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  COVID-19 Tracker 10/22/2021
Posted Under: COVID-19

 
With the Delta variant still on everyone's mind, we continue to hear about school closings, mask mandates, potential shutdowns, vaccine mandates, vaccine effectiveness, the list goes on and on. The vaccines have clearly led to a lower overall level of deaths during this recent wave of Delta variant cases, and that represents considerable progress. There are still many questions out there, and it's important to follow the data closely.

Click here to view the report
Posted on Friday, October 22, 2021 @ 10:09 AM • Post Link Share: 
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  Existing Home Sales Increased 7.0% in September
Posted Under: Data Watch • Home Starts • Housing • Inflation • COVID-19

 
Implications: Existing home sales surprised to the upside in September, posting the largest monthly gain in a year and rising to the fastest pace since January. Since the pandemic hit US shores in early 2020, sales of existing homes have been through a wild ride, as the nearby chart shows.  Now it looks like the upward trend in sales may be returning despite buyers' ongoing struggle with higher prices and lack of supply.  The number of listed, but unsold, existing homes was 1.27 million in September, the lowest number for any September on record (dating back to 1999).  Our expectation is that listings will soon move upward again, at least on a seasonally adjusted basis, as virus fears fade.  Meanwhile, the months' supply of existing homes for sale (how long it would take to sell today's inventory at the current sales pace) fell to 2.4 months in September, remaining near record lows.  Despite the ongoing shortage of listings, there is still significant pent-up demand from the pandemic, with buyer urgency so strong in September that 86% of existing homes sold on the market for less than a month.  The combination of strong demand and sparse supply has pushed median prices up 13.3% in the past year, but the good news is that price gains have been decelerating rapidly since hitting a year-to-year gain of 23.6% in May.  Sales in 2021 are on track to be the highest for any calendar year since 2006 and we expect another solid year in 2022 as more inventory becomes available and price gains continue to moderate.  Millennials are now the largest living generation in the US and have begun to enter the housing market in force, making up over 50% of new mortgage issuance for the first time in 2019. This represents a demographic tailwind for sales for the foreseeable future. In other news this morning, initial jobless claims fell 6,000 last week to 290,000.  Meanwhile continuing claims declined 122,000 to 2.481 million. Both of these readings represent new lows for the pandemic recovery and signal an acceleration in job gains in October.

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Posted on Thursday, October 21, 2021 @ 1:58 PM • Post Link Share: 
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  Recovery Tracker 10/21/2021
Posted Under: Bullish • COVID-19

 
The table and charts in the Recovery Tracker track high frequency data, which are published either weekly or daily. With most states reopening their economies and widespread distribution of COVID-19 vaccines, these indicators show continued improvement in economic activity. It won't improve in a straight line, but the trend should remain positive over the coming months and quarters. The charts in the Recovery Tracker highlight where the high frequency data indicators were in 2019, 2020, and in 2021.

Click here for this week's Recovery Tracker
Posted on Thursday, October 21, 2021 @ 12:04 PM • Post Link Share: 
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  Housing Starts Declined 1.6% in September
Posted Under: Data Watch • Home Starts • Housing • Inflation • COVID-19

 
Implications:  In the past fifteen months, housing starts have averaged a 1.554 million annual rate and starts this September came in at 1.555 million, almost exactly that average, although 1.6% lower than in August.  Starts continue to bounce around that average as builders deal with ongoing issues surrounding supply chains and shortages of labor. In addition, housing activity was likely held back by Hurricane Ida, which caused power outages in Louisiana and flooding in New Jersey.  Looking at the details, all of the decline in September came from the volatile multi-family sector, where activity fell 5.0% (due to weakness in the Northeast and the South).  Meanwhile, single-family construction was unchanged.  However, in the past year multi-family starts are up 38.5% while single-family starts have fallen 2.3%.  It looks like developers may be shifting some resources away from single-family home construction and toward larger apartment buildings in response to rapidly rising rents as some people move back into big cities and the eviction moratorium ends.  Zillow estimates that rental costs for new tenants are up 9.3% in the past year and Apartmentlist.com estimates they have risen an even faster 15.1%, easily exceeding typical gains in the 3.0 – 4.0% range. Recent distributional effects aside, housing construction remains healthy.  Looking at the 12-month moving average of overall housing starts to help sift through recent volatility shows residential construction now stands at the fastest pace since 2007.  While the monthly pace of activity will ebb and flow as the recovery continues, we expect housing starts to remain in an upward trend.  A big reason for our confidence is that builders have a huge number of permitted projects sitting in the pipeline waiting to be started.  In fact, the backlog of projects that have been authorized but not yet started is currently the highest since the series began back in 1999.  Given this, it's not surprising or worrisome that permits for new building projects fell 7.7% in September.  Keep in mind, the US needs roughly 1.5 million housing starts per year based on population growth and scrappage (voluntary knockdowns, natural disasters, etc.).  However, we haven't built that many new homes in any calendar year since 2006.  With plenty of future building activity in the pipeline and builders looking to boost the inventory of homes and meet consumer demand, and as more Millennials finally enter the housing market, it looks very likely construction in 2021 will cross the 1.5 million unit benchmark this year and then move higher in 2022. In other recent housing news, the NAHB Housing Index increased to 80 in October from 76 in September, indicating plenty of demand for housing. 

