Friday Fact Pack! Revised GDP number
By Hightower Las Vegas and RCG Economics on August 26, 2022
The Bureau of Economic Analysis released its updated estimate of Q2 GDP on Thursday, finding the U.S. economy contracted less than previously estimated. U.S. gross domestic product is now believed to have fallen at a 0.6 percent annual rate from April to June, rather than the initial 0.9 percent that was reported.
The Labor Department reported Thursday that initial jobless claims—a proxy for layoffs—decreased by 2,000 week-over-week to a seasonally adjusted 243,000 last week, holding steady near the measure’s highest level this year as the tight labor market continues.
The duration of joblessness (i.e., how long it takes workers who lost jobs to find new employment quickly):
Source: The Daily Shot
Productivity by Region
The national labor productivity growth rate from 2007 to 2021 for the private nonfarm sector was 1.4 percent per year. Output grew 1.7 percent while hours worked grew 0.3 percent per year.
The four census regions mirror the national trend of output growing faster than hours worked. Hours grew more noticeably in the West and South than in the Northeast and Midwest, per this Bureau of Labor Statistics graph:
(Note: Per the Bureau of Labor Statistics, labor productivity growth compares the amount of output with the amount of labor used to produce that output.)
Personal Consumption Expenditures (PCE)
The PCE price index, released each month in the federal government’s Personal Income and Outlays report, reflects changes in the prices of goods and services purchased by consumers:
Source: Goldman Sachs
Hightower partner and wealth management advisor Adam Thurgood:
“Unlike the past decade when most components of the inflation composite were rising at modest levels, today we are facing an environment where 60 percent of the components are rising at greater than a 4 percent year-over-year rate.
Nearly 35 percent of the components have increased at greater than a 6 percent rate. Bottom line? Inflation is more broad-based, which makes the job of bringing it down more difficult.”
S&P Highs
It took the stock market several years after the tech bubble burst in 2000 to get back to a new high in 2007, only to come crashing down as a result of the financial crisis. Another several years later it reached a new high in 2013 and, since then, has enjoyed a relatively lengthy period where it maintained a consistently high level. After today’s comments by Fed Chair Jerome Powell, we may need to update this graph:
Student Loan Debt
Unless you were living under a rock this week, you know President Biden is set to cancel $10,000 of student debt for millions of Americans and as much as $20,000 for low and middle-income groups that have received a Pell grant in the past.
The loan forgiveness will be given to those who earn less than $125,000 per year, or whose families earn less than $250,000 per year. The Biden Administration is also expected to extend the moratorium on monthly payments and interest once again, until the end of this year.
According to the Federal Reserve, the level of outstanding student debt in the U.S. reached $1.75 trillion by the end of 2021. As the following Statista chart shows, the student debt burden has more than tripled over the past 15 years.
Student loans are the second largest category of household debt in the U.S., trailing housing debt by a wide margin. Auto loans are the third largest category at $1.3 trillion.
Lithium Boom
Price tracking from Trading Economics on lithium carbonate, which is needed for the production of the batteries used in electric vehicles, has seen a huge price spike over the last few months — it’s being traded above the 450,000 Chinese yuan/tonne mark since February.
Despite ongoing global supply chain issues, the expected lithium price hikes, and with demand predicted to rise aggressively, producers of electric vehicles are under increasing pressure to maintain affordable pricing.
The amount of lithium required varies by electric vehicle, but ranges from 17 to 22 pounds. The world’s biggest lithium producers are Australia, Chile and China.
The U.S. currently has one operating lithium mine, Albermarle’s Silver Peak operation in Nevada.
Nevada Reports Fewer Gun Sales per Capita Than Most States
The FBI has tracked gun background checks since the 1990s, and reports the results in its Firearms Background Check Database. Background check figures, often used as a proxy for gun sales, have risen in most years — and much faster than the American population has.
There are almost 400 million guns in the U.S — 1.2 per person — by far the most among all nations. By contrast, in Canada there are 0.34 guns per person.
