Sad Savings

Over the last year real consumer spending has risen 2.1%, which is slightly below the past decade’s average. The problem is personal income; over the past year it hasn’t grown. What’s propped up spending is the equities melt-up and a collapsing savings rate that’s just 2.6% of disposable income. Since 1/1/1959 it’s been lower for only 17 months. Pre-Covid the rate was well more than double the current rate.

Dormant Dwellings

April existing home sales came in at 4.02 million, up 0.2% M-o-M and flat Y-o-Y, putting an exclamation point to a failed spring selling season. Moreover, inventory is up 5.8% Y-o-Y which pushed months of inventory to 4.4 from 4.2 in March and 3.8 in Jan/Feb. Home price appreciation, if you can call it that, rose 0.9% Y-o-Y, but with inflation at 3.8%, real home prices fell 2.9% Y-o-Y!

AI Alarmism

US labor productivity generally increases 1%/year. Given the number of nonfarm US employees is 160 million, that means rising productivity leads, all else equal, to permanent job losses of 1.6 million employees/year. If AI doubles labor productivity growth to 2%/year, which would be stunning, job losses would double to 3.2 million/year. Given the current lack of immigration and aging population, our economy should find employment for the newly added unemployed.

Ignore Inflation

Talk of Fed rate hikes is insane. Home prices/rents are falling, and they make up over 33% of the CPI. Oil prices are ready to sink once a peace deal is signed. Moreover, wage growth continues to weaken in the face of a soft labor demand, there is no fiscal stimulus on the horizon, and tariff induced inflation will be gone by December. Oh, and don’t forget AI’s deflationary impact!

Pricing Pressure

Existing housing inventory is rising and while still below pre-Covid levels, April’s reading is the best since 2020. However, sales activity is flat as a hockey puck. That combination is pushing up months-of-inventory, putting downward pressure on home prices. To wit, the latest Case-Shiller data, for the month of March, shows home prices falling 0.22% M-o-M and rising 0.7% Y-o-Y, less than inflation. Real home prices are declining.

Uneven Upswing

The key economic problem, and the primary reason the bottom third or half of the population is struggling, is because of the near complete stagnation in real after-tax personal income. Corporate earnings are excellent, due in part to stellar productivity growth, and relative to national income and GDP, they continue to hit new peaks. This buoys equities and turbocharges spending by the wealthy, all part of this K-shaped economic cycle.

Chair Challenges

Kevin Warsh is the 17th Fed Chairperson. Since the start of the 5th Chairperson, Eugene Meyer on 9/16/30, the average return of the S&P 500 during the first three months of the new Chair’s term has been -12%. The worst was Alan Greenspan, whose term commenced on 8/11/87. He saw the market decline 33%; Eugene Mayer follows closely at -32%. The best performer, Ben Bernacke at 2%. Hold on tight.

Positive Production

April industrial production was surprisingly strong, rising 0.7% M-o-M with a 20bps upward revision to March. Manufacturing jumped 0.6% M-o-M and March was also revised up 20bps; nice. But the strength is highly selective and fits with the macro themes currently driving the economy. AI-related capital spending was up 1.5% M-o-M, defense restocking tied to the Iran conflict and utilities production were both up 1.9% M-o-M. Strong but painfully uneven.

Critical Compute

AI-driven demand is reshaping not only data-center investment but also financial innovation. CME Group is exploring a futures market for AI compute capacity. AI infrastructure is now sufficiently large, volatile, and capital intensive to require hedging tools. Tradable compute futures could offer real-time price signals for AI infrastructure scarcity, cloud margins, and data-center buildout. The market would include benchmarks like the H100 Rental Index, which tracks Nvidia H100 GPU rental costs.

Tariff Trade

SCOTUS invalidated all country-specific tariffs. Last week another court invalidated the tariffs introduced to replace the initial tariffs. This means replacement tariff monies will also have to be returned to the importers/wholesalers/retailers, which will boost their profits as they ALREADY passed the costs on to households. It’s hard to think of a more economically destructive illegal policy, hated by everyone, that boosts corporate profits at the expense of households.

