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As the world watches the cyclical waltz of the US economy, we caught up with Morgan Slade, an alternative data expert at CloudQuant, to share his views on the state of the economy amid falling home prices, declining active job listings, etc. the specter of Inflation.
Gary Drenik: Hello Morgan. Given the prevailing climate, how do you forecast changes in the CPI, particularly with regard to property prices and energy?
Morgan Slade: Hello Gary. Based on the recent trends in property prices and energy costs, we expect the CPI and core CPI to fall significantly. The drop is expected by many, but there is a chance it will be larger than expected. A key factor is the drop in property prices that we have seen over the past few months and that we believe will soon be reflected in the consumer price index.
drenik: Did you see any interesting trends in your alternative data sources this month?
Slade: Yes, job posting data from one of our data partners, LinkUp, showed a trend reversal in April. After an increase in active vacancies in March, we saw active vacancies fall by 2.6% in April and the number of new vacancies fell by 7.8%. We believe employers are trying to balance the possibility of a recession against the need for growth. While there is still an oversupply of vacancies relative to labor supply, the trend appears to be towards normalization. Actual hiring rates have dropped and positions are being filled at a slower rate.
drenik: Looking at the broader economy, does the Fed feel happier that inflation is slowing?
Slade: Fed seems more comfortable with slowing inflation. Futures markets are currently pricing in a pause in rate hikes at the next meeting. We just had our tenth straight rate hike, hitting the highest level in 16 years. Also of note is the speed of this increase – it is the strongest since the 1980s. The difficulties of the regional banks as well as the commercial and partly also the residential real estate markets could also play a role in the Fed’s decision on rate hikes.
drenik: The Fed may be positive about our current state, but how are consumers doing?
Slade: Consumer survey data from Prosper Insights & Analytics says consumers don’t share the Fed’s optimism. We saw a significant drop in consumer confidence at all income levels this month. Perhaps driving this decline in confidence was a 5% increase in responses from low- and middle-income groups who indicated that they no longer felt they were saving enough for future needs. The gap between respondents’ reported spending and actual spending persists, suggesting that consumers are still not factoring the impact of inflation into their spending plans. An economist might see this as a positive sign that inflation is temporary, but a family that buys groceries and pays more than they expect would certainly not share that enthusiasm.
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drenik: Seems the Fed and consumers have opposing viewpoints. There was talk of a slowdown in economic activity and a possible mild recession. What can we derive from the Leading Economic Index (LEI)?
Slade: The LEI slipped 0.6% in April after falling 1.2% in March. These figures were in line with expectations and indicate the likelihood of a future economic downturn. This could point to a mild recession by mid or late this year. Keep in mind that the LEI is based on factors such as unemployment claims, new building permits, manufacturer orders, and stock prices, among others. In April, only the orders received by manufacturers and share prices improved.
drenik: Could we go back to the labor market? Reports point to a drop in vacancies and a spike in layoffs.
Slade: That’s right. According to the March Job Openings and Labor Turnover Survey (JOLTS), job openings in the US fell to their lowest level in about two years in March and layoffs rose sharply. However, the number of unemployed people looking for work was still outnumbered by job vacancies. In contrast, the April jobs report showed a slight increase in job creation, but also revised February and March numbers down even further, with February being revised down for the second time. We’ll add some color to this situation when JOLTS for April releases on May 31st. There is uncertainty as to whether the labor market will remain at normal levels or continue to shrink into a recession. Therefore, great interest in this publication can be expected.
drenik: Now the real estate market seems to be undergoing a clear change. Could you elaborate on that?
Slade: Surely. Last April, we saw the largest drop in sales of older apartments in 11 years, a -1.7% change from a year earlier. Overall sales volumes declined by 23.2% year-on-year. The western half of the US has seen the sharpest price declines, while many parts of the east are still rising. Home sales have fallen in 14 of the last 15 months, down about a third since early 2022. Higher mortgage rates are deterring new buyers because they make housing less affordable, and they’re also discouraging sellers because they don’t want to give up their lower rates. Mortgage rates hit a 20-year high of over 7% this past October and November, and in the week ending May 11th they are around 6.35%.
drenik: Could you comment on the correlation between these rising interest rates and the number of homes currently for sale?
Slade: The number of homes for sale is up year-on-year, but that’s mostly because homes are staying on the market longer. In fact, April listings were down 21% year over year. It’s worth noting that houses are usually contracted a month or two before the contract is signed. The sales data for April therefore describes purchases made in March and February.
drenik: It seems that there are many moving factors in the current state of the US economy. How do these threads fit together in terms of the macroeconomic outlook?
Slade: In fact, it’s like a multi-dimensional puzzle. Currently we are seeing a potential slowdown in inflation, a slowdown in the labor market and falling house prices. We expect core CPI to fall to 5.1% yoy, indicating the ongoing and evolving impact of the rapid pace at which the Fed has been raising rates. We expect the economy to reach an inflection point later this year and current data suggests the Fed will eventually achieve its goal of containing the two-sided Covid shock and fiscal stimulus it launched.
drenik: Thank you Morgan. Your insights into the current state of the US economy are invaluable.
Slade: It was my pleasure. I look forward to our next discussion.
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I cover consumer-centric insights and analysis that provide leaders with the solutions they need to execute their strategy. I’m the CEO of Prosper Business Development, where we’ve been a leader for more than 20 years, developing contemporary solutions to help Fortune 500 companies navigate the changes that impact their business. I started out in the radio industry.
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