Like a bad “good news, bad news” joke,. June employment numbers are out from the Feral governement. The good news? Jobs added increased by 206k, more than expected.
The bad news? The unemployment rate hit 4.1%, the highest in 3 years.
Meanwhile, 1/3rd of jobs created were NON-PRODUCTIVE government jobs.
Since June 2023, the US has added 1.8 million part-time jobs and lost 1.6 million full time jobs.
While nominal wage growth grew, REAL wage growth rose a measly 0.8% YoY.
The share of total new worth held by the top 1% is 30.4% while the total net worth held by the bottom 50% is a measly 2.5%.
So much for politicians’ promises to make everyone equal in wealth! Oddly, they keep getting wealthier and the bottom 50% keep losing ground.
Housing in the US is simply unaffordable. Particularly since home prices and mortgage rates have soared undier Biden.
.Owning a house is less affordable for average earners in the US than at anytime in 17 years.
The costs of a typical home — including mortgage payments, property insurance and taxes — consumed 35.1% of the average wage in the second quarter, the highest share since 2007 and up from 32.1% a year earlier, according to a new report from Attom.
Growth in expenses, along with mortgage rates hovering around 7%, have outpaced income gains as a persistent shortage of listings pushed the median home price to a record-high $360,000, Attom said. In more than a third of US markets, ownership costs ate up 43% of average local wages, far above the 28% considered to be a guideline for affordability.
The latest data “presents a clear challenge for homebuyers,” Rob Barber, chief executive officer of Attom, said in a statement. “It’s common for these trends to intensify during the spring buying season when buyer demand increases. However, the trends this year are particularly challenging for house hunters.”
Pricey markets in the West and Northeast had the biggest declines in affordability, including Orange and Alameda counties in California, and Brooklyn and Nassau County in New York.
Among the 589 counties analyzed, 582, or 98.8%, were less affordable in the second quarter than their historic affordability averages, Attom said.
On the mortgage side, mortgage applications decreased 2.6 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending June 28, 2024.
The Market Composite Index, a measure of mortgage loan application volume, decreased 2.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 8 percent compared with the previous week. The Refinance Index decreased 2 percent from the previous week andwas 29 percent higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 3 percent from one week earlier. The unadjusted Purchase Index increased 7 percent compared with the previous week and was 12 percent lower than the same week one year ago.
S&P Global US Manufacturing PMI rose from 51.3 in May to 51.6 for the final June print (down very modestly from the 51.7 flash print).
ISM US Manufacturing PMI dropped from 48.7 to 48.5 in June (well below the 49.1 expected)
Source: Bloomberg
Need more confusion…
S&P Global noted that higher supplier charges were signaled in June. Alongside rising labor costs, this resulted in a further marked increase in input prices. But, ISM saw Prices Paid plunge from 57.0 to 52.1, well below the 55.8 expected…
Source: Bloomberg
New orders rebounded in June but employment dropped back into contraction. On the bright side, Orders/Inventories (typically a leading indicator), ticked up in June…
“The S&P Global PMI survey shows US manufacturers struggling to achieve strong production growth in June, hamstrung by weak demand from domestic and export markets alike. Although the PMI has now been in positive territory in five of the first six months of 2024, up from just one positive month in 2023, growth momentum remains frustratingly weak.
“Factories have been hit over the past two years by demand switching post-pandemic from goods to services, while at the same time household and business spending power has been diminished by higher prices and concerns over higher-for-longer interest rates. These headwinds persisted into June, accompanied by heightened uncertainty about the economic outlook as the presidential election draws closer.“
Finally, despite the uptick, Williamson admits the truth under the surface of the survey:
“Business confidence has consequently fallen to the lowest for 19 months, suggesting the manufacturing sector is bracing itself for further tough times in the coming months.”
