Interesting Impact

High rates may finally be having an impact. August data showed M-o-M housing starts down 11.3% to their lowest level since 6/20, the NAHB housing index down sharply M-o-M for the second month in a row, and new home sales weakening 8.7% M-o-M, the biggest decline since 9/22. Existing housing sales slipped to their lowest level since 1/23, August pending home sales fell 7.1%, and auto sales slumped 4.6% M-o-M.

Construction Constriction

The Architectural Billing Index slid to 44.8, the lowest reading since 12/20. The Index is a 9-to-12-month leading indicator of construction activity. Reduced billings were reported in all regions. Multifamily billings are the weakest, followed by commercial/industrial billings while institutional billings are flat. Moreover, there appears to be rising client hesitation to commit to new projects, with backlogs falling to 6.5 months from their peak of 7.2 months during 3/22.

Infinitesimal Inventory

After record for sale housing inventory lows in 2020, 2021, and 2022, 2023 started off weakly. In January through April 2023, for sale inventories were slightly above the record lows set in 2022. However, from May through August inventories set all-time lows, and by wide margins, making it likely monthly records will keep being set for the rest of 2023 and make 2023 another low inventory record setter.

Reasonable Retail

While September M-o-M retail sales jumped a more than expected 0.7% and August sales were revised up from 0.6% to 0.8%, there is less here than meets the eye. After inflation, August sales were up 0.16% M-o-M and September was up 0.32%. Y-o-Y real retail September sales rose 0.06%, the first positive reading since January’s 1% rise. Retail sales have been dead flat at $230 billion/month for 30 months.

Lovely Labor

September payrolls rose by a surprising 336,000 and July and August were revised up 119,000. Moreover, job growth was widespread, the participation rate is rising, and wage growth slowed to 4.2% Y-o-Y and to an annualized rate of 3.4% over the last three months, a rate commensurate with near 2% inflation. Another rate hike is possible and higher for longer seems assured. However, it’s only one (usually revised) data point.

Merger Mediocrity

While mergers and acquisition activity is wildly profitable for investment banks, earning them $13.1 billion in 23H1 fees, an influential 2011 Harvard Business Review article showed roughly 80% of merger and acquisitions failed to create buyer value. However, a recent study shows that since the global financial crisis of 2009/09, stock in $100+ million companies doing deals has, on average, beaten peers 53% of the time. Essentially a coin toss!

Multifamily Misery

While the single-family housing market is enjoying solid price appreciation, strong construction activity and suffers from a severe lack of existing inventory, the multifamily market struggles mightily. Financing is increasingly difficult as vacancy rates and insurance premiums rise, rents decline, mortgage rates increase. The market struggles to absorb substantial recent overbuilding and prices are falling due to rising cap rates. As a result, starts have declined a sharp 41% Y-o-Y.

Hot Houses

While house prices declined from $410,200 in 6/23 to $406,700 in 7/23, don’t be fooled, that’s the highest July price ever and is up from $403,800 in 7/22. Similarly, while inventory ticked up from 1.08 months in 6/23 to 1.11 months in 7/23, it’s again the lowest July level ever and well below the 1.31 months of supply in 7/22. After accounting for seasonality, the housing market is profoundly tight.

Debt Dollars

In 23Q2, total household debt was $17.06 trillion, up trivially from $17.05 trillion in 23Q1. Compared to 19Q4 when it was $14.16 trillion, debt has risen $2.9 trillion, 21.3%. While that seems substantial, inflation from 19Q4 through 23Q2 was 17.6%, meaning inflation-adjusted debt is up $0.4 trillion. What’s changed? Housing debt now comprises 70.7% of debt, up from 67.7% in 19Q4, while student debt is down from 10.7% to 9.2%

Inflation Increment

Inflation for the year ending 7/23, as measured by the CPI, rose from 3% to 3.2%. While that appears to be a setback, core CPI ticked down from 4.8% Y-o-Y in June to 4.7% Y-o-Y in July, its best reading since 4.6% during 10/21. Better yet, the three-month annualized rate of core CPI is just 3.1%, its lowest reading since 3% in 9/21. The Fed will not raise on 9/20/23.

Nifty Names

The Friday File: During the decade ending 2019, 20,091,410 boys were born and 19,184,303 girls were born in the U.S. The most popular girl’s name was Emma with 194,917 girls receiving it, followed by Olivia at 184,432, and Sophia at 181,032. The most popular boy’s names were Noah at 183,172, Liam at 173,888 and Jacob at 163,114. During the decade, Emma was most popular for five years, Jacob for four.

Tattoo Totals

The Friday File: 11% of Americans have one tattoo and 22% have more than one. 38% of women have at least one, while 27% of men do. There are no major differences by political party, or whether you live in an urban, suburban, or rural community. Similarly, 33% of Democrats and Democratic-leaning independents have a tat while it’s 32% for Republican and Republican-leaners. Finally, 24% regret getting inked.