NEWS PAGE 2

ECONOMIC OUTLOOK

Elliot Eisenberg
Economic & Policy Blog

Housing Halt+
Seasonally adjusted annualized July housing sales came in at 3.95 million, the 35th straight month of Y-o-Y declines, and the fifth month of sub-4 million sales, a level historically rarely seen. Troublingly, 30-year rates are 81 basis points lower Y-o-Y and months of inventory is up 21% Y-o-Y, yet sales remain anemic. First-time buyers struggle with high payments, move-up buyers remain locked-in with low rates.

Weakening Work
For the year ending 3/24, estimated job growth has been preliminarily revised down by 818,000, bringing average job growth down from 242,000/month to 174,000/month. The revision is based on data from state unemployment insurance tax records, not low response rate monthly surveys. But this data doesn’t include illegal immigrants, and this data also gets revised. Bottom line, the economy’s somewhat weaker, and that’ll increase the likelihood of Fed rate cuts.

Glittering Gold
Gold recently surpassed $2,500/oz and has been rising rapidly since 10/22, when it traded at $1,650/oz. A major reason, central bank buying. From 1970-1988, cumulative net central bank gold purchases were roughly zero. From 1989-2009, banks were net sellers every year. Since 2010, they have been net buyers every year. Moreover, through 2020 net purchases averaged about 600 tons/year. Since then, they’ve averaged 2000 tons/year, a huge increase in demand.

Bad Betting
Two recent papers show the detrimental effects of gambling. One reports that where gambling is legal, average credit scores drop 0.3% after four years, and where online betting is legal, they drop by 1% and bankruptcy filings rise 25%-30% within 3-4 years. Another paper shows that legalization boosts sports gambling, and such gambling does not lead to reductions in other gambling activities or general consumption, thus lowering savings/investment.

Insignificant Inflation
July CPI fell to 2.9%, its lowest level since 3/21, while the more important core measure hit 3.2%, its lowest since 4/21. Moreover, over the last three months core CPI is up 1.6% annualized, down from 2.1% in June. The major problem, housing. It was responsible for 90% of the CPI’s 2.9% Y-o-Y rise. Nonetheless, a 25bps September cut is guaranteed and maybe 50bps, or more likely 25bps in November.

Margin Movement
Pre-Covid, next twelve-month operating margins for fortune 500 firms on an equal weighted basis (thus largely excluding tech mega-caps), were 13%. When Covid hit they quickly collapsed to 9% by 6/20. However, over the ensuing 12 months they more than recovered and peaked at 14.5% in mid-2022. From then through mid-2023 they fell to 13.25% where they have remained since. Pricing power of most firms has largely disappeared.

Crisis Concerns
When fund managers were asked what they consider the biggest tail risk, a recession is now top for 39% of managers, up from 18% a few months ago. Geopolitical conflict is unchanged at 25%, while inflation follows at 12%, down from over 30%. A systematic credit event is cited by 11%, up slightly, then an AI bubble at 7%, and lastly a US election sweep at 4%, down from 13%.

Unemployment Upswing
The labor market is meaningfully weakening. A year ago, the Y-o-Y increase in the labor force was 3 million and net employment gains were 2.9 million. 97% of job entrants found a job. Now the labor force is 1.3 million larger than it was Y-o-Y, but employment gains have been a paltry 57,000, meaning 4% of entrants have found employment. Unsurprisingly, the unemployment rate has jumped from 3.5% to 4.3%.

EPAB Office Gets New Lighting

The EPAB office building is going on seventeen years old and as such this year we have upgraded the facility in several ways. First, Rudy Guel Construction, the primary contractor of the building, returned to do a massive recoating on the roof. Our new sealant not only is good for years, but our cooling bill went down after the first month. This was done because we had painted the entire interior with Sherwin Williams paint.

Lydia Mlouhi from Crown Heritage and daughters Lauren and Amber chaired the color selection. Representing the office I asked Margaret Adauto to use her HGTV skills to assist. Daniel Perrins led the Sherwin Williams design crew.

With the new paint came the desire to change the foyer lighting and shades. We contracted with member Gotcha Covered, whose talents were put to use. New shades went up in the offices facing the front along with blackout shades for the conference room. In anticipation of upgrading the rooms we also decided to get new chandeliers and sconces for the entry, hall, woman’s bathroom, and conference room. After requesting info from our members the team received a message from Tom Brown at City Lights with news on that front. We secured an Ellen DeGeneres design, different from the heavy older chandeliers and sconces. City Lights told us the new lights would be energy efficient to reduce consumption.

Our next move was to get Haskins Electric to do the electrical, remove the old chandeliers and install the new ones, and use some real muscle power to make the change. Chuck Haskins directed Robert Gutierrez to assign his crew Ruben and Chino.

Our building is looking refreshed, inside, and out. We look forward to sharing our fresh look with the members in a soon to be announced open house/member mixer.