Labor, including wages, are the most crucial stats to gauge at this point.
Confidence Survey Shows Jobs Are Still Relatively Plentiful
The first available monthly indicator of the labor market is the “jobs plentiful” series in the Consumer Confidence Index (CCI) survey. Today, June’s reading showed that 38.1% of respondents said so. That’s a slight uptick from May, and a relatively high reading. The “jobs hard to get response” ticked down to 14.1%, which is a very low reading.
The latter series is highly correlated with weekly initial unemployment claims and continuing claims. These two weekly series edged up a bit in June raising concerns that the unemployment rate may be heading higher. However, the CCI survey data suggest that the unemployment rate probably remained at 4.0% during June.
The jobs plentiful series is highly correlated with the more widely followed job openings series. Fed Chair Jerome Powell has alluded to it in some of his pressers over the past couple of years. Job openings probably remained above their pre-pandemic level during both May and June. We expect initial unemployment claims to remain below 250,000 over the remainder of this year.
Bottom line: There’s no recession in the labor market, nor is one looming.
Indeed Job Postings through June 21 are down 5.1% since the latest JOLTS data (April). That could take Job Openings down to the 7.6M range, only 7% above January 2020.
But May’s BLS job report was strong and last Friday’s S&P Global’s Flash PMI survey said that employment recorded its largest gain for 9 months.
Do Firms Expect Growth in Prices to Persist
In the most recent CFO Survey
, we explore expectations for price growth by asking financial leaders nationwide for their anticipated growth in prices in 2024 and how this anticipated growth compares to prepandemic growth rates. We find that most CFOs expect price growth to remain above normal through at least 2024.
The combination of higher input costs and wages in the aftermath of the COVID-19 pandemic led to higher price growth. While growth in unit costs, wages, and prices has moderated from their peaks in 2021 and 2022, price growth expectations among surveyed financial leaders have not returned to their prepandemic levels, suggesting that elevated price growth may be more persistent than initially thought despite a restrictive stance of monetary policy.
In the second quarter CFO Survey, monetary policy was listed as the top concern among CFOs, though nearly as many cited cost pressures and inflation, as well as hiring and retaining qualified employees. The fact that concerns about cost pressures and inflation remain so prominent—and these concerns even increased in the most recent quarter—supports the notion that despite more moderate inflation, price growth remains a foremost concern among CFOs.
To better understand whether CFOs expect growth in pricing to return closer to normal during 2024, the CFO Survey asked firms to compare their 2024 expected annual growth in prices—specifically, the price of the product/product line or service responsible for the largest share of their firm’s domestic revenue—to growth rates prior to the COVID-19 pandemic. For the past three quarters, nearly 60 percent of respondents expect growth in prices during 2024 to remain higher than prepandemic price growth
CONSUMER WATCH
Sunday was a new all-time daily high at 3 million travelers. The 7-day average is also a new all-time high. — Nothing is more discretionary than personal travel. When things turn down, it is the first thing to be cut. So, what does this say about the economy? (@biancoresearch)
Chicago Fed: Economic Growth Increased in May
The Chicago Fed’s National Activity Index is a monthly indicator designed to gauge overall economic activity and related inflationary pressure. It is a composite of 85 monthly indicators as explained in this background PDF file on the Chicago Fed’s website. (…) The CFNAI rose to +0.18 in May from -0.26 in April. Three of the four broad categories of indicators used to construct the index increased from April and two categories made positive contributions in May. (…)
RENTFLATION
KKR Makes Its Biggest Foray Into Apartments, Betting on Rising Rents Private-equity firm pays $2.1 billion for more than 5,200 apartment units across the country
KKR has completed its largest-ever purchase of apartment buildings, the latest in a string of big-ticket deals, signaling that some of the most prominent investment firms are betting on a broad rebound for multifamily housing.
The New York-based private-equity firm paid $2.1 billion for more than 5,200 apartment units across the country, from California and Texas to New Jersey, KKR said. The deal for the multifamily properties, which are 18 new mid- and high-rise buildings, closed Tuesday. (…)
KKR’s acquisition and other recent major purchases could indicate a growing confidence among large investors that rents and values for apartments will soon begin rising again. Rent is already starting to pick up in several Midwest and Northeast cities.
In April, Blackstone agreed to pay $10 billion for the landlord Apartment Income REIT, while last month Brookfield bought a portfolio of 7,000 apartments for $1.55 billion.
Investors say they are encouraged by the falling number of construction starts for new apartment buildings, portending lower levels of new supply and faster-moving rents by 2026. (…)
David Rosenberg:
We keep hearing about how booming demand for apartment units has begun to cause a reversal in rental rates. Funny how narratives today are more believed than the actual data. The U.S. rental vacancy rate has climbed to 6.7% from 6.0% a year ago and the highest since August 2020 (the pre-COVID-19 level was 6.2% when nobody was lamenting over rental inflation). Rent measures in the multi-family space have begun to flatten out and the YoY trend has been negative now for twelve months running.