However, we are sure business owners everywhere were reassured by the commander-in-chief’s commanding performance in the debate last week. /sarc
Gimme two steps to sell my house. Are people getting out of dodge?? Calfornia Gpvernor “Greasy Gavin” Newsom sold his Sacramento home and moved to Marin County for better schools. Sacrramento active housing inventory is up 65.6% YoY.
Active housing inventory in May is up 27.5% YoY nationally, with Denver leading at 75.2% YoY. I highlight Columbus Ohio at +32.9% since that is where I live.
A new report from Construction Coverage has revealed where the largest increases in real estate inventory in the U.S. are taking place.
The report notes that the current housing shortage—which is now estimated to be between four million and seven million homes—can trace its beginnings to long before the COVID-19 pandemic. In the 10 years following the Great Recession, the United States constructed fewer new homes than in any other decade since the 1960s.
They write that the lack of housing affects certain areas more severely than others. Researchers ranked locations based on the percentage change in the average monthly housing inventory—the total number of active listings plus pending sales at the end of the month—between Q1 2023 and Q1 2024.
Data from a national level showed that U.S. housing inventory decreased from more than two million in 2012 to a low of approximately 630,000 at the start of 2022.
Over the same period, months’ supply—a measure of how long it would take existing inventory to sell if no new homes came on the market—plummeted from a national high of 7.5 months to a historic low of 1.1 months, the report adds.
It also noted that inventory has rebounded slightly since early 2022: throughout the first quarter of 2024, the national inventory hovered around 970,000 homes for sale, marking a 4.0% year-over-year increase.
Despite this uptick, existing inventory would sustain the current sales pace for just 2.9 months—a marginal increase from the 2.8 months’ supply recorded last year.
The report broke down trends by cities and states, finding that as of the first quarter of 2024, states with the lowest levels of supply are concentrated in and around the Midwest (such as Kansas with 1.5 months of supply) and the Northeast (including Rhode Island with 1.8 months of supply).
However, Washington also stands out for having some of the lowest levels of available housing nationally, with just 1.9 months of supply.
In contrast, several states in the South, led by Florida (5.2 months of supply), along with Hawaii (5.2 months) and Montana (5.1 months), present notably more favorable conditions for buyers.
Among the nation’s largest cities, Denver, El Paso, and Dallas recorded the largest year-over-year increases in housing inventory. At the opposite end of the spectrum, Las Vegas, Raleigh, and Chicago recorded the biggest declines.
The data is hardly a 2008-style collapse, but that doesn’t mean it isn’t noteworthy.
While the ‘turning of the tide’ still remains muted, the housing market is so large it rarely corrects swiftly. It’s important to notice, however, that rising inventory ticking higher – combined with mortgage rates now over 7% – could easily be telegraphing a correction in prices heading into 2025.
A number of pominent cheerleaders (economists) have come out before CNN debate to claim that another Trump Presidency will generate even worse inflation than it has under Biden. Really? Before Covid struck in 2020, the last CPI YoY reading for Trump was only 2.34%. It rose to 9% YoY under Biden in June 2022. How did this happen? Federal binge spending and reckless Federal Reserve monetary policy.
The Nobel Prize -winning “economists” seem to have forgotten the unprecented money printing and interest rate suppression when Covid srtuck in 2020.
Of course, inflation soared after the massive Covid stimulus in 2020. It kept rising until The Fed started raising their target rate in 2022. But The Fed’s balance sheet remains elevated (green line).
In terms of M2 Money printing of Federal Reserve currency, M2 Money expanded greatly with Covid and continued to grow until 2022. Then M2 Money growth slowed as The Fed raised rates in 2022. Inflation started to decline (but price levels remained high) after The Fed raised rates and M2 Money growth stalled.
From Zero Hedge: With a Trump presidency looking virtually assured after Biden’s cataclysmic debate fiasco, the “expert” fear-brigade that defined Trump’s first term in office is out in full force, and last week 16 Nobel Prize-winning economists (not to be confused with 51 former spies) – who have previously been silent as a group over the brazen bull of inflation cooking Americans alive under President Biden, have teamed up for a pre-election collab to let us know that former President Trump ‘could stoke inflation if he wins.’