Wonderful Work

April net job growth was a strong 115,000, February/March were revised down just 16,000, and the workweek rose to 34.3, awesome. While the unemployment rate held at 4.3%, it was courtesy of the declining labor force participation rate, now 61.8%. Wage growth is utterly anemic at 0.16% M-o-M and 2.8% annualized over Feb/March/April despite rapidly rising costs from the Iran War. Absent meaningful wage growth sustained inflation isn’t possible.

Dollars Delayed

While a wealth transfer exceeding $20 trillion from the Silent Generation (pre-1946) is underway, Boomers (1946-1964) hold $100 trillion and Gen X (1965-1980) $50 trillion, and they’re living longer especially if they’re very high income. Thus, when heirs inherit money is rising. Between 1998-2010, Americans in their late 50s were most likely to report receiving an inheritance. Between 2013-2022, recipients were in their mid-60s. There’ll be no dramatic huge windfall.

Vehicle Values

March auto loan default rates rose to their highest level since 2010. 30% of 26Q1 borrowers were upside down and owed an average of $7,200 on their trade-in, a 42% jump compared to 2021. These borrowers have higher payments and thus 42.6% of underwater buyers opted for an 84-month loan. Moreover, they’re twice as likely to have their car repossessed within two years compared to buyers with trade-in equity.

Dismal Debt

On 3/31/26, publicly held US debt totaled $31.265 trillion, and GDP was $31.216 trillion, putting the debt/GDP ratio at 100.2%. It’s fast approaching the post-WWII 1946 peak of 106.1%. At present, 1/7th of all federal spending is interest payments. The deficit is currently 5.8% of GDP. To stabilize the debt/GDP ratio the deficit must shrink by $560 billion to 4%. That means a combination of spending cuts/tax hikes totaling $1,650/person.

Dazzling Dome

The Friday File: The Las Vegas Sphere, which opened years late in 9/23 and almost $1 billion over budget, is now profitable, and is the world’s highest earning arena. Last year it grossed $379 million on 1.7 million tickets. That’s an average of 4,660 attendees/day at $223/ticket. Their key to success, old bands with rich fans and very long residences that allow for spectacularly high-end visual flair.

Terrible Taxes

The Treasury estimates 169 million Americans file individual income tax returns/year. On average each person spends 12 hours and 37 minutes on them. That’s 2.1 billion hours, which are worth $45 billion, plus out-of-pocket costs of almost $49 billion, which totals almost $94 billion in collective societal costs. What a colossal waste of time and money. For crying out loud, make this process quick and easy like in many nations!

Fed Finagling

Powell’s last Fed meeting as Chair was notable for four dissents, most since 1992. Miran, a Trump appointee there to hold incoming chair Warsh’s seat, as usual wanted a cut, but three bank presidents objected to any “easing bias” suggesting they want no near-term rate cut talk. Moreover, Powell will remain on the Fed board. Warsh will quickly disappoint Trump and find he has limited sway over Fed Board voters.

Country Circumference

While many have trekked across the US, Jack Kadis is currently attempting to walk the perimeter of the mainland US. That distance is roughly 11,500 miles. Jack is walking 11 miles/day and at that rate it will take him 2.86 years, 34 months. In 2016, Leroy Bailey did it in 29 months. To do it in 28 months, Jack will have to walk 13.5 miles/day. That’s exercise!

Word Wizards

Shrey Parikh beat Ishaan Gupta in a lightening-round 90-second spell-off tiebreaker, a format introduced in 2022, to win the Scripps National Spelling Bee. Shrey spelled 32 words correctly, Ishaan only 25. The spell-off is the only time the competitors get the same words. Spell-off words included cywyddau, taurokathapsia, tessaraconter, rapakivi, uayeb, and melengket. The winning word was bromocriptine. Shrey won $52,500 and prizes. Thaumaston!