: Bloomberg

Spending is accelerating fast relative to incomes (on a YoY basis) – and remember this is all nominal…

Source: Bloomberg

On the income side, government and private wage growth accelerated:

Govt wages rose to 8.5% YoY, from 8.3%, the highest Dec 22
Private wages rose to 5.5% YoY, from 5.4%, highest since Dec 22 as well

Source: Bloomberg

Which meant the personal savings rate plunged to 3.2% from 3.6% – its lowest since Nov 2022…

And the soaring credit card balance explains how people are getting by…

Source: Bloomberg

And all this amid the fourth straight month of government handouts…

Source: Bloomberg

Finally, while the markets are exuberant at the survey-based disinflation, we do note that it’s not all sunshine and unicorns. The vast majority of the reduction in inflation has been ‘cyclical’…

Source: Bloomberg

Acyclical Core PCE inflation remains extremely high, although it has fallen from its highs.

Is The (apolitical) Fed going to be able to cut at all this year like Joe Biden said they would?

The Green Slime! Ford Lost $132,000 On Every Electric Vehicle Sold In Q1 (Hertz Ups Sales Of EVs To 30,000 As China Dumps US Treasuries)

The Green Slime! The global movement towards Green Energy (or global Marxist movement) is really The Green Slime! Or maybe it should be renamed “The Red Slime.”

Ford lost $132,000 on every electric vehicles they sold in Q1. It was so bad that even CNN reported it!

And then we have Hertz dumping its inventory of EVs. A slew of used Teslas have hit the Hertz car sales website after the company announced Thursday it planned to sell off 10,000 more electric vehicles from its fleet than originally planned, bringing the fire sale’s total to 30,000. Perhaps one of the reasons you can get such a good deal on a Tesla at Hertz right now is that the outlook for EV value retention is pretty grim at the moment.

Given the incidents of electric cars catching fire, perhaps saying its a fire sales is a bad choice of words. But what it says is that DESPITE massive incentives to buy EVs, consumer demand stinks. Although Transportation Secretary Pete Buttigieg will claim the market is booming.

How bad is the trainwreck that is the Biden Regime? China is bailing on US Treasuries.

Then we have the harpies on The View claiming that the solar ecilpse is caused by … global warming. Also earthquakes. Sunny Hostin must have taken different courses that I did in college.

The Biden Regime is hereafter known as The Green Slime, given their horrible policies. Unfortunately, The Green Slime is here already … and Hertz knows customers don’t want them at least on a temporary basis.

Traders Now Pricing In One Rate Cut This Year, But Not Until The End Of 2024, After The Election (Home Prices UP 32.5% Under Biden, Mortgage Rates UP 160%)

The Federal Reserve is playing the song “Don’t rock the boat” ahead of the Presidential election. Despite the horrible economic news.

1) 4 months of hotter inflation (like today’s stagflationary GDP report)

2) Nearly 1.5 million full-time jobs decline with 1.9 part-time jobs created over a year

3) $2 trillion annual deficits

Leading traders to price in 1 rate cut in December 2024. AFTER THE PRESIDENTIAL ELECTION!

Under Biden, home prices are up 32.5% and conforming 30Y mortgage rates are UP 160%.

One of my colleagues at George Mason University in finance (an economics PhD) constantly quoted Lenin’s famous “You have to break a few eggs to make an omelet.” But why is it always OUR eggs that have to be cracked, never the wealthy elite.

Stagflation Alert? Bidenomics Is REALLY COVID-Related Spending (Q1 Real GDP Was 2.97% YoY, 1.6% QoQ While The Federal Government Spending Was 4.21% YoY, Core PCE Price Index Rose 3.7%!)

COVID was a gift to Biden. The furious Federal spending of Q2 2020 through Q1 2021 helped keep GDP growth above recession levels.

Ignore Biden’s demented rants/lies about cutting the debt in half. Biden has claimed he cut the $34+ trillion national debt by $7 billion, $1.4 trillion, $1.7 billion, $1.7 trillion, and “in half,” depending on the day he rants. He did no such thing. He is confused and is talking about the BUDGET DEFICIT (don’t look to Snopes to fact check “Trucker Joe”, they really only fact check Trump).

