LOCATION STRATEGY CHARTBOOK

Turns out we weren’t the only ones who thought the job numbers last week were inflated. Here’s Fed Chairman Jerome Powell making the same point at 1:40 in this video:

Usually we would argue that high debt levels suggest inflation. But increases in the national debt squandered on non-productive investments and rising debt service results in a negative return on investment. Therefore, the larger the debt balance, the more economically destructive it is by diverting increasing amounts of dollars from productive assets to debt service. The result is lower, not higher, economic growth, inflation, and, ultimately, interest rates.

A long look at history clearly shows the negative impact of debt on economic growth. Furthermore, changes in structural employment, demographics, and deflationary pressures derived from changes in productivity will magnify these problems.

Debt levels should create pressure to bring rates down. But, if you’re looking for a more conventional sign that rates should start to come down, PPI and CPI have slowed, which should produce a slowdown in PCE, which is the Fed’s favored inflation measure.

Are the fears of a second inflation wave overblown? Below is a comment from Oxford Economics.

While the overall labor force participation rate declined, participation among prime-age individuals reached a multi-year high, …

… driven by record-high participation among prime-age women.

credit card balances remain below pre-COVID levels as a share of disposable income.

Year-over-year changes in house prices:

Housing inventories have been running well above last year’s levels.

Increasing inventory has lead more sellers to start dropping prices

Renters are moving less frequently in recent years, causing the decline in rent inflation for new rentals to take longer to affect the overall market.