ECONOMIC OUTLOOK
Elliot Eisenberg, Ph.D. is an internationally acclaimed economist and public speaker specializing in making economics fun, relevant and educational. Dr. Eisenberg earned a B.A. in economics with first class honors from McGill University in Montreal, as well as a Master and Ph.D. in public administration from Syracuse University. Eisenberg is the Chief Economist for GraphsandLaughs, LLC, a Miami-based economic consultancy that serves a variety of clients across the United States. He writes a syndicated column and authors a daily 70-word commentary on the economy that is available at www.econ70.com.
After comparing $4 trillion of international shipments to the US between 1/24 and 11/25, researchers find foreign exporters absorbed 4% of recent tariff increases, American consumers and importers absorbed the remaining 96%. This shows tariffs, as predicted by economic theory, are not a way to boost the wealth of nations imposing the tariffs. The $200 billion in added tariff revenue has raised prices, temporarily fueled inflation, and altered trade patterns.
If an economy is at full employment and enjoys stable inflation, wage growth will equal labor productivity growth plus inflation (LPG+I). If wages exceed LPG+I, unemployment is too low and inflationary pressure will build. If the opposite is true, there’s labor market slack and inflationary pressures will weaken. Wage growth is now 3.8%, and LPG+I is 4.6%, signaling modest excess labor supply even though the unemployment rate is just 4.4%.
While unlikely, these outcomes are all possible: an indictment of Powell; an administration win in Cook v. Trump; Powell staying on the board after his Chair term expires; a Fed Board Chair vs FOMC Chair split; a Fed Chair loyal to the President; and a Fed Chair nominee being defeated in the Senate. The chances of even one of these outcomes occurring is quickly increasing and would give markets jitters.
December median existing home sales jumped 5.1% M-o-M but just 1.4% Y-o-Y and remain near historic lows. A strong reason for any sort of sales bump is prices are falling. The median price has fallen for the second straight month, and in five of the past six. Moreover, new home prices fell 3.3% M-o-M in October, are down 8.8% Y-o-Y, and are at their lowest price since 7/21.
To improve housing affordability, President Trump is considering banning large institutional investors from buying single-family houses. This is a bad idea. First, there are about 16 million rental homes in the US and large institutional investors own 2%. Second, the ban might reduce construction as a key source of demand disappears. Third, the fundamental reason housing is so costly is a lack of supply, solving that requires building more homes.
