Trend watch and what’s new this week
On the COVID-19 front, U.S. infections are rising once again (slide 6). New cases in three of the four regions (Midwest, South, and Northeast) are now rising on a week over week basis. This is the result of the Omicron BA.2 variant, which is currently more than 85% of confirmed cases in the U.S. (slide 7).
More importantly, the percentage of inpatient beds occupied by COVID-19 patients is just 1.95%, the lowest level since March 2020. Additionally, the death rate continues to decline (slide 6).
Incoming activity-based data remains strong (slides 5 and 8). Air passengers for the past week hit 15.0 million (slide 5). That’s -9.1% below the same week in April ’19 but is 55% above the same week last year (slide 8). Hotel trends also strengthened. But dining reservations slipped slightly WoW, though could be due to spring break and the upcoming holiday weekend.
A flurry of inflation data was released this week. On slide 9, we show the trends for energy, food, and housing, which are three of the biggest components of consumer inflation. On slide 10, we show core inflation trends, which exclude the volatile food and energy components. By that measure, the monthly pace of inflation appears to be stabilizing somewhat.
On slide 11, we update lumber prices, which are down more than 25% from ’21, as demand ebbs and production continues to grow. Still, lumber prices have swung wildly in the past two years.
Monthly retail sales were also reported. On slide 12, we show an indexed view comparing the pandemic recession and current recovery to the prior two occurrences. It clearly shows that retail sales continue to cruise higher as most consumers shrug off inflation concerns.
On slide 13, we updated consumer sentiment, which seems to corroborate the notion that inflation concerns are waning for most consumers.
On slide 14, we show apartment rental trends. While supply remains tight (based on the vacancy rate), rents have been cooling for the past two quarters compared to the red-hot ’21, which saw effective rents jump an astonishing 12.7% year over year. This softening has also occurred in other apartment rental data.
Lastly, we explore wage growth trends on slide 15. Data from the Federal Reserve Bank of Atlanta’s wage tracker shows that low-skill job jumpers are seeing the biggest wage gains. In fact, wage growth for low-skill workers has outpaced high-skilled workers for an unprecedented 13-month stretch. Aside from a 5-month span in 2010 when high-skill wages plunged, wages for low-skill workers haven’t grown faster in 25 years.
The week over week increase in new infections due the Omicron BA.2 variant is disappointing. Frankly, most Americans are “over” COVID-19 and are largely resuming activities, albeit with some adjustments and precautions.
However, we are encouraged by the trend that severe cases (hospitalizations and deaths) remain contained. While we fully expect both to also increase (since they lag new cases by about 7-10 days), we don’t expect a surge in severe cases in a pattern similar to December ’21/January ’22.
Inflation remains a headwind for the U.S. economy. While headline consumer inflation rose 8.5% year-over-year (YoY), slightly missing expectations, the internals show some promise that inflation may be heading lower. For instance, used vehicle prices dropped 3.8%, the second straight monthly decline. And the pace of shelter was flattish (actually ticked down 0.51% month-over-month (MoM) from 0.52% in February). Within that, primary shelter cooled MoM but hotels were rose 3.7% MoM. In other words, this is a reopening story, not a runway inflation story.
More importantly, core consumer inflation rose 0.3% MoM in March, cooler than the 0.5% pace in February-22. It rose to 6.5% YoY, which only 0.1 hotter than 6.4% in February-22.
We continue to strenuously pushback on recession calls for the coming 12 months. Notable evidence supporting our view includes the aforementioned solid retail sales, along with strong trends for incoming activity-based data (slide 5), such as air travelers, hotel occupancy, freight, etc. Again, while we fully acknowledge that recession risks have risen, the overwhelming weight of the evidence is on the side of “no recession.”
That said, we expect hotter inflation readings will linger for longer, especially due to higher energy prices. U.S. crude oil prices—at about $107 per barrel yesterday and mercifully not trading today due to Good Friday—remain volatile. Natural gas prices have also been erratic, hitting a 14-year high as supplies fell to a 3-year low.
We also caution against the misplaced notion currently making the rounds that the Federal Reserve (Fed) wants to cause a recession to tame inflation by hiking interest rates in half-point increments at every rate-setting meeting. While the Fed is laser focused on curbing inflation, we believe the Fed is aware of the risks of overtightening interest rates, which, by the way, is a long way off. However, we are also mindful of the old adage that, “every time the Fed taps the brakes, someone goes through the windshield.”
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