Rising Rate

From 2010 until Covid, the neutral rate, the Fed funds rate that was neither expansionary nor contractionary, was near zero and rarely exceeded 2%. Many expect that going forward, the neutral rate will be systemically higher. The combination of a shrinking labor force, a decline in trade/globalization, increased defense spending, the high cost of decarbonization, rising debt payments, and an aging population may push it to 3.5%.

Economic Education

While economists struggle to agree on many policies, there are some they coalesce around. When asked if giving the President more direct influence over monetary policy would lead to substantially worse monetary policy decisions, 94% agreed. Similarly, 95% agreed that imposing tariffs results in significant price increases in tariffed goods, borne by consumers of the imposing country. Lastly, 83% don’t believe price gouging is the cause of high food prices.

Data Dissonance

While inflation is barely 2.5% Y-o-Y, unemployment is just 4.1%, and incomes are rising, voters are sour on the economy. Here, I think, is why. Median income in 2023 rose to $80,610, but it’s still below the 2019 $81,210 inflation-adjusted peak. And, sure, overall inflation is low, but Y-o-Y food and energy (things we buy all the time) inflation peaked at 40% in 2022, its worst showing since 1979!

Uncomfortably Unaffordable

What is both amazing and absolutely terrifying about the current housing market is how unaffordable it is. The combination of ever rising prices and stubbornly high rates has reduced first-time housing affordability to its worst level since the mid-1980s. But back then rates were almost 13%, double what they are now, which tells you all you need to know how insanely high house prices are.

Consumer Confidence

The Conference Board’s consumer confidence index sank a whopping 6.9 points in August, its biggest one-month decline since 8/21, when inflation was beginning its dreadful climb. This time, the concern is labor markets. 18.3% of respondents consider “jobs hard to get” the highest percentage since 2017, while the percentage reporting “jobs easy to get” was 12.6%, the lowest level since 2017. Simultaneously, expectations are teetering slightly above recessionary levels.

Economic Excellence

The 2024 economics Nobel prize was awarded to Daron Acemoglu/Simon Johnson of MIT and James Robinson of the University of Chicago. They won it for a seminal 2001 paper, showing how economic growth is profoundly dependent on political institutions. They contrast extractive institutions, where elites take the economic rewards and poverty is high, and inclusive institutions where wealth is shared, and incomes are high. All three are foreign born.

Election Expenses

Estimates are that $15.9 billion, a new nominal record, will be spent this election cycle. This total includes congressional races, outside money from super-PACs, and money spent by the two presidential campaigns. In real terms, the $15 billion spent during the 2020 cycle will remain tops as it works out to over $18 billion today. Based on the 154.6 million voters in 2020, $15.9 billion works out almost $103/voter.

Top Tier

US family inflation-adjusted wealth rose from $52 trillion in 1989 to $199 trillion in 2022. In 2022, the top 10% of families held 60% of wealth, up from 56% in 1989 and driven entirely by the top 1% whose holdings rose from 23% to 27%. Families in the bottom 50% of the distribution held 6% of wealth in 2002, unchanged from 1989. Retirement assets are 40% of total family wealth.

Productivity Performance

Productivity Performance Markets were somewhat perturbed by August M-o-M wage growth of 0.4%. They needn’t be. The main driver was a huge 0.9% increase in technology, the fastest pace since 8/22. Moreover, with productivity rising at a stellar 2.5% Y-o-Y, wage growth could be as high as 4.5%, it’s currently 4%, without causing inflation to exceed 2%. Lastly, unemployment has risen from 3.8% to 4.2% Y-o-Y, putting downward pressure on wage growth.

Income Increase

For the first time since 2019, median inflation-adjusted household income rose, to $80,610 in 2023, up from 2022’s $77,540. This brings median income almost back to the 2019 peak of $81,210. The rise was the result of a tight labor market and easing inflation. However, the female-to-male earnings ratio declined from 84% to 82.7%, the first meaningful decrease in two decades. Men saw wages rise 3%, vs. 1.5% for women.

Profit Performance

While corporate profit growth has, of late, been strong, only one-third of the growth has come from rising revenues. Corporate profits are being primarily driven by intense cost-cutting. We know this because unit labor cost growth has been zero Y-o-Y, and real personal disposable income growth has been rising by less than 1% Y-o-Y since 2/24, just 40% of its 2014 through 2019 growth rate.

Labor Limps

Employers added a decent 142,000 net jobs in August, but July was revised down from 114,000 to 89,000 and June from 179,000 to 118,000. Four of the five weakest monthly readings since 12/20 have come during the past five months. The August number will also likely be revised down. Weakening is obvious. The Fed should cut 50bps on 9/18/24 but will do 25bps because they remain oblivious to the obvious.

Fiscal Follies

While the president can conduct foreign policy and impose tariffs absent congressional approval, domestic policy is different. To pass legislation such as tax cuts/hikes, offer subsidies, or boost infrastructure spending, Congress must agree. Thus, for fiscal policy it’s not the winner of the White House that matters, it’s the other end of Pennsylvania Avenue. Only if one party sweeps both ends will fiscal policy meaningfully change. And that’s reasonably unlikely.

Constant Kicking

Through the first five weeks of the NFL season, place kicker accuracy has never been better at 86%, and 98% from 39 yards or less. But the real story is kicks of 50+ yards. Kickers are currently making 76% of those kicks, the prior record success rate was 69%, and are on pace to make 251 of them, shattering the record of 159 set last year.