🧭 The Weekly Scoop

Hey friends, Happy Friday. We hired another engineer this week! Now we’re really cooking. 🔥

Welcome to our 366 new subscribers this week! Take a second and share the scoop!

Here’s what you need to know this week.…

Even though it was another light week before the month and quarter-end flood of data and corporate financial updates, the recession debate is still alive and well. If you look at the market, +15% in 2023 and +4% this past month, you could say investors have jumped on the optimistic train. The economy continues to prove more resilient than most expected or said out loud.

The recession debate will stay hot until some unexpected crisis erupts or the market hits a new high. Neither seems imminent. Why? If you’re not tired of hearing us say it… this is an unprecedented scenario. Turning the global economy off, then back on, pumping it full of stimulants, and then dunking it in ice, all within three years (a blip in the economic timeline), has thrown everything out of sync. If you want to say we’re already in a recession, there’s plenty to choose from: corporate profits are down, startups are slashing jobs and losing funding, manufacturing has been weak, and much of the real estate market is looking ill. But unemployment is still near record lows, hiring is strong, consumers are still more financially-healthy than before the pandemic, corporate revenues are still growing, and inflation is still trending away. Will inflation ever go back to what it was before? Maybe not. Making the next 50 years livable won’t be cheap.

As we’ve discussed, many of these recession feelings might just be manifestations of inequality. Two reports this week from Delta and Walgreens painted a good picture of the divergence in realities for consumers. Travel and luxury companies keep reporting immense demand that doesn’t seem to be slowing. In contrast, lower-cost retailers have noted slowing sales overall and discounting driving a more significant portion of their sales. Low-income Americans are very cost-conscious right now, shifting more toward store brands and sale items. This will be interesting to see how it plays out with pricing. Will inflation cool significantly more as retailers are forced to dial back their significant price hikes of the past two years to maintain their sales?

🐂 Reasons to be optimistic:

• Americans are feeling good about the economy heading into summer. The Conference Board’s Consumer Confidence Index rose to the highest level in 18 months, far exceeding expectations. People are less worried about inflation and aren’t having trouble finding jobs. Many expect a recession, but not necessarily a bad one. Consumer spending powers two-thirds of the economy, so our feelings matter.

• Fewer people got laid off last week. The Labor Department reported initial jobless claims dropped to 239,000, more in line with pre-pandemic averages. Layoffs and unemployment have been extremely low until this month, when layoffs picked up for three straight weeks.

• The economy started the year even stronger than initially projected. The Commerce Department revised its initial measure of first-quarter Gross Domestic Product (GDP) [🤓] from 1.1% to 2.0%, indicating a significant jump in economic growth. The economy got a boost from higher exports and consumer spending, which surged the most in almost two years.

• Banks are solid and prepared for the worst. The Federal Reserve annual bank stress test evaluated whether America’s biggest banking institutions would be able to continue operating and lending in the face of a severe recession, with unemployment surging to 10%, a 40% decline in commercial real estate values, and a 38% drop in housing prices. All 23 banks passed the test without a problem.

• Rents are falling. For the first time in three years, the national median rent was lower than the year prior. Realtor.com reported the May median rent reached $1,739, roughly 0.5% lower than in May 2022. While rents have decreased slightly since their peak in July 2022, they’re still more than 25% higher than in 2019.

• Office real estate isn't dead. With the shift in remote work, investors have been very concerned about the future of commercial real estate but gained a little more confidence after seeing a big transaction this week. One of the largest real estate investment companies, SL Green, sold half of a massive New York office building at 245 Park at a $2B valuation to a Japanese investment firm.

• Chinese consumers are still spending, despite broad concerns about a sluggish comeback from the second-largest economy. The three-day Dragon Boat Festival last week spurred a 44% surge in tourism versus last year, according to Chinese officials. China has been taking measures to stimulate its economy after recently lifting covid restrictions.

🐻 Reasons to be pessimistic:

• The housing market keeps slowing. The National Association of Realtors reported the number of pending home sales, measured by signed contracts, declined in May from April and remains 22% lower than a year ago. Low available home supply, high prices, and expensive mortgage rates have cooled homebuying.

• Policymakers are still on alert for an inflation comeback. The Federal Reserve Chairman reiterated many of his recent comments on potential policy at a conference in Portugal. They’re ready to raise interest rates and restrict the economy further if inflation doesn’t keep trending lower. [🤓]

• Home prices keep climbing. The S&P CoreLogic Case-Shiller national home price index rose in April for the third straight month. Despite the slowdown in the housing market from surging mortgage costs, average home prices are only down 2.4% from their June 2022 all-time highs.

