CONSUMER WATCH
Consumer spending is growing at ~4.5% rate
“…so far, year-to-date, the amount of money moving out of their accounts in the economy, that’s through a credit card charge, debit card charge, an ACH payment, a wire, a Zelle payment, a check, cash out of the ATMs and over the transmit the branches, all going into the economy is up about 4% to 5% versus last year at this time.
That growth rate was double digits last year, i.e., in ’23 compared to ’22. So it slowed down in ’23, that 4% to 5%, it’s there’ll be 4.5%, 4.2%, 4.5%. So it’s bounced around each week. But when you look at it, that is very similar to the ’17 to ’18 when rates were raised when the economy slowed down — the economy was sitting with a 2% inflation, around 2% growth” – Bank of America (BAC 0.00%↑) CEO Brian Moynihan
Number of 401(k) Millionaires Swells Back Toward Record The amount of seven-figure retirement accounts at Fidelity Investments surged in the fourth quarter of 2023.
The number of seven-figure 401(k) accounts at Fidelity Investments jumped 20% in 2023’s final quarter to 422,000, marking a sharp recovery from the previous quarter’s 7.7% drop, an analysis released by Fidelity on Tuesday shows.
Gains in the stock market helped swell retirement balances last year as the S&P 500 advanced 24% following 2022’s 19% decline. The impressive run was powered in large part by the so-called “Magnificent 7” stocks that now make up roughly 30% of the market-cap weighted S&P 500 Index. (…)
The average age of 401(k) millionaires at Fidelity skews older at around 59. However, Gen Xers also hit a nice milestone in the last few months of 2023. Those who have had the same 401(k) plan for 15 straight years saw average balances hit $501,000. That said, the average overall retirement balance at Fidelity is far from the millionaire mark, at $118,600.
- For all of 2023, over 37% of workers with 401(k)s raised the percentage of pre-tax salary they direct into their plan. In just the fourth quarter, 10% of employees raised the percentage.
- Some 78% of 401(k) savers contributed enough to their plan to get their employer’s full matching contribution.
- Roth IRA accounts held by Gen Z savers rose 50% in 2023’s fourth quarter compared with the same period in 2022.
In September 2023, I wrote The Wealth Defect, highlighting how Fed policies were boosting wealth through rising house prices and equity markets. Continuing, isn’t it?
Chinese are experiencing the exact opposite:
(…) Once a symbol of wealth and social status, the piano appears to be losing its grip on China, particularly among middle-class households. One of the nation’s largest piano makers has warned that sales are falling by double digits. Overall domestic output last year plunged to 190,000, half the number produced four years earlier, according to the China Musical Instrument Association, a government-affiliated trade organization.
The main culprit is the squeeze on incomes and wealth caused by a slowing economy, falling home prices and a prolonged stock market rout. The triple hit has many households cutting back on nonessential big-ticket purchases.
A measure of household wealth and income fell in the final three months of 2023, according to a survey conducted by Southwestern University of Finance and Economics and Alipay. The poll also showed the share of households expecting the economic outlook to worsen over the next year rising to almost 22% in the fourth quarter, up from about 13% in the first quarter. (…)
The gloomy jobs market and the real estate meltdown are weighing on China’s middle class. Because property ownership makes up a bigger portion of net worth than in other countries, Bloomberg Economics estimates that every 5% decline in home prices wipes out 19 trillion yuan in wealth. (…)
Xi Jinping urges women to start a ‘new trend of family’ China’s birthrate dropped to 9.56M in 2022, down from 10.62M in 2021
Despite the demands to have more children, women are saying no and putting themselves ahead of what Beijing wants, according to the Wall Street Journal, and their refusal has set off a crisis for the Communist Party. (…)
Not wanting to get married, high child care costs, career hinderance and gender discrimination have deterred many young Chinese women from having children. (…)
In 2022, 6.8 million couples registered marriages, compared to 13 million in 2013, per the Wall Street Journal. China’s total fertility rate is approaching one birth per woman or 1.09. It decreased drastically from 1.30 in 2020, below the 2.1 needed to keep a stable population.
Over the last two years, authorities across China have unveiled measures to lift the country’s birth rate including financial incentives and boosting child care facilities.
Local governments are offering cash incentives for couples having a second or third child. (…)
The NYT’s Ben Casselman raises the possibility that rentflation may not decline as much as most everybody expect.
(…) The persistence of housing inflation poses a problem for Fed officials as they consider when to roll back interest rates. Housing is by far the biggest monthly expense for most families, which means it weighs heavily on inflation calculations. Unless housing costs cool, it will be hard for inflation as a whole to return sustainably to the central bank’s target of 2 percent.
“If you want to know where inflation is going, you need to know where housing inflation is going,” said Mark Franceski, managing director at Zelman & Associates, a housing research firm. Housing inflation, he added, “is not slowing at the rate that we expected or anyone expected.”
Those expectations were based on private-sector data from real estate websites like Zillow and Apartment List and other private companies showing that rents have barely been rising recently and have been falling outright in some markets.