And while it is obvious that this latest attempt by the “expert class” to influence voters is nothing but more pro-Biden propaganda, the question of inflation’s fate under a Trump administration is certainly pertinent, especially now that the Fed’s new inflation target is effectively 3%. We ourselves took a look at this last week in “What Will Happen To Inflation Under A Trump Presidency“, and observed that it does make intuitive sense that if tariffs ramp up – as Trump has promised they will in bilateral China trade – then some inflationary impulse is almost certain to follow. This is how Rabobank’s strategist Philip Marey put it:
Biden’s recent decision to keep the Trump tariffs on China and add “strategic” tariffs are clearly part of the election campaign where Biden and Trump are outbidding each other to show that they want to bring jobs back to America. Although a Biden baseline would show lower inflation than a Trump baseline, and more Fed rate cuts, it is important to stress that both presidents will continue to follow a protectionist course, which means that inflation in both scenarios is higher than under a hypothetical free trade president. The same is true for Fed policy rates. When it comes to trade policy, both Republicans and Democrats have become protectionist, especially regarding China. This will lead to higher inflation and could slow down economic growth, especially if other countries retaliate against the US.
Again, there is nothing controversial about this view: it is the definition of conventional wisdom. But what is conventional wisdom is once again dead wrongas it has been for much of the past 15 years?
That is the hypothesis of none other than one of the most outspoken and contrarian Wall Street strategists, BofA’s Michael Hartnett, who in his latest Flow Show writes that far from inflationary, any new trade war launched by Trump will be a substantially deflationary event.
As Hartnett reminds us, the US-China trade war in 2018-2019 saw the largest rise in % of US duties collected since 1930 Smoot-Hawley.
And while Trump tariffs were maintained and even extended by Biden – something the 16 Nobel prize winners failed to mention – Hartnett warns that new tariffs in the next 12 months would be deflationary not inflationary, and here’s why: the Q1 2018 trade war backdrop was strong macro (ISM @ 60) and low rates (Fed funds @ 1.25%)… but the backdrop now for the next big rise in tariffs under Trump in the first half of 2025 is ISM <50 and Fed funds @ 5.5%, and most importantly, the global economy now is much weaker than in 2018.
As a result, unlike 7 years ago, it will take far less to push the world into a deflationary recession, one where China will not be able to push the global economy higher, and Trump’s new tariffs will be just the straw that breaks inflation’s back. Of course, it will also trigger a brutal global recession but at this point an economic slowdown may be welcome by an American population that is sick of seeing grocery prices rose by double digits every few months.
Incidentally, not much else will change, because the reality is that for much of the past decade the uniparty has been in control, and no matter how you slice it, both Biden and Trump (even before covid) are responsible for the 2 largest deficits of the past 80 years…
… yet inflation is now the #1 issue for electorate – which means “drunken sailor” spending by the government will mostly be frowned upon – and indeed US government spending is finally starting to ease off, down 2% on a rolling 12-month basis, with Hartnett showing in the next chart that fiscal excess wanes “bigly” in Year 1 of a new Presidential cycle:
Furthermore, while an election “sweep” scenario is bond negative, a presidential “split” with Congress is positive, and the latest probablities cited by Hartnett are: Trump/split Congress 40%, Biden/split Congress 25%, Trump sweep 25%, Biden sweep 10%.
Some more details from the Hartnett note:
US government is a $6-7tn beast, 3rd largest GDP in world and been growing >8% p.a. past few years;
While most expect US fiscal to remain stimulative post-election (e.g. CBO sees US deficit >5.5% GDP next 10 years), US government spending -2% on 12-month rolling basis;
1st year of new Presidential cycle typically sees big slowdown, and most important electoral bloc in 2024 (65mn Gen Z & Millennial votes set to outnumber 50mn Baby Boomers) says most important issue is inflation, followed by healthcare and housing
Hartnett’s Bottom line: inflation not a vote-winner in ’24…
…and so absent sweeps and big tax cuts, the BofA CIO cautions that “fiscal no longer cyclical negative for bonds.”
