Pricey Popcorn

The Friday File: During 1H23, AMC Theaters grossed $2.3 billion. Ticket sales generated $1.3 billion, other categories including advertising, auditorium rental, arcade games, etc. generated $200 million, and food and beverage spawned $817 million. Amazingly, food and beverage costs were $153 million, that’s a gross profit margin of 82% and a 434% markup. By contrast, film exhibition costs were $629 million generating a mere 52% margin, and a 106% markup.

Population Perspective

Since 2020, the employed foreign-born population of the U.S. has increased by 9.9%. It took until 21Q4 for this population to return to where it was pre-Covid. As for the native-born population, it is now 0.7% higher than it was pre-Covid, and it took until 22Q3 before it fully returned to its pre-Covid level. Immigration is critical to labor force growth.

Harmful Headwinds

Student loans began accruing interest on 9/1/23 and loan payments are due starting 10/1/23, clipping GDP by one-fifth of a point. Additionally, the odds of a 10/1/23 government closure are rising, and that would knock off an astounding one-fifth of point of GDP/week. Lastly, it’s increasingly likely that the UAW will simultaneously strike Ford, G.M., and Stellantis on 9/15/23 with an immediate GDP hit of $500 million/day. A collective calamity.

Weaker Work

August payrolls grew by 187,000, and June and July were revised sharply down and now show growth of 105,000 and 157,000, respectively, the first three-month sub-200,000 stretch since mid-2019. The unemployment rate rose from 3.5% to 3.8%, and wage growth slid from 4.4%/year to a still too high 4.3%/year. So far OK, but these declines aren’t occurring in a vacuum and the impact of tighter monetary policy is just beginning.

Awesome Avocados

The Friday File: In 2000, avocado imports to the U.S. totaled 170 million pounds and avocado consumption was 2 pounds/person. By 2021, imports totaled 2.5 billion pounds, an increase of roughly 1,400%, as consumption rose to 8 pounds/person. With domestic avocado production and acreage steadily declining since 2011, 90% of avocados currently consumed in the U.S. come from Mexico and those imports are worth $3.1 billion/year.

Bond Bump

The speculation that increased issuance of Treasuries explains the recent increase in bond yields is unfounded, because since 1980 the correlation between changes in debt supply and Treasury yields is zero. The rise is more likely due to rising yields in Japan, tougher talk from the Fed, and increasing “no recession” sentiment.

Open Opportunities

On 7/31/23 there were a seasonally adjusted 8.8 million job openings, down from 9.2 million on 6/30/23, revised down from an initial 9.6 million suggesting rapid cooling, and 11.4 million Y-o-Y. This is the lowest level since 3/21, but still strong. Pre-Covid the number never exceeded 8 million. Quite rates also continued declining from a 3% 4/22 peak to 2.3%. If these declines soon stop, this qualifies as good news.

Downer Data

Including the Fed rate hiking cycle of 1968, there have been seven rate hiking cycles through 2008/09 that ended in a recession. Over the course of those cycles, it’s taken on average 22 months from the first hike to the start of the recession. The fastest recession onset was 12 months while the longest lag before the recession was 31 months. There were two cycles that didn’t end in recession.

Continuing Claims

While job growth remains strong, the labor market is softening; as evidence, continuing claims for unemployment are steadily rising. At the beginning of the year, they were 300,000 below the weekly average of the years 2018, 2019, and 2022. They then steadily weakened such that by the end of 23Q1 they matched the three-year average above, and by the end of 23Q2 they were 200,000 above the average.

Spicy Sauces

The Friday File: the amount of capsaicin in Texas Pete is 750 Scoville units, Crystal is 800, and Tabasco Chipotle is 2,000. Huy Fong Sriracha comes in at 2,200, Tapatio is a warmer 3,000, Cholua is a bit hotter at 3,600, Tabasco is 3,750, and Marie Sharpe’s Fiery Hot Sauce is a refreshing 6,775. The world’s hottest pepper is the Carolina Reaper at 2 million SU.

70 Words on the Economy. Daily.