Not surprisingly, the Federal deficit spiked with the Covid lockdowns. But when the economy reopened, the budget deficit shrunk because … the economy was open and Federal tax receipts soared. But we are back to rising deficits again.

Today, Q1 GDP numbers were released and it looks great. Real GDP year-over-year was 2.97% while Federal government expenditures YoY were 4.21%. But the US is still processing the tidal wave of COVID-related spending out of Washington DC (red line). The YoY growth in Federal spending was 86.4% in Q2 2020, 48.9% in Q3 2020, 22.4% in Q4 2020, and 67.8% in Q1 2021. Like The Titanic trying to avoid the iceberg, it takes a while for massive Federal spending to work itself through the economic system.

On a QoQ basis, US GDP increased by only 1.60%. Here are the contributions to GDP.

GDP QoQ was up 1.6% while Core PCE Price Index rose 3.7%. Yikes!

Are we entering Stagflation with the worst GDP print in 2 years as prices soar. As COVID stimulus seems to be wearing out.

The election campaign for Biden should be Lloyd Price’s “Stagger Lee.” Redone as “Stagflation Joe.”

Durables Goods New Orders Actually Declined -2.2% YoY, Biggest YoY Drop Since COVID Lockdowns (Biden Considering Declaring A National Climate Emergency)

Manufacturer’s Durable Goods New Orders growth peaked in April 2021, thanks in part to M2 Money Growth peaking in February 2021. And its been all downhill since then.

Preliminary March data showed a slightly better than expected 2.6% MoM rise (2.5% exp) in the headline orders print. However, thanks to the downward revisions, Durable goods orders are now down 2.2% YoY… the biggest YoY drop since the COVID lockdowns…

Source: Bloomberg

This is the 8th downward revision of durable goods orders in the last year…

Source: Bloomberg

Under the hood, defense and non-defense capital goods orders rose with non-defense aircraft orders surging over 30% MoM…

Source: Bloomberg

But… it looks like the AI bubble just burst as Computer & related Products orders plunged 3.9% MoM – the biggest drop since COVID lockdowns…

Source: Bloomberg

Finally, and more problematically, core capital goods shipments – a figure that is used to help calculate equipment investment in the government’s gross domestic product report – saw only a small 0.2% MoM rise, which left core shipments down 1.2% YoY – the biggest YoY drop since the COVID lockdowns…

Source: Bloomberg

Now that Biden is considering a NATIONAL CLIMATE EMERGENCY granting him 130 War-like powers, I shudder to think for much green spending he will initiate.

Biden: “How many times does Trump have to prove we can’t be trusted?”

Mortgage Demand Remains Down 15% Compared To Same Week Last Year (Mortgage Rates At 7.24%)

Mortgage applications decreased 2.7 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending April 19, 2024.

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.7 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index decreased 2 percent compared with the previous week. The seasonally adjusted Purchase Index decreased 1 percent from one week earlier. The unadjusted Purchase Index increased 0.2 percent compared with the previous week and was 15 percent lower than the same week one year ago.

The Refinance Index decreased 6 percent from the previous week and was 3 percent higher than the same week one year ago.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) increased to 7.24 percent from 7.13 percent, with points increasing to 0.66 from 0.65 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.

Commercial Real Estate Foreclosures Soar To Levels Not Seen Since 2015 (Office Vacancy Rate Hit 13.1%)

I said over and over again, Bidenomics will be a drag.

Larger cracks are appearing in the US commercial real estate market at a time when uncertainty around the regional bank industry flashes red.

The latest report from real estate data provider ATTOM shows CRE foreclosures topped 625 in March, up 6% from February and 117% from the same period last year.

ATTOM has been tracking commercial foreclosures since 2014. The number of foreclosures is approaching the peak of 889 in October 2014.

“California began experiencing a notable rise in commercial foreclosures in November 2023, surpassing 100 cases and continuing to escalate thereafter,” the report said.

New York, Florida, Texas, and New Jersey also showed increases in CRE foreclosures last month.

Regional banks provide a bulk of the financing for the space. The ongoing mess in the lending space due to tighter conditions adds pressure to the CRE downturn. Banks are expected to set aside more money to cover potential CRE losses.