To summarize: if Hartnett is right on his two assumptions, namely i) the next trade war with China will be deflationary and ii) the result of the election will see a big drop in government spending and thus, inflation, the obvious trade would be to buy deeply discounted bonds, something which Hartnett has been pitching for the past few months.
But wait there’s more…. in fact, three reasons more why Hartnett is extremely bullish on bonds in his near and medium-term outlook.
The first has to do with his current view of the investing landscape and that investors are “long the rich sectors” (Magnificent 7) and “short the poor sectors (e.g. REITs/small cap/ARKK); and with cyclical “middle class sectors” (industrials, homebuilders, resources, Nikkei, DAX) rolling over, the MSCI ACWI equal-weighted index is now down 0.6% YTD…” that to Hartnett is all positive for bonds.
The second is that Asian currencies (Japan yen, China renminbi) are close to multi-decade lows; And in a world where a strong US dollar dominates (and makes Asian exports super-competitive), coupled with far less fiscal stimulus (after the election) and no rate cuts by the Fed, US manufacturing will suffer (note manufacturing states of PA, WI, MI will decide election). That to Hartnett is also positive for bonds, and negative the US dollar in H2.
The third and final reason has to do with housing, to wit: “long homebuilders” has been the “anti” hard-landing/recession trade past 9 months; well the XHB is down 10% from Mar’24 peak with housing starts at 4-year low + rising impact of rates on mortgage affordability (estimated that ~15% of the more than 50mn US mortgages have a rate at or above 6%…up from 13% in Q4’23)
Now for the beleagured residential mortgage market.
And since lower homebuilders when rates are dropping (or about to drop) signals labor market weakening, any payroll confirmation of a weak US labor market (i.e. payrolls below 125-150k) would send 30Y TSY yields tumbling below 4%. Investors’ reaction would be a weak US dollar, maintenance “long Nasdaq, short Russell” trade, as well as further downward pressure in coming weeks on “middle class” cyclicals. As to what could burst the current tech/AI/semi bubble, Hartnett writes that a “major rotation from mega-cap tech “rich sectors” to small-cap “poor sectors” awaits unambiguous “hard landing” evidence, and “fast & furious” Fed cuts, is what is needed for asset allocators to cut stocks to go long bonds.
During the first three months of 2023, U.S. office vacancy topped 20 percent for the first time in decades. In San Francisco, Dallas, and Houston, vacancy rates are as high as 25 percent. These figures understate the severity of the crisis because they only cover spaces that are no longer leased. Most office leases were signed before the pandemic and have yet to come up for renewal. Actual office use points to a further decrease in demand. Attendance in the 10 largest business districts is still below 50 percent of its pre-COVID level, as white-collar employees spend an estimated 28 percent of their workdays at home.
A new report from Moody’s offers yet another grim outlook that the commercial real estate downturn is nowhere near the bottom. Elevated interest rates and persistent remote and hybrid working trends could result in around 24% of all office towers standing vacant within the next two years. The office tower apocalypse will result in more depressed values that will only pressure landlords.
“Combining these insights, with our more than 40 years of historic office performance data, as well as future employment projections, our model indicates that the impact on office demand from work from home will be around 14% on average across a 63- month period, resulting in vacancy rates that peak in early 2026 at approximately 24% nationally,” Moody’s analysts Todd Metcalfe, Anthony Spinelli, and Thomas LaSalvia wrote in the report.