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Posted on Tuesday, October 19, 2021 @ 11:02 AM • Post Link Share: 
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  Industrial Production Declined 1.3% in September
Posted Under: Data Watch • Employment • Government • Industrial Production - Cap Utilization • Retail Sales • Fed Reserve • COVID-19

 
Implications:  September was a perfect storm for the US industrial sector, with lingering effects from Hurricane Ida and ongoing supply chain issues coming together to generate an ugly report. The headline index fell 1.3% in September, with every major category contributing to the decline.  Meanwhile, the readings on activity in prior months were revised down as well.  Overall, the Federal Reserve estimates that roughly half of the decline in industrial production in September can be attributed to the hurricane.  Looking at the details, the manufacturing sector led the headline index lower, falling 0.7%.  Both auto and non-auto manufacturing posted declines, but the 7.2% drop in the auto sector due to ongoing issues with semi-conductor shortages illustrates the persistence of supply-chain disruptions in certain key sectors.  Meanwhile, activity in the mining sector fell 2.3%, though the Federal Reserve made a point of noting that this was entirely due to short-term Hurricane Ida disruptions. Look for the mining sector (think oil rigs in the gulf) to be a tailwind for overall industrial production in the months ahead as activity ramps up in crude oil and natural gas extraction, spurred on by a rebound from Ida-related problems as well as prices that are now at the highest levels since 2014.  Finally, utilities output fell 3.5% in September as demand for air conditioning declined after an unseasonably warm August.  Looking at things more broadly, today's decline leaves industrial production 1.3% below its pre-pandemic level and production still has a long way to go to meet current demand.  For example, last week's report on retail sales showed that consumer spending is up 18.9% over that same time period.  Ongoing issues with supply chains and labor shortages are hampering a more robust rise in activity, with job openings in the manufacturing sector currently near a record high and more than double pre-pandemic levels.  This mismatch between supply and demand is why inflation continues to defy the "transitory" narrative.  Look for industrial production to start bouncing back in the months ahead in an effort to close that gap.

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Posted on Monday, October 18, 2021 @ 12:34 PM • Post Link Share: 
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  Respect Millennials
Posted Under: Markets • Monday Morning Outlook • Bonds • Stocks
Politics today is in large part about pitting one group against another and convincing one side they've been treated unfairly.  One of those groups is the younger generation of workers known as Millennials, who are supposedly up to their eyeballs in debt and lagging well behind prior generations.

Before we get into it, let's define who we're talking about:
  • Millennials (born 1981-96)
  • Generation X (born 1965-80)
  • Baby Boomers (born 1946-64)
  • Silent Generation (born before 1946)
Politics is a zero-sum game, so instead of focusing on whether the pie is growing or shrinking, politicians and many others like to focus on who owns what share of the pie.  In this case the pie we're talking about is total wealth among all American households.  In turn, net worth is assets (stocks, bonds, real estate, mutual funds, bank deposits, pension entitlements, and ownership in businesses) minus liabilities (mortgages, student loans, car loans,...etc.).
   
As of the middle of this year, Baby Boomers had 51.4% of all net worth, according to the Federal Reserve.  Pretty good for a group that makes up about 21% of the US population.  Generation X has 28.6% of US wealth. 

Meanwhile, Millennials are lagging way behind.  This group – which now has 22% of the US population, slightly more than Boomers – has only 5.6% of US household net worth.

It's no wonder some politicians have been talking about this issue: there are more Millennials than Boomers but Boomers have about nine times more wealth than Millennials.  Unfair!

The problem with these numbers is that despite being 100% accurate, they're 100% misleading.  Each generation's share will rise and eventually fall as they start out young, hit their peak earning years, pay off debts, and then enjoy compounding returns on accumulated investments later on in life, before eventually spending down those assets.  Back in 1989, the Silent Generation had almost 80% of all net worth.  Today, they have 14.4%.