Last month, Federal Reserve Chair Jerome Powell testified on Capitol Hill, “We have identified the banks that have high commercial real estate concentrations, particularly office and retail and other ones that have been affected a lot,” adding, “This is a problem that we’ll be working on for years more, I’m sure. There will be bank failures, but not the big banks.”

Data from a recent Treasury Department’s Financial Stability Oversight Council (FSOC) warned office vacancy rates have climbed sharply in recent years, reaching a record of 13.1% at the end of 2023.

CoStar analyst Phil Mobley recently noted the “reset in office demand has rocked US markets.”

Morgan Stanley warned earlier this year that office prices could plunge 30% due to sliding demand.

With sliding demand comes a massive amount of supply. Morgan Stanley pointed out that most of the oversupply is in offices and apartments.

For those wondering why the excess supply of office towers can’t be converted into affordable housing, Goldman also noted that prices must drop 50% for housing conversions to make sense.

Powell has a rolling crisis on his hands. And the goal is to save the fireworks for after the election.

Middle Class Can’t Afford Homes In Nearly Half Of Top 100 US Metros (Mortgage Rates UP 168% Under Biden, Home Prices UP 32.5%)

Fed Chairs Ben Bernanke and Janet Yellen started the home price fire that Powell is trying to extinguish but can’t. Throw in a 10% burst in illegal immigration and Biden/Mayorkas just added fuel to an already out-of-control fire.

Housing is becoming an exclusively upper-class privilege in a growing number of cities.

According to a new study by Creditnews Research, in 2024, middle-class households could afford to buy an average home in just 52 of the country’s 100 largest metros.

Just five years earlier, they could afford a home in 91 of the top 100 metros.

The situation is far worse for lower middle-class households, as they can only afford a home in seven of the largest 100 metros.

In total, 41 out of the 100 metros require a gross annual income of $100,000 or more to qualify for an average home. In 13 metros, an average income of more than $155,000 is needed.

In those cities, even the upper-middle class doesn’t qualify for an average home.

The study determined affordability by looking at how much income households need to earn to afford a down payment, mortgage payment, and related fees for an average home.

A home is considered affordable if monthly housing and mortgage costs don’t exceed 28% of a household’s gross income.

“There’s no two ways about it: Housing affordability has worsened significantly since Covid,” the report said. Since the pandemic, 39 of the most populous metros have fallen below the affordability threshold.

As expected, the most affordable areas for the middle class are located in the Midwest, Rust Belt, and parts of Texas, while the West Coast, Tri-State Area, and Hawaii are largely out of reach.

Affording a home is no longer a guarantee for the middle class

Being considered “middle class” doesn’t carry the same significance as it did just a few years ago.

“In the past, if you were middle class, it was almost assumed you would become a homeowner,” said Ali Wolf, chief economist of Zonda, a housing market research firm.

“Today, the aspiration is still there, but it is a lot more difficult. You have to be wealthy or lucky.”

That’s all thanks to a “perfect storm” of elevated mortgage rates, sky-high home prices, and a lack of inventory, making housing more unaffordable.

The result is that middle-income buyers, or those with an annual income of up to $75,000, could only afford about one-quarter of listings on the market last year.

According to Nadia Evangelou, the director of real estate research at the National Association of Realtors, “Middle-income buyers face the largest shortage of homes among all income groups, making it even harder for them to build wealth through homeownership.”

Mortgage rates (blue line) creep closer to 7%. Mortgage rates are UP 168% under Vacation Joe and home prices are up 32.5%.

After falling between November and January, mortgage rates are creeping back up.

According to Freddie Mac, 30-year fixed-rate mortgages reached 6.88% in the week of April 11 and at some point climbed well above 7%.

The reversal seems to be driven by a surprise spike in inflation, which has come out higher than expected for four consecutive months

“For homebuyers, the latest CPI report means mortgage rates will stay higher for longer because it makes the Fed unlikely to cut interest rates in the next few months,” said Chen Zaho, Redfin’s economic research lead.

“Housing costs are likely to continue going up for the near future, but persistently high mortgage rates and rising supply could cool home-price growth by the end of the year, taking some pressure off costs.”