This week on Inside the Economy, we address the housing market in terms of inventory, stock market performance, the dollar, and the pace of electricity generation in the U.S. The inventory of new homes for sale increased to 507,000 in May. How do Colorado and Denver compare to other markets in terms of active listings? What are the numbers of first-time home buyers? Electricity generation continues to trend upward, showing no signs of slowing down. One way to keep pace with rising electricity demand is by building nuclear reactors. Which states are exploring reactor production? Turning to the dollar, its price has fallen, but history shows present weakness is not extreme, and it may still have more room to fall. What is the current U.S. share of global GDP, and how did that share shift when China joined the World Trade Organization? Tune in to learn more!
Key Takeaways:
- New Orders for Durable Goods up 16.4%
- U.S. GDP growth rate at -.5% in Q1
- Layoff and Discharge Rate at 1.04% in May
Full Transcript:
Welcome to another edition of Inside the Economy!
I’m Larry Howes.
This time I want to talk about the various markets. Housing market, stock market. I have a particular line item I want to talk about from the new tax bill we just got – electricity and weather. Some of it is part of the tragedy that just happened in Texas. But it’s bigger than that.
Fundamentally what’s going on in this market and this economy. It’s a very strong economy. It’s moving along very well. Unemployment’s down, initial jobless claims are down. Oil is down, durable goods is up. Mostly aircraft orders. Things are okay. Whatever you might be hearing bad news in the media is fundamentally not the case.
Basically we’re starting to see adjustments in the labor market that is strengthening the job market. It’s not just buying robots. It’s not just waiting for the building factory to be done. The labor market is getting stronger. They are moving into their wage increases. Productivity is going up. This is layoff and discharge rate just barely above 1.
Inventory in the housing market. Denver has really been kind of one of those towns that, gee, you never see a home for sale anymore. Well, that’s correcting right now. That’s in the process of correcting dramatically. Well, it needs to.
Fundamentally, across the country there’s some big changes in marketplaces. Florida, Arizona, Hawaii, Colorado’s right up there. They’ve had nothing for sale and now they get these big numbers saying, oh, now the inventory is coming up, these big huge numbers coming up, pulling them out of the sewer. So that marketplaces starting to correct.
Denver actually is in the top of the list of uh, what they like to call deficit homes, meaning homes that don’t sell right away means a lot of things. But what they are doing is getting inventory back. Natural reason that people move. Well, they’re not selling in two days anymore. It’s not just affordability, it’s how many people are in the new home marketplace, which is a big deal.
The number of first time homebuyers is way down. There’s nothing that suggests that number is going to increase. Their renters, some of them still living at home, but the first time homebuyer market is down significantly.
Places like Denver, San Jose, few others. There is an affordability issue and that’s not going to change because the prices aren’t softening. They’ll just sit there and wait. Okay, that’s not a market that’s heading to a bubble that’s going to break another bubble.
Well, this is good news. This is the S&P 500 and Dow and everybody’s portfolios are up. Great! It’s fine. It’s certainly expected.
What we have right now is a market, for whatever reason, that has overvalued a little bit. We’re overvalued. We’re going to slow. I like to think soon we’ll get a, uh, beginnings of a, not a correction, a slowdown, a drop. We need to come back down to those average numbers to where we are in earnings. We’re a little high right now. It’s just enthusiasm. It will correct itself.
On a line item side, everybody should probably know that I wasn’t really wild about this current big bill that went through mostly because fundamentally the US government needs revenue, not tax breaks. It needs revenue. This is kind of the biggest line item right here. I don’t often put it up there where you hear the term national debt. Most people know that. I don’t think that’s a very accurate term. It’s technically correct. Some people will say, well, we have national debt of $37 trillion.
Well, there it is, actually it’s $37 trillion is money in the system. This national debt is the same debt as you put a hundred dollars in a bank, that’s debt to the bank because the bank’s going to give it back to you.
Well, this is money out in the system and the treasury is not going to take it away. And they have no reason to pay it back. It’s already out there, anyway, point is that $37 trillion, one of the most important reasons to own Treasuries. Every financial institution on the globe owns Treasuries. Not only are they liquid and secure, there’s a trillion dollars’ worth of interest that’s paid every year. It’s a big line item.
If you already have a fairly large deficit spending like we have, you look for big line items, not whether Social Security is taxed or not or anything else. Look for the big ones. Well, this is a biggie. The administration is interested in having interest rates lowered, which is no justification for, in my opinion, at all.
If they cut interest rates, let’s call it. We’re at four and a quarter now. Call it two and a quarter. The trillion dollars a year to pay the interest would go to 500 billion. That’s a big line item. It’s their motive. I understand that. Should have just done more tax revenue anyway.
Other marketplaces are electricity. You look at the details of this, there’s some renewables being a bigger part of electricity generation. Great!
The important part about this whole thing is the growth. This is per capita, globally. Now, per capita, globally, per person. Remember, a third of the people on the entire globe have never even made a phone call. So, the actual electricity usage is very localized. Some of us use a lot more than others. But that trend is not slowing down. There’s going to be a little bump for the adjustment for AI but fundamentally everything is going towards electrical power, and we need more and more of it. And it’s not going to be more coal plants.
Texas, the hydrocarbon capital of the world, they’re going to build a nuclear reactor. They need to, they understand it’s not just their relatively bad grid. It’s… they have to have the power. We probably bailed out of nuclear reactors 25 years too soon. So, we’re going to have to go back in for a little while just to keep pace with this. Don’t be surprised if it comes into your backyard.
As horrible as the flooding and everything in Texas as that was and other places. This is some research done by NOAA. This is frequencies of expensive problems, both in life and in money. Takes a little study, but it’s not just wildfires or hurricanes. It’s the severe storms, the green in the middle, the severe storms, just exactly what Texas had. Two hours and 45 minutes later, it’s over. But the damage ricochets down valleys, so on and so forth. And this is not slowing down. This frequency is going up.
Yes, the globe is getting a little warmer. The atmosphere holds more water, making rainstorms more severe. You know the rest. This is some improvement in the data, but it really is bigger numbers and it’s going to be part of everybody’s homeowners’ insurance going forward. It’s kind of in the bag already.
A couple of questions.
Is the dollar, is it really bad that the dollar gets weaker?
No, it’s not bad that the dollar gets weaker. In fact, the dollar is really not getting weaker relatively to where it’s been at all. The current administration would like to see it get weaker because it makes your products cheaper globally. And fundamentally, one of the other things that’s keeping this market moving along and this economy moving along is the United States is getting back into a global trading partner again. Forget the tariff conversation.
Like I said before, this is going to be over very soon. And it will be after the little problem with China. And this is all about the World Trade Organization. The United States is getting back into being a bigger target market. We’re never going to be 40% of global trade like we used to probably don’t want to be. It puts too much poverty out in the rest of the world that we don’t want. But having a weaker dollar makes all of our stuff cheaper. And a little weaker dollar might help bring the interest rates down, which might help that line item, anyway. Okay, here we are.
The market’s pretty good. Summer’s going to be hot. But if it slows down a little bit, and it will, don’t give it a second thought. There’s no way the Federal Reserve is going to do anything about rates until at least September. And in my opinion, not much justification for lowering them. That may be a ways down the road.
Okay, well, send questions along to info@shjwealthadvisors.com. I’m happy to deal with them. And thanks for joining me!