In a separate report, Tom LaSalvia, Moody’s head of CRE economics, wrote that the office vacancy rate’s move from 19.8% in the first quarter of this year to the expected 24% by 2026 could reduce revenue for office landlords by between $8 billion and $10 billion. Factor in lower rents and higher costs, this may translate into “property value destruction” in the range of a quarter-trillion dollars.
In addition to remote working trends, Moody’s analysts pointed out that the amount of office space per worker has been in a “general downward trend for decades.”
At the peak of the Dot-Com boom, office workers used an average of 190 sq ft. The figure has since slid to 155 sq ft in 2023.
“The argument for maintaining or even increasing remote work practices remains compelling for many businesses,” the analysts said, adding, “If productivity remains stable and costs can be reduced by forgoing physical office spaces, the rationale for mandating in-office attendance diminishes.”
Related research from the McKinsey Global Institute forecasts that office property values will plummet by $800 billion to $1.3 trillion by the decade’s end.
Moody’s expects vacancy rates to top out as office towers are demolished or converted to residential ones in the coming years.
“Right-sizing will continue over the next decade as the market shakes out less efficient space for flexible floorplans that support our relatively new working habits,” they said.
Earlier this year, Goldman analyst Jan Hatzius pointed out that a further 50% price decline would make office tower conversions financially sensible.
…which, many believe, will also drag down inflation (and it has been)…
Source: Bloomberg
Today, we get to see The Fed’s favorite inflation indicator – Core PCE – which rose 0.1% MoM in May (after a revised +0.3% MoM for April) and in line with expectations. The headline PCE Price Index was unchanged MoM as expected as Durable Goods deflation trumped surging Services costs…
Source: Bloomberg
On a YoY basis, both headline and core PCE declined…
Source: Bloomberg
On a YoY basis, Durable Goods deflation is at its strongest in at least a decade…
Source: Bloomberg
More notably, the so-called SuperCore PCE rose 0.1% MoM, which saw YoY slow to 3.39%… which is awkwardly stagnant at elevated levels…
Source: Bloomberg
That is the 49th straight monthly rise in SuperCore prices with Healthcare costs soaring…
Source: Bloomberg
On a MoM basis, Income grew more than expected (+0.5% vs +0.2% exp) while spending rose less than expected (+0.2% MoM vs +0.3% exp)
Source: Bloomberg
Which accelerated both income and spending on a YoY basis (with the latter outpacing the former, of course)…
Source: Bloomberg
With wage pressures rising once again…
Government 8.5%, up from 8.4% but below the record high of 8.9%
Private 4.5% up from 4.2%
Source: Bloomberg
And after a series of revisions, the savings rate ticked up to 3.9% of DPI (from 3.7%) – the highest since January…
Source: Bloomberg
All of which takes place against a background of the sixth straight month of rising government handouts (well it is an election year after all)…
Source: Bloomberg
Finally, while acyclical inflationary pressures continue to drift lower, cyclical inflationary pressures remain extremely elevated…
Source: Bloomberg
A very mixed bag but nothing screams ‘automatic’ rate-cuts… and SuperCore refuses to budge.
It seems everything Biden touches turns to stone. This used to be called “The Medusa Touch” but I changing that to “The Biden Touch.” And that includes housing. Or we can simply sing along with the late Jimmy Buffet and “Wasting aways again in Bidenville.”
And near 7% mortgage rates aren’t helping (as The Fed continues its fight against Bidenflation).
New home sales crashed 11.3% MoM (after April’s 4.7% drop was revised up to a 2.0% MoM rise). That is the biggest MoM drop since Sept 2022…
Source: Bloomberg
This is the biggest YoY drop since Feb 2023, taking the SAAR down to the same level as it was in 2016…
Source: Bloomberg
Median new home price fell 0.9% YoY to $417,400 – lowest since April 2023 – (with the average selling price at $520,000) with a big downward revision for April from $433k to $417k!…
Source: Bloomberg
For the first time since June 2021, median existing home prices are above median new home prices…
Source: Bloomberg
As BofA warned yesterday:
“The US housing market is stuck, and we are not convinced it will become unstuck anytime soon. After a surge in housing activity during the pandemic, it has since retreated and stabilized. We view the forces that have reduced affordability, created a lock-in effect for homeowners, and limited housing activity will remain in place through our forecast horizon “
At the same time, the supply of available homes increased to 481,000, still the highest since 2008.
