The Week in Charts (9/6/23)

Author

Charlie Bilello
September 06, 2023

Hi everyone,

4 New Posts...

Have a great week!

-Charlie

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(Note: click here to read on the blog)

The most important charts and themes in markets and investing…

1) The Loosening Labor Market

187,000 new jobs were added in August, the 32nd consecutive months of gains.

The US Labor Force Participation Rate moved up to 62.8% in August, its highest level since February 2020. The Participation Rate among prime-age workers (25 to 54) is at 83.5%, the highest since May 2002.

While the trend is clearly still positive, a number of signs are pointing to a loosening in the labor market:

  • Total jobs in the US increased 2.0% over the last year, the lowest YoY growth rate since March 2021.

  • The Unemployment Rate moved up to 3.8%, its highest level since February 2022.

  • The percentage of US workers quitting their jobs has moved down to 2.3%, the fewest since January 2021. And the 1.5 job openings per unemployed person in the US is lowest since September 2021.

  • US Average Hourly Earnings increased 4.29% YoY in August, the slowest growth rate since July 2021.

2) Falling Rents

US Rents are 1.2% lower than a year ago, the biggest YoY decline since December 2020.

72 out of the 100 largest cities in the US had negative rent growth over the past year.

With vacancy rates rising to their highest levels since 2020, this should continue to help cool rental price inflation in the near term.

With actual rents falling, we should see a continued downward move in the lagging Shelter component of CPI, which remains elevated at 7.7% YoY. And given its huge weighting, this should drive core inflation rates lower in the months to come.

3) Falling Home Prices

The 20-City Home Price Index from Case-Shiller showed another year-over-year decline in June, down 1.2%.

Here’s the breakdown by city…

4) Falling Commercial Real Estate

Commercial property prices in the US are down 16% from their peak in March 2022. The Office sector has fared the worst, down 31%.

5) Falling Investor Demand

The spike in mortgage rates combined with falling home prices/rents has led to a collapse in investor demand for homes in the US. Investor purchases fell 45% over the last year, outpacing the 31% decline in overall home sales.

Investor purchases now make up 15.6% of the market, down from a record high of 20.4% in early 2022.

6) The Master of Credit Cards

Mastercard is back at an all-time high, up 622% over the last decade vs. a 230% gain for the S&P 500.

Their recent earnings report noted “resilient consumer spending, particularly in travel and experiences.” Revenue and Net Income hit new highs in Q2, up 14%/25% over the prior year. Over the last 10 years, both have more than tripled.

Making a few % off of every transaction is an extremely profitable business, with net profit margins above 43%. And investors are paying a premium for that with a current price to sales ratio of 16.7x, up from less than 10x a decade ago.

The growth over the last decade for Visa and Mastercard has been tremendous, with fees paid by merchants rising from $33 billion in 2012 to $93 billion in 2022.

And those fees are set to go up once again…

7) Will Rising Oil Lead to Another Rate Hike?

Crude Oil futures have risen to their highest levels of the year ($86/barrel), up over $20 from their lows.

The negative comps vs. 2022’s elevated levels had been a tailwind for CPI for months, but that is now coming to an end.

The forecast from the Cleveland Fed: higher commodity prices will lead to higher CPI in August (3.8%) and September (3.9%), up from 3.2% in July. At the same time, however, Core CPI (excludes food/energy) is expected to fall to 4.3% in September, down from 4.7% in July.

Will the rise in overall CPI cause the Fed to move again?

The market is currently saying no in September (95% probability of a pause) but maybe in November (>40% probability of a 25 bps hike).

8) Deeper in Debt

The US National Debt has now increased by $1.45 trillion since the debt ceiling was suspended 3 months ago and is fast approaching $33 trillion. In the past five years the national debt has increased by 53%, from $21.4 trillion to $32.9 trillion.

9) A Few Interesting Stats

a) Nearly half of all new homes built in 2022 had at least 4 bedrooms, up from less than 20% in the early 1980s.

b) The US Bond Market has now been in a drawdown for over 3 years, by far the longest bond bear market in history.

c) Investor returns have trailed fund returns by 1.68% annualized over the past decade, largely a function of investors chasing performance (buying high and selling low).

d) Simply buying the S&P 500 instead of following Michael Burry’s stock market warnings in recent years would have made an investor money each time with an average annualized gain of 34% over the subsequent 6 months. (Video Discussion)

And that’s it for this week. Have a great week!

-Charlie

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