(…) inflation data is based on rents. And with private data showing rents moderating, economists have been looking for the slowdown to appear in the government’s data, as well.
Federal Reserve officials largely dismissed housing inflation for much of last year, believing that the official data had simply been slow to pick up on the cooling trend apparent in the private data. Instead, they focused on measures that exclude shelter, an approach they saw as better reflecting the underlying trends.
But as the divergence has persisted, some economists inside and outside the Fed have begun to question those assumptions. Economists at Goldman Sachs recently raised their forecast for housing inflation this year, citing rising rents for single-family homes.
“There’s clearly something that’s happening that we don’t yet understand,” Austan Goolsbee, president of the Federal Reserve Bank of Chicago, said in a recent interview. “They ask me, ‘What are you watching?’ I would say, ‘I’m watching housing because that’s the thing that’s still weird.’” (…)
There are signs that a slowdown is underway. Rents have risen at an annual rate of less than 5 percent over the past three months, down from a peak of close to 10 percent in 2022. Private data sources disagree on how much rental inflation still has to ease, but they agree that the trend should continue.
“For the most part, they’re all saying the same thing, which is that rent inflation has moderated significantly,” said Laura Rosner-Warburton, senior economist at MacroPolicy Perspectives, an economic research firm.
(…) A boom in apartment construction in recent years has helped bring down rents in many cities. Single-family homes, though, remain in short supply just as millions of millennials are reaching the stage where they want more space. That is driving up the cost of houses for both buyers and renters. And because most homeowners live in single-family homes, single-family units play an outsize role in the calculation of owners’ equivalent rent.
“There’s more heat behind single-family, and there’s very good arguments to be made for why that heat will persist,” said Skylar Olsen, chief economist at Zillow.
After surging in 2021 and 2022, rent growth has moderated. But the slowdown has been more gradual for single-family homes than for apartments.
Single-family home rents have been outpacing apartment rents for a while now, yet only recently has inflation for owners and renters diverged. That suggests that the January data was a fluke, argued Omair Sharif, founder of Inflation Insights, an economic research firm.
“The month-to-month stuff in general can be choppy,” Mr. Sharif said. The good news in the report, he said, is that rent growth has finally begun to cool, making him more confident that the long-awaited slowdown is emerging in the official data.
That conclusion is far from certain, however. Before the pandemic, different parts of the housing market told generally consistent stories: Rents for apartments rose at roughly the same rate as those for single-family homes, for example.
But the pandemic destroyed that equilibrium, driving rents up in some places and down in others, disrupting relationships between the different measures. That makes it hard to be confident about when the official data will cool, or by how much — which could make the Fed more cautious as it considers cutting interest rates, said Sarah House, senior economist at Wells Fargo.
“Right now, they’re still assuming that there’s still a lot of disinflation in the pipeline, but it’s going to keep them guarded in their optimism,” she said, referring to Fed officials. “They do have to think about where shelter actually lands, and how long it takes to get there.”
Don’t blame the BLS, blame the pandemic which boosted everything housing, aggravated by homeowners locked into their low mortgage rate homes.
Believe it or not, there is a bit of a relationship between house prices and rent:
So the pandemic lifted rent which Zillow data quickly reflected. The BLS data is trying to catch up, but the target keeps going up. The “mark-to-market” gap is still around 10%, to be eliminated either by rent going down or the BLS data eventually catching up.
As far back as the data goes (1947), rent has never declined. It thus seems safer to expect that the BLS data will keep inflating its way towards market.
It is however disinflating from its pandemic heights…
… but probably not as much as everybody expects (hopes). Monthly “market rent” growth has stabilized near 0.4%, suggesting 4.0-5.0% rentflation for a while still.
BTW, this is where real-life single-family rent seems to be heading to as housing economist Tom Lawler shows (via CalculatedRisk):
This chart compares the YoY % change in AMH’s and INVH’s average monthly rent with the CPI’s Rent of Primary Residence (ROPR, quarterly average.)
Nothing really “weird”Mr. Goolsbee.
SENTIMENT WATCH
Aggregate insider buying and selling data paints a bleak picture with insiders selling more than 39 times as much stock as they purchased last week. The 13 week moving average Insider Sell/Buy ratio eclipsed the level we last saw in Q4 2021, which preceded a nearly 25% drop in the S&P 500 and a more than 35% drop in the Nasdaq.
We are seeing CEOs of companies like Medpace and JPMorgan who have been excellent at timing their opportunistic purchases in the past, sell stock now. This is the first time Jamie Dimon has sold common stock of JPMorgan since we started tracking this data more than 13 years ago. Three other insiders including the General Counsel of the company also joined him in selling the stock. (Inside Arbitrage)
@AsifSuria
Another form of insider buying:
(…) State funds have been key to stabilizing the latest stock rout, with Central Huijin Investment Ltd. saying earlier this month that it will continue to increase its ETF holdings. A flurry of trading volume spikes across a number of ETFs suggest authorities have been actively buying both blue-chip and small-cap stocks. (…)
