Location Strategy Chartbook 072724

Having boomed its way through 2023, the US economy is coming back to earth. Companies are hiring fewer workers. Consumers are spending less. The housing market is all but paralyzed by the highest interest rates in decades. Manufacturing is struggling, with the exception of sectors benefiting from government incentives, such as semiconductors and electric vehicles. And even as inflation slows, businesses and households continue to complain of a sting from high prices.

Yet, unlike most slowdowns, this one is playing out as a textbook soft landing—the rare and difficult feat of slowing the economy without causing a recession. Inflation has cooled without a huge increase in unemployment, retail spending has cooled but not collapsed, and the economy continues to grow. In Bloomberg’s latest survey, economists see a 30% chance of a downturn in the next 12 months, compared with 60% in the survey a year ago.

• Real gross domestic product increased at a 2.8% annualized pace in the second quarter, above the 2.1% forecast.

• The personal consumption expenditures price index, a key measure for the Fed, rose 2.6% for the quarter, down from the 3.4% move in Q1. Core PCE prices were up 2.9%, down from 3.7%.

• However, the report also indicated that the personal savings rate continues to decelerate, at 3.5% for the quarter, compared with 3.8% in Q1.

• Initial jobless claims declined by 10,000, while durable goods orders unexpectedly plunged.

Years of higher inflation and interest rates have left consumers mired in debt, even as overall economy hums

For months, there’s been an apparent anomaly between strong monthly US payroll gains alongside an increase in the unemployment rate, which in June reached 4.1%, up from the low of 3.4% in January last year.

But there’s actually no anomaly, Nomura economists Rob Subbaraman and Yiru Chen suggested in a note Tuesday. The reason is, payroll gains haven’t actually been running hot. The “thermostat” needs to be reset to account for labor-supply growth stoked by immigration, they wrote.

The average estimate of a number of studies, including Bloomberg’s, for the monthly payroll gain that would be consistent with a stable unemployment rate is 240,000 for the moment, Nomura found. So the 206,000 increase in June “should not be seen as hot anymore; it could even be on the cool side.”

Consumers are choosing convenience and affordability, especially the younger demographic. Bank of America internal card data suggests that a higher number of consumers are choosing less expensive and more convenient dining options as they face rising prices alongside financial obligations.

Home prices hit a new high in June for the second straight month, the latest sign that the housing market is unaffordable to millions of Americans.

The spring home-buying season, usually the busiest time of year for the housing market, was a dud this year. Home sales declined in June for the fourth straight time on a monthly basis. The combination of high prices and elevated mortgage rates has made homeownership less attractive to renters and deterred current homeowners from moving.

But low inventory of homes for sale in much of the country is pushing prices higher.

76% of U.S. mortgage borrowers have an interest rate under 5.0%, according to FHFA

• 21.9% --> have < 3.0%

• 35.4% --> have 3.0-3.99%

• 18.7% --> have 4.0-4.99%

• 9.6% --> have 5.00-5.99%

• 14.3% --> have ≥ 6.00%