Elliot Eisenberg Economic & Policy Blog |
SPREAD SWING When financing conditions are easy and investors expect rate cuts, as was the case early this year, the search for extra income / yield by investors intensifies. Capital moves from Treasuries into investmentgrade, from investment-grade to highyield, and from stronger speculativegrade to weaker. So expected rate cuts not only reduce rates, but also rate spreads between bond types, which lowers rates still further. Since the US-Iran War this process has meaningfully reversed.
MIRACLE MILE The Friday File: Last week, Josh Kerr ran a 3:42.66 mile breaking the previous mark of 3:43.13 seconds, set in 1999, by a gargantuan almost half second! During this historic race Kerr ran at an average speed of 15.51 MPH. He wore bespoke spikes with a carbon plate and aggressive rocker for propulsion, titanium pins to minimize weight and a bespoke speed suit that improved his aerodynamics.
MIDYEAR MOMENTUM Since 1950, 17 times including this year, the S & P 500 has been up 5 %- 10 % at midyear. The average return during the second half of the year has been 6.6 %( better than the post-1949 average of 4.9 %) and the median has been 5.7 %( slightly below the post- 1949 median of 6.3 %). Moreover, only in 2007 and 2011( 12.5 % of the time) were returns negative in the second half of the year.
CLAIMS CONUNDRUM Job growth over the past year has been very weak, yet initial jobless claims have been surprisingly low for
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some time. While this may indicate a labor market that’ s fine, I’ m suspicious. I suspect layoffs are not occurring in manufacturing, where you go straight to the unemployment office once laid off, but rather in services. There, laid-off workers often receive severance packages that delay / reduce their eligibility for unemployment benefits.
MULTIFAMILY MIASMA June housing starts blew the proverbial roof off. Headline starts surged 19 % M-o-M to 1.427 million annualized units. Regrettably, singlefamily starts slid 0.2 %, continuing their slow, steady 2.5-year deterioration, while the lumpy, noisy, and volatile multifamily sector saw starts soar 76.2 % M-o-M to a three year high of 532k annualized units. This will add to the rental supply overhang, which will reinforce the downtrend in the shelter components in CPI.
BOOMER BONANZA Boomers, those currently between 62-80 years-old, perhaps surprisingly comprise the largest share of US home buyers at 42 %. In part, it’ s because they( and those over 80) control $ 110 trillion or about 60 % of all U. S. household wealth. With that money they are increasingly upsizing their homes by buying bigger ones or financing additions to existing homes. In 2016 4 % upsized, it’ s now 7 %.
PROFESSORIAL PROOF The Friday File: For almost 20 years, the average in Brown University’ s Welfare Economics and Social Choice Theory in-class midterm was 65-80. This year it was take-home; the average was 96. Suspecting AI
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cheating, the same professor who taught the course since inception made the final in-class. 18 students dropped, nine didn’ t take the final, and the average fell to 48.6 from, at worst, a 65. QED( quod erat demonstrandum).
RESILIENCE REINFORCED June M-o-M retail sales rose solidly at 0.2 % with May revised upwards, weekly first-time unemployment claims remain very low at 208,000, the July Philadelphia Fed Manufacturing Index soared to 41.4, and the Empire State Manufacturing Index jumped to 15.6. Add inflation that in May / June was listless, a Beige Book that’ s decent, and Small Business Optimism that rose. All this points to continued economic resilience and no rate hike anytime soon.
Elliot Eisenberg, Ph. D. is an internationally acclaimed economist and public speaker specializing in making economics fun, relevant and educational. Dr. Eisenberg earned a B. A. in economics with first class honors from McGill University in Montreal, as well as a Master and Ph. D. in public administration from Syracuse University. Eisenberg is the Chief Economist for GraphsandLaughs, LLC, a Miami-based economic consultancy that serves a variety of clients across the United States. He writes a syndicated column and authors a daily 70-word commentary on the economy that is available at www. econ70. com.
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