Category Archives: 70 Words

More Markups

U.S. firm markups over prices rose 11% between 1980 and 2015, but the reason is likely quite benign. The primary cause is the shift by consumers, who have become steadily wealthier, towards buying more services, which has allowed service providers to boost markups. That, in turn, has caused the service sector to grow as a percentage of the economy and thus overall markups as a percent of GDP to rise.

Rising Retail

Immediately pre-Covid, the vacancy rate at U.S. shopping centers was 6.25%. The rate peaked in 12/20 at over 7% but has been declining since and is now 5.3%, the lowest level in probably decades. This is because consumers are again shopping in-person, and post-Housing Bust vacancy rates peaked in early 2010 at over 10%. As a result, new mall construction activity largely stopped. Rents are now 17% above 2019 levels.

Single-family Success

While housing starts in January fell 15% M-o-M and almost 1% Y-o-Y, that misses the point entirely. Single-family starts slid 4.7% M-o-M but are up 22% Y-o-Y. By contrast, multifamily fell 36% M-o-M and 38% Y-o-Y. Similarly, single-family permits rose 1.6% M-o-M and 36% Y-o-Y, while multifamily permits fell 9% M-o-M and 27% Y-o-Y. Single-family activity is strong and growing while multifamily continues to rapidly contract.

Profound Productivity

The best current economic trend is rising labor productivity. After sinking from 22Q2-24Q2, it recently posted the best two quarters since mid-2010! Part of me is skeptical as job growth has recently been in education, leisure & hospitality, and healthcare, not sectors prone to productivity improvements. However, low unemployment, rising wages, and more digital tools, may be cajoling employers to redesign jobs. This will reduce inflation and boost living standards.

Fantastic Football

The Friday File: Super Bowl LVIII was watched by 123.4 million viewers, the highest number of viewers of the same broadcast in US history. That number is the average number that were tuned in at any given moment. The number that watched any part of the game was 202.4 million. As for advertising, CBS sold $635 million in standard commercial time and $60 million more during overtime.

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…