Nevada is, perhaps surprisingly, ranked 42nd among states for gun sales per capita:
According to the Gun Violence Archive, there were 45,041 gun deaths in the U.S. last year. Slightly more than half were suicides.
Heavy Drinking Counties
The BarstoolSports.com infomap below shows which U.S. counties have the highest ratio of heavy drinkers, based on self-reported data from the CDC and Prevention’s Behavioral Risk Factor Surveillance system.
For the 2021 report, the University of Wisconsin relied on 2018 data and categorized excessive drinking as five or more drinks per occasion for men, four or more per occasion for women.
Housing Growth
A new Stessa report looking at the U.S. locations that have seen the largest growth in housing between 2010 and 2020 — driven by low interest rates, strong savings rates, wage growth, and shifting consumer preferences for housing — found that Nevada experienced the 6th largest growth rate (11.2 percent) out of all states.
High demand has led to reduced housing supply: the U.S. is short nearly 4 million housing units based on the country’s population and housing needs.
One reason for the shortage in supply is less investment in new housing since the housing bubble burst in the mid-2000s. Economist and Fact Pack co-publisher John Restrepo explains:
“Seasonally adjusted spending on residential construction exceeded $1 trillion in inflation-adjusted dollars in 2006, but spending dropped off by more than two-thirds during the Great Recession and was slow to rebound.
It was not until the recent buying frenzy that residential construction really began to accelerate. Spending has increased by more than 33 percent since the pandemic began in March 2020, and the market is now approaching peaks last seen in the housing bubble.”
Infomap showing where growth has accelerated most:
Here’s the original Stessa report, which includes a table with data on more than 350 metros and all 50 states.
Last month, new single family home sales dropped 30 percent compared to last year:
Source: The Daily Shot newsletter
Real Estate Investment
REITs — real estate investment trusts — fall into roughly 17 categories, according to data from Nareit. Below, a Visual Capitalist infographic digs into each type:
Below, each sector is ranked by Visual Capitalist based on earnings in the first quarter of 2022 as measured by funds from operations (FFO). FFO looks at cash flow earned from operations and is considered a broad performance indicator for the industry.
Thanks to long-term leases—often between 5 and 10 years—REITs can provide stable dividend earnings to investors. In 2021, the average dividend yield of U.S. REITs was 2.6 percent, more than double the yield of the S&P 500 at 1.2 percent.
In addition, REITs can serve as well-positioned investments during inflationary environments. As the table below shows, during periods of high inflation REITs average annualized returns were 16 percent. Even better, REIT earnings increased as inflation levels continued to rise. Of course, past performance is not indicative of future results.
Pet Eats
U.S. pet owners are expected to spend around $54 billion on pet food in 2022, an increase of around $25 billion from 2017. As Statista’s chart based on estimates from the Statista Consumer Market Outlook shows, per-capita sales in the U.S. are also growing.
Pet food sales are expected to see an average annual growth rate of 8.5 percent from now until 2027, when they are forecast to hit $80.75 billion. The U.S. generates the most revenue for pet foods out of any country in the world.
Taiwan
With China’s provocations getting increasingly aggressive in recent months, Taiwanese officials this week unveiled a proposal to boost the island’s military budget 13 percent — the largest year-over-year increase since 2007 — and allocate an additional $3.6 billion in “special expenditures” to purchase fighter jets, missiles, naval ships, and weapons systems.
Taiwan’s Ministry of National Defense also said yesterday it will install a drone defense system next year after a video emerged of Taiwanese soldiers throwing rocks at a drone believed to be piloted by a Chinese civilian flying over a Taiwanese military post.
On the Horizon
Mike PeQueen: Next Friday brings the August non-farm payroll report which will show whether the Fed’s aggressive rate hikes has slowed the labor market. Last month, 528,000 jobs were created, and the unemployment rate fell to 3.5 percent. Unless those numbers begin to soften a bit, it’s hard to imagine how the Fed will become more dovish.
Next week’s MarketWatch calendar:
