These 14 fast facts on the world economy were developed by the Fox Cities Chamber of Commerce in collaboration with Dr. Elliot Eisenberg.
- Treasury Trouble – Having hit the debt ceiling, Treasury is unable to borrow and will now spend down deposits. Once the debt ceiling is lifted and borrowing recommences, they will borrow large sums quickly, draining reserves unless other Fed lending facilities, like reverse-repos, continue working smoothly. We know markets are already straining as depositories are offering savers high rates (source: Economist).
- Budget Bluster – With cuts to Social Security and Medicare (at 23% and 14% of the budget) now apparently off the table, that leaves just 63% of the budget. However, net interest is 8% and defense is 14%, leaving just 41%. Other mandatory programs are 14% of spending, so all that’s left is 27% of the budget to absorb 100% of the cuts, and they would need to be extreme (source: Center on Budget and Policy Priorities).
- Recession Reasoning – The recessionary sequence is as follows: inflation falls too slowly, which causes interest rates to remain higher for longer, reducing hiring and raising unemployment. If, however, inflation continues to fall quickly and services job growth stays strong enough, maybe a recession can be avoided (source: FFF).
- Imposing Inflation – While inflation fell from 6.5% Y-o-Y in December 2022 to 6.4% in January 2023, and core inflation similarly declined from 5.7% to 5.6%, its fourth straight decline, the pace of improvement is slowing. Worse, core-services inflation, which excludes energy and is the Fed’s favorite measure, has not declined for 17 straight months and is up 7.2% Y-o-Y. The Fed will surely raise rates 25bps in March and May (sources: FFF Research and Bureau of Labor Statistics).
- Discharge Data – While many firms are laying off staff, most trim roughly 5%. They probably decided in late 2022, based on economic conditions, to start layoffs in early 2023. Others took advantage of layoffs elsewhere to implement opportunistic cuts to mollify investors, while some overhired. If the cuts are much deeper, that suggests something more company specific (source: CFO Brew).
- Service Stats – Despite weakening economic fundamentals and large tech layoffs, net job growth was 1.1 million over the past three months. This employment boom has been engineered by healthcare, education, leisure and hospitality, and other services, which account for 36% of private sector jobs. Services were the hardest hit when Covid arrived and will keep hiring as they recover (source: WSJ).
- Stock Struggles – Assuming a recession happens, which is likely but not guaranteed, the median duration between the beginning of the recession and the cyclical low in the S&P 500 is 23.5 weeks. The shortest duration was three weeks, which occurred in 2020. Before Covid, the shortest period from recession start to S&P 500 bottom was eight weeks in 1957 and 1980. The longest was 79 weeks in 2001 (source: Bloomberg).
- Slow Starters – From 1976 through 1979, 418,000 entry-level single-family houses/year were built, 34% of all new homes. In the 1980s, the number fell to 314,000/year, still 33% of all new builds. In the 1990s it shrank to just 207,000/year, and in the 2000s about 150,000/year. During the just completed 2010s, starter homes averaged 55,000/year, or just 7% of new residential construction (source: Freddie Mac).
- Overwhelming Offers – In December 2021, 53% of existing homes that sold received multiple offers. In December 2022, it was just 17%. The percentage of homes that sold and had multiple offers peaked in March 2022 at 72% (source: John Burns Real Estate).
- Salary Slowdown – U.S. job switchers received the highest wage increases last July when they hit 8.5%. Since then, wage increases for switchers have declined to 7.3%, the smallest since 7.2% in April 2022. Moreover, the pay gap between stayers and switchers has also declined. Last July it was 2.6 percentage points, now it is 1.9 (source: Federal Reserve Bank of Atlanta).
- Increasing Income – Using the CPI to measure inflation, real earnings/hour are flat compared to 1970. Using the personal-consumption-expenditure index, which reweights to reflect changing consumption patterns monthly, real wages are up 25%. After accounting for taxation and transfers, income growth for the lowest quintile is up 94% since 1979, double the pre-tax level (source: The Economist).
- Unequal Unemployment – As recently as 1992, 26% of the labor force had a bachelor’s degree or more, while 36% had a high school diploma. Today, 44% of the labor force have a bachelor’s degree or more, and 25% have a high school diploma. Better educated workers have systematically lower unemployment rates (source: Calculatedriskblog).
- Construction Concerns – A review of 16,000 mega construction projects across 136 nations shows 47.9% are delivered on budget, 8.5% are delivered on budget and on time, and 0.5% are delivered on budget, on time, and with the projected benefits. 99.5% fall short because of poor planning, optimism, hubris, politics, and more. The key recommendation is to spend more time planning (source: Oxford University).
- Food Frequency – The Fun Finale: The first restaurant to allow drivers to take meals “to go” was an In-N-Out Burger that opened in 1948. McDonald’s first drive-through was in 1975. In 2022, 85% of fast-food orders were taken to go, down from 90% in 2020, but up from 76% pre-Covid. Among full-service restaurants, 33% of orders are now to-go, almost double the pre-Covid rate (source: NPD Group).
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