There is a much better way to look at the generations.  Rather than looking at the share of total net worth, we should look at the average level of net worth for each generation as they age from young to old.  Essentially, take each generation's total net worth, divide it by the number of households within each generation (some generations are bigger than others), and then adjust for inflation.  Credit where credit is due: this method was originally developed by Jeremy Horpedahl, a very insightful economics professor at the University of Central Arkansas.  We gave his method a couple of tweaks and reached essentially the same conclusions.

We estimate that the typical Boomer was born in the fourth quarter of 1955.  So, as of mid-2021, the typical Boomer was 65.5 years old.  Right now, the average Boomer household has a net worth of $1.629 million.  (Remember, this is an average, so it includes Jeff Bezos.)  By contrast, the typical Gen Xer now has $1.108 million.  (Yes, this includes Elon Musk.)
 
Superficially, it's advantage Boomers.  But the typical Gen Xer was born in the third quarter of 1972, and so was age 48.75 in the middle of this year.  That means Boomers have had longer to accumulate assets and earn compound returns.

But when comparing Boomers to Gen Xers, what we really want to know is how much net worth Boomers had back when they were 48.75 years old.  And guess what?  When you adjust for inflation, the typical Boomer household had $730,000 back then, well below today's Gen Xers, with $1.108 million.  So when you adjust for age and inflation, the average Gen X household is beating the average Boomer household. (And Bob Stein won't let Brian Wesbury forget it.)

Unfortunately, the data only go back to 1989, and can't yet directly compare Millennials to Boomers.  But we can compare Millennials to Gen X.  Today, the average Millennial household, at age 32, has a net worth of $196,000.  (Yes, this includes Mark Zuckerberg.)  Back when Gen Xers were age 32, they had an inflation-adjusted $158,000. (And you can be sure Strider, Andrew, and Bryce won't let Bob forget it!)

The bottom line is that, at the same point in their lives, the average Gen Xer is better off than the average Boomer and the average Millennial is beating the average Gen Xer.

None of this means this pattern will persist.  If policymakers obsess about shares of net worth rather than growing the whole pie, they may adopt more policies that slow economic growth and wealth creation and then Millennials could end up being thrown off track.  For now, however, it's important to recognize that Millennials don't have it as bad as many think.

Brian S. Wesbury – Chief Economist
Robert Stein, CFA – Deputy Chief Economist 

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Posted on Monday, October 18, 2021 @ 12:13 PM • Post Link Share: 
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  COVID-19 tracker 10/15/2021
Posted Under: COVID-19

 
We have received a significant number of requests to continue publishing the COVID-19 tracker. With the Delta variant on everyone's mind as cases rise again, we are hearing more about school closings, mask mandates, potential shutdowns, vaccine mandates, vaccine effectiveness, the list goes on and on. The vaccines have clearly led to a lower overall level of deaths during this recent wave of Delta variant cases, and that represents considerable progress. There are still many questions out there, and it's important to follow the data closely.

Click here to view the report 
Posted on Friday, October 15, 2021 @ 3:37 PM • Post Link Share: 
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  Retail Sales Rose 0.7% in September
Posted Under: Data Watch • Inflation • Retail Sales • Trade • COVID-19

 
Implications: Retail sales continued to show strength in September, surprising the consensus and rising 0.7% for the month.  The sales gains were broad, with eleven of thirteen major categories up in September, led by general merchandise stores (back-to-school shopping!) and at gas stations (more miles driven and consumers paying more at the pump).  Overall sales are up a robust 13.9% from a year ago.  Another way to look at it is that sales are up 18.9% versus February 2020, which was pre-COVID.  "Core" sales, which exclude the most volatile categories of autos, building materials, and gas station sales, rose 0.7% in September, are up 14.2% from a year ago, and up 19.4% versus February 2020.  In other words, due to temporary government support, retail sales are running much hotter than they would have in the absence of COVID, even as the level of output (real GDP) is still running lower than it would have been in the absence of COVID.  It has not been an even recovery for all major categories, though.  For instance, non-store retailers (+36.1%) and sporting goods stores (+37.1%) have grown significantly faster than overall retail sales since February 2020.  The last category of sales to get above February 2020 levels was restaurants & bars, which finally moved into the green in April and are now up 9.3% from 19 months ago.  Looking ahead, given that overall retail sales are still far above the pre-COVID trend, we expect a modest trend decline in the year ahead.  However, as long as policymakers don't panic again about COVID, we also expect sales at restaurants & bars to buck that trend and move higher, along with sales of services not counted by the retail trade report, as America gets back toward normal.  In the months ahead, the path of retail sales will be a battle between a number of opposing factors.  Rising wages, jobs, and inflation will all be tailwinds for retail sales, while the waning of the temporary and artificial boost from "stimulus" checks along with the end to overly excessive jobless benefits will be headwinds. In other factory related news this morning, the Empire State Index, a measure of New York factory sentiment, declined to a still elevated +19.8 in October from +34.3 in September. Finally, we also got trade inflation data this morning.  Import prices rose 0.4% in September while export prices increased 0.1%.  In the past year, import prices are up 9.2%, while export prices are up 16.3%.  These figures add to the evidence that the Federal Reserve is too loose.

