Vital Statistics:
Stocks are flattish this morning as riots continue in LA. Bonds and MBS are up.
Small business optimism improved in May, according to the NFIB. Expected business conditions and sales expectations were the driver of the increase. Taxes are the biggest concern (read tariffs), while quality of labor and regulatory red tape remain problems. A net 25% of small businesses reported raising prices, which was unchanged from April.
The economy continues to grow (minus the hiccup in Q1), and
GDP growth models indicate that it will continue to do so,
although at a much slower pace. The services sector (labor
intensive) is showing some weakness by way of the ISM Services
Index. Congress hasn’t passed the Big Beautiful Bill yet, and
Trump is still messing with tariffs, the uncertainty level is rising.
While tariffs might be a bumpy road while countries negotiate
trade deals, Congress can do their part by passing the BBB
sooner rather than later to take that piece of uncertainty off the
table. The labor market is softening, including compensation
pressures. The prospects for strong future job growth are not
great. Overall, the economy will continue to stumble along until
the major sources of uncertainty are resolved. It’s hard to steer a
ship in the fog.
Inflationary expectations fell in May, according to the NY Fed Survey of Consumer Expectations. The year-ahead inflation expectation fell 0.4% to 3.2%, while the 3-year expectation fell 0.2% to 3.0%. The 5 year expectation came in at 2.6%. Home price appreciation and commodity price inflation fell as well.
About 40.8% of respondents think that unemployment will be higher a year from now, which is somewhat higher than the long-term average of 37.7%. Consumers anticipate their incomes will rise by 2.7% and they see spending rising by 5%.
We will get the University of Michigan Consumer Sentiment Survey this Friday, and they have been getting much higher inflationary expectations. In the latest survey, UMich sees year-ahead inflationary expectations coming in at 6.6% and longer-term expectations at 4.4%.
The NY Fed numbers are closer to what we are seeing in market-based inflation expectations, so I suspect UMich has some partisan imbalances in their sampling methodology.
CEOs are becoming more sanguine on the state of the economy, according to a survey by the Chief Executive Officer Survey. The number of CEOs anticipating growth this year rebounded from 22% “From the macro, the worst concerns, I think, have passed,” Home Depot CEO Edward Decker said last month. “We’ve gone from a dynamic of where we were going to have a near certain recession and stock market correction in early April, to where today stock markets fully recovered (and) recession expectations are way down in the past month.”
Asking rents are falling in 28 major US metros, according to research from Redfin. The median US asking rent fell 1% year-over-year in May to $1,633. This was up 0.5% on a month-over-month basis.
“Apartment construction in America has been hovering near a 50-year high, and even though renter demand is strong, it’s not keeping pace with supply,” said Redfin Senior Economist Sheharyar Bokhari. “Many units are sitting vacant for months, which means renters have power to negotiate concessions and landlords have less leeway to keep rents high.”
The vacancy rate for 5+ unit buildings hit 8.2% in the first quarter – the highest since early 2021. We are seeing big declines in Austin, Columbus, Nashville, Minneapolis and Portland. The strongest rental markets were Cincinnati, Tampa, St. Louis, Pittsburgh and Birmingham.
