Exceptional Economy

The economy continues to pleasantly surprise, to wit, 24Q1 GDP growth is being revised up, and thus rate cuts keep getting delayed. What’s going on? Several things. The rise in home prices and equities is slightly boosting consumer spending. Second, immigration is meaningfully higher than we think. Income to undocumented workers is not reported, hurting weak GDI, but their spending is, boosting strong GDP. Lastly, labor productivity is strong.

Rockin’ Report

U.S. employers added a very strong 303,000 net jobs in March, the best level since 5/23, and there were upward revisions to January and February of 22,000. Better yet, the workweek rose, the labor force participation rate increased from 62.5% to 62.7%, and wage growth slid from 4.28% in February to 4.14% in March. Strong employment growth and high and rising equity prices mean no June Fed rate cut.

Inflationary Increase

March CPI rose 3.5% Y-o-Y. This is unfortunately the 10th month in a row that headline CPI has been trendless and rangebound between 3.1% and 3.7%. The lowest reading since the 2021 inflationary rise was 3.1% back in 6/23. Moreover, core CPI, which since peaking in 9/22 has fallen every month except 3/23, rose from 3.76% to 3.80%. Inflation’s decline is stalling and thus Fed rate relief remains on hold.

Retirement Retrieval

While the economy may be super and an economic soft landing may be right around the corner, U.S. households are increasingly tapping into their IRA/401(k) retirement accounts. In 2018 and 2019 that percentage was about 2%. In 2020, despite Covid, it fell to 1.66% due to all the fiscal stimulus monies. In 2021, it returned to 2%, in 2022 it rose to 2.75%, and in 2023 slightly over 3.5%. Hmmmm.

Recession Return

In 1989, the Fed’s last rate hike was in 6/89 and 13 months later a recession began. In 2000, the lag between the Fed’s last hike and the recession was 10 months. In 2006, the lag was 18 months. And in 2018, the lag was 14 months. The median and mean are both about 14 months. This time, the last hike was in 7/23, suggesting a fall recession.

Temporary Tax

In 1862, President Abraham Lincoln signed a revenue-raising measure to help pay for the costs associated with the Civil War. The measure created a Commissioner of Internal Revenue and the nation’s first income tax. The tax was 3% for income between $600 and $10,000 and 5% for income above $10,000. Heeding public opposition, Congress cut tax rates in 1867 and repealed the income tax entirely in 1872.

Realtor Rates

The current average U.S. real estate commission is 5.49%. The listing agent receives an average of 2.83% while the buyer’s agent receives 2.66%. For a $400,000 home, that works out to a commission of $21,960. Hawaii has the lowest average commission at 4.78% followed by Utah at 4.90%. The state with the highest average commission is West Virginia at 6.67%, followed by Alaska, Kentucky, and Wyoming all at 6%.

Mortgage Misery

The cost to a mortgage lender to complete a residential loan in 23Q4 was $12,485, the second highest level in the history of the series, and up from $11,441 in 23Q3. Unfortunately, revenue per loan barely rose. As a result, each mortgage resulted in a loss of 73bps, up from 34bps in 23Q3. This large loss/loan suggests that despite layoffs and cuts, more cost cutting is ahead.

Thin Time

The world’s thinnest watch is, for the 9th time, a Bulgari, this time the Bulgari Octo Finissimo Ultra, at 1.7 millimeters (0.0669 inches). This breaks the previous 7/22 record of 1.75mm set by the RM UP-01 Ferrari, which broke the previous record of 1.8mm set by the Octo Finissimo Ultra in 3/22. Only 20 of these watches will be made to help justify the $529,000 price.

Bruised Baltimore

The accidental destruction of the critical Francis Scott Key Bridge has rendered the Port of Baltimore unusable indefinitely. The Port is the 11th largest by container imports with 559,000/year 20-foot equivalent units. LA/Long Beach is tops at 8.2 million, then NY/NJ at 4 million, and Savannah at 2.4 million. Supply chains will manage, Baltimore will suffer. The Port directly employs 15,300 and generates $3.3 billion in personal income.

Retail Regeneration

While retailers closed 5,000 net stores in 2019, 6,000 net stores during pandemic-plagued 2020, and several hundred in 2021, since then the improvement has been amazing. In 2022, 1,500 net stores opened, in 2023 almost 500 opened, and YTD, 750 have opened. Combine that with almost no new retail construction allowing oversupply to dissipate, and booming suburban demand and the vacancy rate is below 4.8%, a record low.

Bedazzling Basketball

To watch Iowa’s Caitlin Clark is to watch, by far, the greatest women’s college basketball player ever. She’s an inspiring and sublime generational talent whose scoring, passing, and rebounding ability defy words. In her recent Elite Eight victory over LSU, she contributed directly to 80% of Iowa’s field goals, mind-numbing! Her season and career are record-shattering.