The usual suspects - CPI, Jobs, Surveys - and Trade, Tariffs, CRE and Stock Item 77516
The Sky is… falling?
Everyone keeps waiting for the economic equivalent of the other shoe to drop, or the axe to fall, or the hammer to drop…
But I guess it hasn’t been enough time, and that’s why the market is still up. Or was, until last Friday.
A key measure of inflation – the CPI or Consumer Price Index- grew last month by 0.1%, down from the previous month’s 0.2% and below expectations of 0.2%. That’s good news.
The annual rate came in at 2.4%, meeting expectations but higher than the 2.3% rate reported last month.
The core CPI – excluding food and fuel – came in at 0.1% monthly, versus expectations of 0.3% and higher than the previous month’s price drop of 0.1%.
Annually, core CPI came in at 2.8%, even with last month’s measurement.
Despite all expectations, inflation is staying level. Most folks are puzzled by why it’s not going up.
Initial jobless claims stayed steady at 248.000, matching the week before and slightly higher than expectations.
The 4-week average was higher than a year ago. As I mentioned last week, the Fed is monitoring that number.
If jobless claims start to inch up, and inflation stays under control, they could lower interest rates.
When you combine feelings with economics, you get the consumer sentiment report and the NFIB survey report. Let’s start with the Michigan consumer sentiment report.
It came in at 60.5, up from 52.2 the previous month. That’s a jump. I’m guessing folks are getting used to the seesaw of events and have the expectation that things will settle down shortly.
In December, it was 74. There is still work to be done.
The National Federation of Independent Business also conducts a survey that gauges business owners' perceptions of the future. It’s called the NFIB Optimism Index.
This has been particularly hard hit by the swings in tariff and trade policies.
It came in at 98.8, 3 points above last month.
What is worth noting is that of the 55% of owners looking to hire, 86% reported few or no qualified candidates for the jobs they are trying to fill.
Business owners, you are not alone.
I think it goes without saying that if you are a business owner, you have to be optimistic, because you have to think the sun will come up tomorrow. Your employees are depending on it.
The Trade Era
Out of the Covid Era into the Trade Era.
I heard that on a conference call, so I thought it was appropriate to bring it up here.
Covid caused uncertainty and volatility.
And price increases, aka inflation.
To date, the trade era has certainly caused uncertainty and volatility. Inflation? Not yet, as evidenced by the previous section.
Invariably, whether it is immediate or over the course of a year or two, many tariffs are passed on to the consumer. Some businesses may choose to absorb them, either because they can or because they have to, for competitive reasons.
What is a Foreign Trade Zone?
A duty-free shop at LAX? Or a villa in the Cayman Islands?
Neither. It is a designated area where imported goods can be brought in without having to pay tariffs until the goods are shipped out.
They can also be assembled there without incurring a tariff. The only time the tariff is due is when the product leaves the premises.
However, if the product is then exported out of the United States, then no tariff is paid.
There are about 260 foreign trade zones in the U.S.
Arizona happens to be the foreign trade zone capital of the U.S.
Apple, Intel, Honeywell, Sub-Zero, and others manufacture within the Arizona facilities, processing $7,500,000,000 in merchandise in 2023.
Assuming the goods stay in the U.S., you are only postponing the tariff, but at least it’s not impacting cash flow now. Only when it ships out.
Buyer Beware: If the tariff is 30% when it enters the zone and then drops to 10% later, you are still liable for the 30%.
It might be worth looking into.
Duplex vs. Office Tower
If you had to choose between a Manhattan duplex or the 42-story US Bank Tower in Portland, Oregon, which would it be?
Well, the duplex sold for $60,000,000 earlier this year, and the US Bank Tower has an asking price of $70,000,000.
That’s 80% below what it sold for in 2015.
That’s how far office commercial real estate has fallen in Portland. Ouch.
AI vs. Stock Item 77516 – Which Wins?
To clarify how fast things move. When today’s college graduates were freshmen, Chat GPT wasn’t around. Now it’s ubiquitous.
College professors are now combating AI with an old college standby made by Roaring Springs Paper Co.
During covid and remote learning, stock #77516 almost became extinct.
But now it’s back. Texas A&M had a 30% growth in sales, the University of Florida 50% and at Cal Berkeley, 80%.
What is stock #77516 you ask? The bluebook.
AI can’t compete with a blue book for leveling the testing field.
It gives me Exam PTSD just thinking about it.
As a business owner, you are always having to guess/estimate/hypothesize what local or geopolitical conflict, regulation, or technological innovation can impact your sales or supply pipeline. Who knew that a consequence of AI would be to increase the usage of blue books on college campuses? This wasn’t even a thing three years ago.
It’s about time that I touch on demographics again, but I’ll do that in the next four reports. I harp on that almost constantly because that is the key driver in economic activity. Which demographic is impacting the economy and business the most?
Summer officially starts Friday, but you can trust the editors at the Russell Report to keep you up to speed on what is going on, in a very abbreviated manner, so that it doesn’t impact your time off.
I leave you with this final thought from Herbert Prochnow:
Inexperience is what makes a young man do what an older man says is impossible.
Don’t let your inexperience get in the way of accomplishing something. Just do it.
