Data Divergence

For the first time in two years, CEO sentiment has turned positive. Moreover, it is up from levels always previously associated with recessions. Great news. Unfortunately, the percentage of firms in consumer-facing sectors mentioning weak demand is at the third highest level in 20 years, a level slightly below what it was at during the 2020 Covid recession and the 08/09 Housing Bust recession. Hopefully the CEOs are right.

Misguided Markets

Financial markets are worthless in predicting future events. To wit, in mid-January Wall Street was predicting that the Fed would cut the Fed funds rate by a total of 170bps in 2024, almost seven quarter-point cuts, even though the Fed was suggesting three. By 2/1/24, markets were predicting five quarter-point cuts, by early February four cuts, and now 3.5 cuts. This dramatic reversal shows how markets generally overreact.

Budget Blowout

Through the first four months of FY24 (October-January) the budget deficit reached $532 billion, up 16% or $73 billion compared to a deficit of $459 billion during the same period in FY2023. While seemingly expansionary, the increase was more than 100% driven by a rise in interest payments of 37% or $100 billion, to $357 billion. Despite the rise in the deficit the budget is so far mildly contractionary.

Borrowing Bonanza

In 23Q4, consumer debt rose $212 billion. Mortgage balances increased $112 billion, HELOCs rose $11 billion, credit card balances added $50 billion, auto loans were up $12 billion, and other balances such as retail cards and consumer loans increased $25 billion. In 23Q4, consumer spending was up $208 billion, meaning that over 100% of the rise in consumer spending was debt-financed, not a sign of healthy households.

Super Success

The Friday File: Since the start of CY2019, the KC Chiefs have played 20 games when the moon is a waxing crescent, a growing toenail sliver. And of those 20 games they have won 19. By contrast the 49ers are 15-15 in the last 30 waxing crescent games they have played. Lunar analysis says the Chiefs will win. The economist in me is overwhelmed at the correlation. As for causality…

Favorite FICO

While there are many newer FICO versions, for home mortgages, FICO Score 5 is based on Equifax data, FICO Score 4 is based on TransUnion data, and FICO Score 2 is based on Experian data. Your mortgage FICO score is the middle of these scores. Fannie and Freddie currently only accept these FICO versions. Moreover, if, for example, you go directly to TransUnion you’ll get a VantageScore, not a FICO.

Cable Contraction

In 1980, the number of households with pay-TV subscriptions including cable, satellite, and telecom firms totaled 20 million. By 1989 it was 50 million, in 2000 it surpassed 75 million, and the peak was 100 million between 2009-2014. Since then, it’s steadily declined. In 23Q3, it was almost 75 million, however that number includes 20 million internet-TV providers including YouTube TV, Sling TV, and others. Cable erosion has been staggering.

Data Divergence

Despite job growth of 353,000, the January employment report contained troubling data. Ignoring weather-related phenomena including the length of the workweek, which shrank, hourly earnings, that jumped, and personal income, which was flat, the data is showing a troubling rise in part-time employment growth and reduced full-time work. Moreover, the broadest measure of unemployment rose to 7.2%, the highest level since 12/21, and manufacturing overtime hours sank. Mildly unnerving.

Excellent Employment

Employers created a stunningly strong 353,000 new jobs in January, and December employment was revised up from 216,000 to a hefty 333,000. While freakishly cold weather and seasonal adjustment factors undoubtedly had an impact, the economy isn’t rolling over. Moreover, wage growth was a strong 0.6% M-o-M and 4.5% Y-o-Y. While stellar for job hunters, this is putting the Fed on hold. An initial June rate cut is most likely.

Checkout Choices

The Friday File: When given a choice, 34% of the public prefer a self-checkout kiosk, 56% prefer a live cashier, and 10% don’t care. Among those 18-44, 48% prefer self-checkout, 37% prefer a cashier, 15% don’t care. For 45–54-year-olds, 30% prefer self-checkout, 60% a cashier and 10% don’t care. For those 55+, just 24% prefer self-checkout, a huge 66% want a cashier, and 10% don’t care. I detest self-checkout.

70 Words on the Economy. Daily.