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Inside the Economy: Labor, U.S. Debt, and Foreclosures

By March 20, 2024No Comments

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This week on “Inside the Economy”, we explore where the economic slowdown is coming and where it is not. Household credit card debt has increased over the past few years. The outstanding interest payments for non-mortgage debt even caught up with mortgage interest payments. Does this emulate a struggling consumer? Have consumers gone delinquent? Mortgage debt is steady at 50% of GDP. What is the foreclosure inventory as a comparison?


Key Takeaways:

        • Core CPI at 3.8
        • Job openings fell to 8.9 million in January
        • U.S. Foreign workforce increased 5% (YOY)

Full Transcript:
Welcome to another edition of Inside the Economy!

I’m Larry Howes. Thanks for joining me!

Guess the theme on this one is the slowdown is coming. It’s just not here yet. We’ve been talking for quite a while on the Federal Reserve, making the cost of money go up, trying to slow things down, consumer spending, real estate bubble, all of that stuff. We’ve been through that a lot.

The only progress we’ve made here is so far unemployment has gone from 3.7 to 3.9. Step in the right direction. I’d say the target on that number is about four and a half or more. But we need some significant layoffs before we ever got to four and a half. We’ll see. Yields are up a little bit. That means the price of some of these bonds has gone down because the Federal Reserve is not going to lower rates for the foreseeable future, certainly not in the next meeting.

Again, I’m in the September camp and they’re going to need to see a lot more drama or slowdown or changes in the economy, less consumer spending, lots of other issues before they lower rates. Lowering rates is supposed to stimulate the economy where they are right now, let’s call it five and a quarter percent is not having a huge impact yet. But like we’ve mentioned in the past, it’s going to be a big thing in the media when people start going to the polls.

US job openings, this is a big thing saying the job openings are coming down. Well, not really. This is more a correction in the data because the job openings data got so bad right after the Chinese flu that a lot of the services had double, triple, quadruple entries of available jobs. Well, they’re just straightening it out now.

There are job openings. They’re more on the wage and hours side of things. But this is more of a correction of data than anything else. Jolts, which is quits that’s coming down. If they have a job, they’re hanging on to it. They’ve been spending and the stimulus money is gone, so they’ve been hanging on to it. And the growth in the bars here, the growth in wage and hour wage increases is slowing and it’s really not to a dramatic point yet. It has a ways to go. The job market is still in good shape, even at 3.9% unemployment.

There was a question about the job market and what impact that the migrants, illegal immigrants, whatever it is you want to call it, have on the job market. We import our workers. It’s a very important part of the economy. The further west you are the more important it is. Any restaurant in the country needs that imported worker. We don’t replace our workforce by our own reproduction.

And you know, most of the countries on earth, certainly the bigger ones, Japan, China, Russia, a lot of Europe are in negative numbers. We maintain a reasonable workforce because we import them. And right now, who’s leading the pack in importing people as fast as they can into the country is Canada. They need them much worse than we do.

And interestingly enough, they have a much more acute housing problem than most of the United States does. So you talk about illegal aliens. Well, they are a very important part of the workforce.

Credit cards have been building. We’ve talked about this. It was so great right after the COVID they’ve been building. They’ve been adding $150,000,000,000 a year here for a little while and the number is getting up there. This is credit card debt for the most part. And it’s starting to have an impact. That’s the red line on the interest people are paying. It hasn’t created a problem in the debt market yet because we just talked a little while ago that delinquencies are only up a tiny bit in credit cards, up hardly at all in mortgages.

People at this point, the consumer is still willing to pay it. This might be one of those markets that corrects itself, either slowdown in spending, which the Federal Reserve wants. The Federal Reserve is not going to lower rates until they see slower spending on the consumer side. But it’s a significant number now.

It’s not a bubble either. If you look at the bubble here, this is equity in real estate. We talked about that a couple of weeks ago. Was it $65 trillion? It’s a big number. We had a bubble clearly in 2008, and right where the peaks of both of those are in 2008, we had to correct that and we did. Took a lot of equity, quote equity and a lot of debt out of the system.