Source: Bloomberg
New home sales are catching down to the reality of mortgage rates continuing to hold above 7%…
Source: Bloomberg
It seems homebuilders finally gave up filling that gap in anticipation of an imminent Fed rate-cut to save the world.
Will Biden double down on his failed policies tonight in the CNN Presidential debate? Perhaps Joe can sing “Double Shot of Bidenomics.”
The jointly signed letter, first reported by Axios, says the economic agenda of U.S. President Joe Biden, a Democrat, is “vastly superior” to Trump’s, the former Republican president seeking a second term.
Read the source article from Reuters for the rest of the Marxist clown show. What Joe Stiglitz and other Leftist economists are cheerleading in the excessive post Covid spending spree that Biden and Congress went on. There is a different between a free market system and government directed spending, usually on large donors.
One source of crippling inflation under Biden is (wasteful) government spending, up 37.7% under Biden. Federal debt is up a nauseating 50% under Biden. These levels of spending and debt are NOT sustainable!
Another souce of inflation under Biden has been The Federal Reserve. With Covid. The Fed entered like gangbusters dropping their target rate to 25 basis points and massively increasing their balance sheet. Call this BIDEN 1. Then to squelch inflation, The Fed raised their target rate and slowly started to unwind the balance sheet. We saw a slowing of inflation. Nothing to do with Biden, although I am sure he will take credit for it at Thursday’s debate with Trump.
Inflation was growing rapidly in Biden 1, but inflation started to slow (Biden 2) as The Fed rapidly raised their target rate.
But, below the hood of the last one we see some more interesting dynamics evolving as revenues and employment decline while prices re-accelerate…
Source: Bloomberg
This is the 25th straight month of contraction (sub-zero) for the Dallas Fed Services index and judging by the respondents’ comments, there is a clear place to point the finger of blame:
Poor national leadership and lack of confidence have eroded the business environment.
The Federal Reserve’s recent announcement of no rate cuts in the near future is concerning regarding the immediate and lag effect it could have on the local economy. We have received direct feedback from many of our clients in various industries, and they are increasingly concerned. They are freezing hires and spending, with many reducing spending. The primary reason is the economic stagnation locally and nationally affecting their businesses.
People are adjusting to new economic realities. Few are expecting salary increases and are instead making lifestyle adjustments to deal with higher living costs. Reality is also setting in for the apartment owners we serve. They understand rents aren’t going up and interest rates aren’t coming down. As rate caps expire and loans mature, lenders are having to adapt as well. Ultimately, a lot of private equity (much in the form of individual retirement savings put into syndications) is getting wiped out.
We need a rate cut before we will see any revenue improvement from home sales.
As elections draw near, the political environment worsens, creating more uncertainty in our business.
We feel inflation and fear of more inflation plus the rise in cost of living are holding consumers back. Hopefully we will adapt to the new realities soon.
Customers are concerned about the election, so they are holding off on large purchases.
The lack of building activity is shutting down the appliance industry.
Affordability has become an ever-increasing problem for new car dealers. The price increases of new cars combined with higher interest rates have put new cars out of reach for more and more people.
[Car] inventories continue to swell, and interest rates remain high. Our grosses are off, and margins continue to decline. Profits are down 20 percent from the prior year.
The economy is slowing. The consumer is more cautious and more reluctant to purchase at higher prices and payments.
And finally, this seemed to sum up just how business-owners feel in general about the current occupant of The White House:
“Our outlook depends heavily on the presidential election.
Confounded Interest - Anthony B. Sanders 
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