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Posted on Friday, October 15, 2021 @ 11:51 AM • Post Link Share: 
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  Recovery Tracker 10/15/2021
Posted Under: Bullish • COVID-19

 
The table and charts in the Recovery Tracker track high frequency data, which are published either weekly or daily. With most states reopening their economies and widespread distribution of COVID-19 vaccines, these indicators show continued improvement in economic activity. It won't improve in a straight line, but the trend should remain positive over the coming months and quarters. The charts in the Recovery Tracker highlight where the high frequency data indicators were in 2019, 2020, and in 2021.

Click here for this week's Recovery Tracker
Posted on Friday, October 15, 2021 @ 9:35 AM • Post Link Share: 
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  The Producer Price Index (PPI) Rose 0.5% in September
Posted Under: CPI • Data Watch • Employment • Government • Inflation • Markets • Retail Sales • Fed Reserve • Interest Rates • Spending • Bonds • Stocks • COVID-19

 
Implications:  While yesterday's report on consumer prices showed inflation rising at the fastest annual pace since 2008, price pressures further back in the pipeline are even more severe, with the twelve-month rise in producer prices hitting the highest level since 1981.  Producer prices rose 0.5% in September, are up 8.6% in the past year, and up at an even faster 9.8% annualized rate in the past six months.  For years after the financial crisis, the question from many was whether the Fed could induce even 2.0% inflation; now there's increasing skepticism that the Fed's "transitory" inflation will get back down anywhere near 2% in the foreseeable future.  Supply-chain issues continue to exert significant upward pressure on prices, with no end in sight.  From the shortage in semiconductors that has slowed production of everything from cars and trucks to household appliances, to difficulties finding labor to fill the record number of job openings in the US, supply simply hasn't kept up with demand.  And while the port congestion gets the news coverage, each step in the distribution process – from drivers to move loads out of the ports, trains available to move them across the country, and staff available to unload at warehouses – faces difficulties trying to meet demand.  As last week's jobs report showed, employees are working longer hours to make up for a lack of staff.  But, with consumption of goods up more than 20% from pre-covid levels while nonfarm payrolls remain nearly five million workers short of pre-COVID staffing, it is a steep uphill battle.  The shutdowns of 2020 dumped sand in the gears of the intricate free-market system that intertwines business in a near miraculous chain of connections that bring components from around the world together to produce products as simple as a pencil and as complex as pocket computers.  And while producers were crippled, demand has been amplified by an M2 money supply that is 34% above pre-COVID levels, leaving both consumer and corporate pockets flush with cash.  While supply-chain issues will ultimately prove temporary, the huge increase in the money supply is what will drive inflation over the long term.  In terms of the details for September, prices for goods led the overall index higher, rising 1.3%.  The most notable increases came from rising costs for food and energy.  Stripping out the typically volatile food and energy components shows "core" prices rose 0.2% in September and are up 6.8% in the past year.  In spite of inflation running well above the 2% target no matter how you cut it, we don't expect the Fed to signal any change in plans to keep short-term rates near zero for the foreseeable future.  They will likely begin to pare back asset purchases following the meeting in early November, but we do not anticipate a taper "tantrum" as we saw back in 2013.  What matters most for the economy – and markets – is when the Fed lifts the Federal Funds rate, and that is still a long ways off.  The labor market has to heal considerably further to get the Fed to seriously consider liftoff.  Speaking of the labor market, data out this morning shows initial jobless claims fell 36,000 last week to 293,000 (the first sub-300,000 reading since early March 2020).  Meanwhile continuing claims declined 134,000 to a new recovery low of 2.593 million.  All eyes will be on jobs throughout the final quarter of 2021 and we expect job growth to accelerate.

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Posted on Thursday, October 14, 2021 @ 11:06 AM • Post Link Share: 
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