But now what we have is a lot more equity in the system, higher valuations, not increased debt. 60% of the houses out there in the conventional marketplace, only 60% of them have mortgages at all. There’s a lot of equity out there, no debt. But a question came up today in the investment committee.

Well, what about all the private equity? Well, those are hard to track because they aren’t a normal buys and sells where they can track the data. But there’s not a lot of debt. There’s not a big bubble of real estate debt out there. Foreclosure inventory, not bad. Not going to be bad. Anytime somebody actually has to go through a foreclosure, there’s people waiting in line to buy it. So they don’t even have to go through the whole process. And this is inventory of banks that are stuck with the properties very low.

CPI came out at 3.2. That’s the yellow there in the middle. That’s the midpoint in inflation numbers. And this is where inflation is coming from and where it isn’t coming from. Down here in the bottom, rental cars, used cars, those markets are adjusting, college. A lot of things that are adjusting, they’re adjusting themselves. Up here in the top are a couple of things that are very hard to adjust that we’re simply going to have to live with. Right now, it’s auto insurance gone way up. They haven’t noticed a lot of the homeowners increases yet. You hear a lot of rumors about how bad it is in Florida and a lot of places in California. It’s going to hit everybody else soon and that will have an impact on spending.

State property taxes, local property taxes are way up. That hasn’t worked into the numbers yet, and those aren’t coming down. It’s an integral part of inflation and the results of inflation. And unless it slows spending or causes people to lose their jobs, that’s not a motivation for the Fed to lower rates. If everybody lives with all of this, which in some forms, you’re going to have to anyway, Fed’s going to stay where they are until they see some drama.

S&P 500 I’ve mentioned before, it’s gotten a little ahead of itself and it has adjusted because the fear over gee, they’re going to lower rates and make everybody happy. That’s just trading. NASDAQ and a few others are doing okay, but they’re ahead of themselves. They’re not seeing great earnings yet. Second quarter will start seeing better earnings. Not yet. And just the fact that a trading trigger is gee, lowering rates makes everybody happy. Third or fourth quarter, important part of the stock market. And I get several questions on Gee. Is the stock market going to fall apart? No, it’s not. Is the stock market in a bubble? No, it’s not in a bubble. It’s just a little tiny bit ahead of itself.

Fundamentally, the stock market, the mid-caps, the small caps are all doing pretty well. And this one right here, a very broad rally. The S&P 500 is what is known as a cap weighted index. That means the big companies in the S&P 500, Google, Microsoft, Apple, those guys, their stock performance has a huge influence on the index itself.

There’s another way to look at the S&P 500. That’s called an equal weight, meaning you capitalize every company in there the same way and treat their performance the same way. And the equal weight performance is getting right up there, too. That means that the valuations on all the lower companies are doing better. That’s a good thing. Small companies are doing better. Mid-caps are doing better. They are working on their earnings. They’re working on spending. Not so much just media hype around lowering rates. This is good news.

Finally, there was a question on, well, what’s the condition of US banks? We’re having another problem with regional banks and so on and so forth. No, we’re not. This is the reserves that we’ve put in the system. The Federal Reserve has put in the system since 2018, and the little crunch we had in 2020, just before COVID when several California banks were having some liquidity problems. The Federal Reserve put all kinds of reserves in the system. That was part of their quantitative easing, meaning they were out buying things and putting cash in the banks, and they’ve still been doing that.

Up here in the graph, it says quantitative tightening. I love that term. That’s a point. Quantitative tightening means that the Federal Reserve is getting rid of the money they brought into the system. We’ve talked about this before. They’re selling their assets, they’re pulling money out of the system. But it’s not taking money out of banks, it’s not taking liquidity out of the banks or their ability to lend. They’re very healthy, big ones especially. But all over, they’re very healthy. It’s a lot of money in the system.

Some of the drama that’s going on in the regional banks, some of that is media saying they have real estate problems. Some do. For the most part, they don’t. And a couple of very specialized banks in New York, again, that were having some problems that have been repaired quickly and easily.

Okay, that’s all there is for now. We’re just seeing signs of seeing a little bit of slowdown, kind of developing the concept of slowing down. We’re not there yet. Well, that’s all. As always, send questions along to, and I’m happy to deal with it.

Again, thanks for joining me!

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