• New homes are selling fast because no one’s selling their existing home. The Commerce Department said the number of new single-family home sales surged 12% in May to the highest level in eighteen months. New homes are only a fraction of the market, but sales are up 20% in the past year. Existing home sales are down over 20% from a year ago as homeowners try to hang on to their cheaper mortgages.

🏡 For your home

6.8% = Average 30-year mortgage rate

That’s up from 6.7% a month ago and up from 6.0% a year ago. _{Mortgage Bankers Association, 6/22/23}

$396,100 = Median existing home sales price

That’s up from $386K a month ago and down from $409K a year ago. _{National Association of Realtors, 5/31/23}

💼 For your work

239,000 = Layoffs Last Week (Initial jobless claims)

That’s down from 265,000 the week before and close to pre-covid averages. _{Labor Dept., 6/22/23}

339,000 = New jobs added last month

That’s up from 294K the month before and above pre-covid averages. _{Labor Dept., 5/31/23}

3.7% = Unemployment rate

That’s up from 3.4% the month before and still near the lowest rate in 50+ years. _{Labor Dept., 5/31/23}

10.1M = Available jobs

That’s up from 9.7M the month before and well above pre-covid averages of ~7M. _{Labor Dept., 4/30/23}

Who’s hiring: Retail, healthcare, and transportation

Who’s firing: Manufacturing and business services

👜 For your wallet

4.0% = Cost of living increase (1-Year Inflation)

Living costs are 0.1% higher than the month before. Normal inflation sees prices rise by 0% to 0.2% per month, 1-2% per year. _{Bureau of Labor Statistics, 5/31/23}

5.8% = Groceries cost increase (1-Year inflation)

Groceries are 0.1% more expensive than a month ago. _{Bureau of Labor Statistics, 5/31/23}

$3.55 = National Gas Price/Gallon

That’s down from $3.58 a month ago and down from $4.87 a year ago. _{AAA., 6/29/23}

💰For your savings

0.42% = Average interest banks pay on a savings account_{, FDIC, 6/20/23}

5.25% = Interest rate banks earn on their savings accounts_{, Federal Reserve, 6/14/23}

The Federal Reserve has raised baseline interest rates from 0% to 5.25% in the past year. Make sure your bank is paying you higher interest on your savings.

Find a high-yield savings account.

💸For your investments

+1% = This past week’s change in the US Stock Market

+4% past month, +15% past year, and +63% over 5 years. _{S&P 500 Index, 6/29/23}

3.84% = The yield on the 10-Year US Treasury Bond

Yields are +1% this past week, +4% this past month, and +24% over the past year. _{US Government Bonds, 6/29/23}

+1% = This past week’s price change for Bitcoin

+10% in the past month and +51% in the past year. _{Coinbase, 6/29/23}

-1% = This past week’s price change for Ethereum

-2% in the past month and +69% in the past year. _{Coinbase, 6/29/23}

The Federal Reserve, aka the Central Bank, aka The Fed, is in charge of our whole money system. When the economy is struggling, the Fed lowers baseline interest rates to make it cheaper for consumers and businesses to borrow and spend (lower rates on business loans, mortgages, credit cards, car leases, etc.)

The Fed also pumps more money into the system by buying bonds with new dollars that it essentially speaks into existence. The additional cash keeps the pipes flowing as the borrowing and spending heats up, stimulating economic activity.

Once the economy's strong enough to stand on its own, the Fed starts to raise interest rates and pull back some of that money to ensure the economy doesn't overheat. Inflation is the Fed's heat gauge. The gauge was reading very hot but had been cooling lately.

So everyone's watching how long the Fed will keep restricting the economy with high rates if inflation keeps cooling. The Fed hopes to get living costs under control without sparking mass unemployment.

Gross Domestic Product (GDP) is how we track how much stuff the economy is producing. The actual number (~$26 trillion) doesn't matter as much as the direction and magnitude. We track the growth rate of real GDP (inflation-adjusted) to know whether the economy is expanding or contracting from the previous quarter.

The reporting style can be a bit confusing. The main number you hear will be an annualized growth rate (+2.0%), representing how much the GDP would increase/decrease if the economy hypothetically grew at that rate for an entire year. It's different from how much our production increased/decreased quarter-to-quarter (+0.5%) and not representative of the growth/decline over the past year (+1.8%). Annualizing the past quarter’s change makes the backward-looking number a little more forward-looking.