Location Strategy Chartbook 02.15.25

When Wednesday’s US consumer price index figures were released, they surprised almost every last economist with the magnitude of the price gains and hammered assets from Treasuries to stocks.

But that report may not even be the most troubling piece of news on inflation over recent days. The latest readings on inflation expectations from two separate surveys, from the University of Michigan and the New York Fed, suggest American consumers may be getting unsettled by the warnings — and in at least one case actual implementation of — tariff hikes by Trump.

What’s a lot harder to come by is any guess as to how the so-called Department of Government Efficiency will affect the level of federal spending and fiscal deficits, and how that would shape the path for growth, inflation or unemployment.

Stephen Jen, chief executive at Eurizon SLJ Capital, has warned against dismissing DOGE’s push to tamp down federal outlays, in part because it’s led by Elon Musk, who has delivered on big visions in the past — such as electric vehicles that excite demand, even if they may take longer in time to arrive than he first laid out.

Musk last year envisioned finding $2 trillion of savings in federal spending, which totaled $6.75 trillion for the 2024 fiscal year. Last month, he shifted to describing that as a “best-case outcome,” while expressing optimism there was a good shot at $1 trillion.

Matthews: We’ve witnessed a historic divergence between the 10-Year Treasury yield and the Federal Funds Rate i.e. the market and the Fed aren’t on the same page.

Last Friday’s Personal Consumption report from the BEA showed a significant revision downward to the personal savings rate while also showing prices inflated at a slower pace than the annual average in December.

Institutions largely hit the pause button in 2H 2022 and 2023 but Blackstone, KKR, and others made big moves in 2024.

A record high in loan maturities is expected in 2025. Many of these loans received short-term extensions in 2024 and will now require refinancing, but in many cases, selling the asset will make sense for the owner.

Lenders are less willing to offer extensions, leading to higher transaction volume as owners are pushed to sell assets rather than refinance under unfavorable terms.

CRE Daily: CRE Fundraising Falls For 3rd Straight Year, Down 35% YoY. Fundraising for North American CRE fell to $80B in 2024, the lowest level since 2016 and a steep drop from 2021’s $155B peak.

Core fundraising showed resilience with $9.5B raised, a record high. The un-invested capital stockpile is also shrinking, down 40% from 2022.

Costar: Analysts said new tariffs being planned by President Trump on imported steel and aluminum could further increase construction costs for residential, commercial and infrastructure projects, on top of added expenses from previously announced tariffs on imported goods.

Trump said Sunday he was planning to impose a new 25% tariff on all steel and aluminum imports into the United States. Also coming this week are planned new reciprocal tariffs, matching other countries’ tariffs on multiple types of goods that are exported by the U.S., Trump said.

The U.S. in 2024 imported steel from 79 countries and aluminum from 89 countries, with a total value of about $49 billion, according to the U.S. International Trade Administration. Canada was by far the largest source of U.S. steel and aluminum imports, totaling more than $16 billion.

According to the National Association of Home Builders trade group, more than 70% of imports on essential materials, such as softwood lumber and gypsum, come from Canada and Mexico. Trump imposed a 30-day delay on a 25% tariff that was originally slated to take effect Feb. 4 on Canadian and Mexican goods, though a new 10% tariff on Chinese goods did take effect that day.

Developers and buyers of real estate projects from homes to offices could see price spikes as a result of tariffs as construction firms struggle to meet cost projections.

“Existing contracts may not include provisions for cost adjustments due to tariffs, leaving owners and contractors to negotiate how to handle these unexpected expenses,” attorney Jeanne Harrison said in a blog post from law firm Holland & Knight. “Additionally, the tariffs may also disrupt supply chains, leading to delays in material delivery and impacting project timelines and completion dates.”

A large part of the drop in MoM spending in January was likely weather-related, with weakness in southern states that received snow and ice in January, especially in Georgia and Florida. Spending in California rose faster than the US average, likely driven by initial rebuilding efforts following the devastating wildfires in Los Angeles (LA) last month. According to Bank of America aggregated card data, the wintery weather in the South had the greatest impact on in-person retail spending throughout the region. While in-person retail spending growth in southern states was a full percentage point lower than the overall US, it appears many Southerners stayed at home and shopped online instead

Looking across generations, spending growth has improved since the fall for all cohorts, but especially for Baby Boomers, up nearly 3% YoY, more than a percentage point higher than Gen Z and Millennial’s spending growth. Overall, Gen X spending trails other age groups, up only 0.3% YoY, but their spending growth in January was positive for the first time in nearly two years.

Car sales have risen recently, while vehicle prices have also firmed up Another area of consumer spending that has shown a notable increase since the fall of 2024 is auto sales. Lightweight vehicle sales (for example, autos, SUVs (sport utility vehicles), pickups and minivans) have risen since August 2024 – an increase seen in vehicles assembled both in North America and elsewhere. While auto sales in January 2025 saw a drop back from strong November and December levels, they were still up 3.8% YoY. And BofA Global Research forecasts a healthy 16.5 million auto sales in 2025 as a whole.

WSJ: A growing number of homes for sale in the U.S. are being removed from the market as buyer appetite disappoints. Heard on the Street writes that it could be a warning signal for the housing market. December's increase in delistings was 64% from the same month in 2023.