Invisible Inflation, Sickly Savings & More

The number of times the Fed boosts rates a quarter-point in 2018 will depend entirely on GDP growth and inflation. If both perk up, expect four hikes, if they both remain weak, expect two. The low and falling unemployment rate suggests that inflationary pressures should build. However, researchers find that declines in the unemployment rate today have only 30% as much influence on inflation rates as they did decades ago.


While housing starts in October rose 13.7% compared to September, they remain 2.9% below the level of 10/16, and are up just 5.8% YTD. Technically, it’s because multifamily activity is down roughly 10% YTD. That’s because multifamily activity has returned to its pre-recession level of roughly 400,000 units/year and is very volatile from month-to-month. The key, the continued painfully slow recovery in single-family activity, barely above historical recessionary lows.


Employment growth was 228,000 in November and is averaging 170,000 jobs since August. The key takeaways: the job market is very strong, and growth is well distributed with solid gains across all education levels! The hurricanes have left no traces, and while wage growth is hardly Bitcoin-esque at just 2.5% Y-o-Y, an increase in the average work week has boosted total wages by a respectable rate of 4.75% since August.


The yield spread between 10-yr and 1-yr Treasuries has shrunk from a post-recession peak of 3.4 percentage points to just 0.70 percentage points. The problem is in prior Fed rate rising cycles, the yield on the 10-yr rose as faster growth was expected; now the 10-yr yield is trendless. Moreover, Treasury is exacerbating this by shortening the duration of US debt, and long-term rates in Europe and Japan are microscopic.


The personal savings rate fell to just 3.1% in September, its lowest level since 12/07, the start of the Great Recession. The decline is undoubtedly being caused by record gains in household net worth. As a percent of disposable income, it’s 670%, well above the Housing Boom high of 650%. Ever higher bond, equity, housing, and real estate prices are feeding wealth. Should they weaken, growth will, at best, stall.


In 1960, in 14.6% of marriages husbands had more education than wives. The reverse was the case 7.1% of the time. The remaining 78.3% of marriages had spouses of equal education. This imbalance peaked in 1980 when in 23% of marriages husbands were better educated while in 11% the wife was. Now, in 25.3% of marriages the wife is best educated while the reverse occurs 24.5% of the time.

Source: Elliot Eisenberg, PhD., Chief Economist for GraphsandLaughs, LLC, an economic consulting firm serving a variety of clients across the United States. All rights reserved..

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