While rental demand is running well over 400k annually, the problem is multi-family units that are under construction and about to be completed are double that number at 898k (more than double the historical norm). If the absorption rates were rising at or ahead of the supply, then we wouldn’t be seeing the vacancy rate continue to trend higher. We are not buyers of this newly-found view that we are on the precipice of seeing a revival in rental rate inflation. Not a bit.
Rosie’s chart stops in 2017. Here’s one going back to 1957. In reality, rental vacancies are merely back to 2019 which was historically low.
Wells Fargo:
- Adverse single-family affordability has helped boost multifamily demand, but multifamily development remains on the downswing as robust incoming supply and high interest rates have prompted developers to hold off on starting new projects.
- To that effect, multifamily permits fell 5.6% in May to a 437K-unit pace, the lowest level since April 2020. Multifamily starts, which are more volatile month-to-month, fell 6.6% to a 295K-unit pace.
- The long downdraft in apartment construction is more apparent when looking at the annual growth numbers. Multifamily starts are running nearly 50% below their year-ago pace, and permits are down 29% over the year.
- We expect multifamily construction will likely weaken further in the back half of this year. Longer term, better balance in the apartment market, lower financing costs and easier access to credit should help multifamily development rebound.
Canada Inflation Picks Up in May, Rising 2.9% The surprise spike in Canadian inflation last month throws up a possible hurdle for the central bank to offer up back-to-back rate cuts
The consumer-price index, a measure of goods and services prices across the economy, rose 2.9% in May from a year earlier, Statistics Canada said Tuesday, faster than the 2.6% advance economists had forecast and after inflation eased to 2.7% in April.
While it marks a fifth straight month that the index has been inside the 1% to 3% window the Bank of Canada targets, the quickening pace of inflation casts doubts on what many economists have expected would be a second round of rate relief late next month. The Canadian dollar and domestic bond yields both rose after the data was released, suggesting traders are less confident in a July cut.
Gains in core prices excluding volatile food and energy matched the headline CPI pace for the month and annually, while key indicators of underlying inflation preferred by the central bank also picked up. On a monthly basis, headline inflation rose 0.6% in May, double the pace economists anticipated. (…)
What is expected to stand out for policymakers is the speeding up in May of two measures of underlying inflation the central bank closely monitors. Weighted median and trimmed mean CPI rose an average 2.85% last month from a year earlier compared with 2.70% growth in April, though that is still cooler than March’s 2.95% pace. (…)
The biggest drivers of consumer price growth in Canada last month remained mortgage-interest costs and rent in the higher rate environment. (…)
Overall, prices for services in Canada rose 4.6% in May after a 4.2% boost the prior month, while prices for goods for a second straight month grew 1.0%.
- Excluding food and energy, the index rose 2.9 per cent from a year ago, up from 2.7 per cent.
- Seasonally adjusted core cpi increased +0.4% from +0.2% in April (revised from +0.1%).
- Rent inflation was 8.9% YoY in May, its highest level since the early 1980’s.
- Excluding shelter costs, the consumer price index rose 1.5 per cent from a year ago, versus 1.2 per cent in April.
- On a month-over-month annualized basis, CPI-Trim and CPI-Median were both at +4.1%.
Reuters Graphics
NBF:
Does this morning’s data suggest that the Bank of Canada acted prematurely in cutting rates in June? We don’t think so. (…) On a 6-month horizon, both the CPI-trim (2.5%) and the CPI-median (2.3%) are rising at annualized rates just above the Bank of Canada’s target with only 24 categories running above target. This slight overshoot would be worrisome if the economy were showing strength, but it’s quite the opposite at the moment. GDP per capita continued to fall in the first quarter and should continue to do so, given high inventories and the ongoing interest payment shock.
Unemployment already rose sharply and we expect it to rise further. The decline in corporate profits in the first quarter could be a harbinger of further deterioration. Businesses claim they are no longer experiencing labor shortages and may have too many workers relative to economic activity, as evidenced by the declining trend in output per worker since 2022. Given the current restrictive monetary policy and the lag in the transmission, we continue to believe that the Canadian economy needs further rate cuts.
Economists Raise China Growth Forecasts as Exports Improve Economists upgrade forecasts for 2024 exports and GDP growth
Exports are expected to climb 4.3% this year from a year ago, according to the median forecast of 22 economists surveyed over June 17-24. That’s a jump from the 2.8% gain forecast in a May survey. China’s economy may expand 5%, up from the 4.9% projected in May, according to the median of 68 estimates. (…)
China’s exports beat expectations in April and May, reflecting strong demand from overseas and the increasing competitiveness of Chinese producers. While this supports Beijing’s strategy of relying on exports to spur growth and offset weak spending by Chinese households, risks are mounting as its companies start to face more trade barriers from the US and Europe. (…)
Economists have pared back their expectations for retail sales growth — a key gauge of consumer spending — as well as consumer and factory-gate price inflation this year, reflecting pessimism over demand as a sharp housing contraction continues, according to the Bloomberg survey. (…)
China is unlikely to shake off deflationary pressures this year, with economists becoming more downbeat about the prospects. They expect consumer price index to rise only 0.6% this year, while producer price index is forecast to drop 1%, both weakening from the estimates in May.
This reflects consumers’ reluctance to spend money amid concerns about their job security, income prospects and falling property values. (…)
