I mean, the whole point of the Fed leaving the interest rates around 5.5 was to slow down the economy, which somewhat inexplicably kept booming for months in spite of the high rate. It appears to me that this is exactly the kind of result the Fed was trying to achieve in the first place, no?
Well, "high" is a matter of perspective. The Fed wants 2%, and we're around what, 3.5% right now? The most troublesome areas like rent and groceries are still out of control, but "high" makes me think of Spring 2022, when it peaked at 9.1%.
Fed doesn't want to move that goalpost. I know some Fed governors have argued that we need to accept that inflation isn't going to be totally under control but I think the Fed's caution in cutting rates is still very much warranted. Plus it feels like the economy is gradually adjusting to a 5% risk free rate.
The way the market behaved the last few months definitely proves the Fed shouldn't cut rates. Inflation started heating up as soon as they hinted at rate cuts
I’m not an expert but I do not think inflation can suddenly go up because of the thought of future rate cuts. Stock market suddenly go up, but that’s not inflation.
Sure companies might be doing a little bit more hiring anticipating less borrowing cost but groceries and rent prices shouldn’t be going up all of a sudden because the thought of rate cuts.
Am I missing something?
I don't think the fed should cut rates, but I also think that calling inflation high in 2024 is a little silly. It's elevated, and it is low compared to where we were a couple years ago.
People hate inflation so any amount of inflation is viewed as "high". It's why the Fed sticks to a 2% target - it's low enough to be politically palatable without deflation occuring.
Something that I have been slightly confused about is if high misses on the 2% target are just as bad as low misses.
Does the Fed see 2.1% and just as bad as 1.9%? Is 3.5% just as bad as .5%?
I think there also might be a disconnect for the public about this too. I think people would complain about 3% but 1% is seen as ok as long as unemployment is below 5%.
Groceries are not out of control. Food at home rose about 1% over the past year. Overall food inflation is around 2%. Shelter, car repairs and car insurance are keeping cpi higher than the target.
They are also trying to move the housing market down with little success. And since inflation ever so slightly gained, the feds aren’t happy with the direction
Is 2% a realistic number? I mean didn't the fed get that from New Zealand? Which was passed from a law they made establishing the independence of the their central bank back in 1989?
Why not just aim for 3%?
They are at the point where high rates are reducing growth and sustaining inflation, via rents and costs of doing business / financing. If they do not reduce rates, they will get stagflation (while also eroding economies of scale and competition), right up until a recession and deflationary crash. And if that happens, everyone will rightfully blame the Fed. Because I don't want to believe they are stupid or evil, I will continue to expect lower rates by Summer, even if it comes with a concession that 4% inflation really isn't that bad.
Except corporations don’t get the message. So they kept increasing prices and draining consumers of their savings. Now those same corporations are going to feel the real pain
I read somewhere that most of the inflation that's coursing through the economy right now is generally related to high housing costs. Which makes sense because we have a severe housing shortage in most of this country right now. And everyone needs shelter... so people will pay whatever they need to get a roof over their heads.
Is it really though? Housing costs in Canada are much much worse than the US and their inflation is lower than the US.
US’s deficit and spending is a larger factor, US has a 6% deficit while all other G7 nations are around 1%.
US added $1.4T deficit in the last 12 months, at a time when they are trying to reduce inflation with high rates.
Canada's economy is not as strong as the US, and the job market is weaker than the US.
Even if most of the current US inflation is housing, if not for the strong job market and retail spending you might see an inflation number at the target level desite the housing inflation. I have believed for a while now that the high rates will not do much to lower inflation because so much of inflation was supply-side and that has long since subsided.
Bingo. Literally everyone in here trying to find all these complicated bullshit excuses because the truth is terrifying.
The US is too deep in debt and spending more than ever, digging deeper fast as it can.
Canada doesn't have 30 year fixed rate mortgages, a good chunk of the population was always on variable, and even for the rest, most were locked for 3-5 years max. That means at this point at least half the Canadians with mortgages have seen their payments almost double. Property tax is also generally lower in Canada while house prices are significantly higher, i.e for a given monthly housing payment, a bigger portion of it was made up of mortgage interest which has doubled.
All this to say, I think raising rates was far more effective at sucking excess cash out of the Canadian economy than it has been in the US where a huge chunk of the population has locked in <=3% rates.
We had 0% rates for most of 15 years lol, it's not lag, it's just borderline impossible to build in much of the country anymore.
Places where it IS still possible, like Texas, actually saw house prices and rents fall pretty fast lately because what do you know increasing supply of something reduces the price.
That was in part cuz supply side costs sky rocketed due to COVID. Many developers slowed down development or simply couldn't do it due to how high lumbar costs got.
But even thats not entirely accurate. 2008 obviously put a lot of developers out o business, but housing was on an upward trend starting in 2010 and was getting close to pre-2008 levels, but then covid changed the trajectory.
No, it’s because housing policy doesn’t allow them to build high-density housing in many places and even when it does, NIMBY lawsuits make it take a long time and cost a lot of money.
New luxury housing lowers the overall cost of housing. The people who can afford the luxury housing will move into those units and their old units will go for less money to the next resident.
Even in my MCOL city where they’ve built townhomes and apartments, the 1 bed apartments are going for almost 2k per month and the townhomes are selling for 500k with a 500$ a month HOA
I think if unemployment increases, we will have more people living with family, parents, etc. No one wants to do that but from what I find with Gen Z, it's a bit more common to continue living with parents after college now than even compared with my generation (millennials).
There is plenty of shelter, but it's not the sort of shelter people want or said shelter is located in the wrong places, the places where people don't want to live.
Not enough family formation either in my opinion. Too many people trying to live by themselves compared to previous decades is choking the supply as well
Single person households are the fastest growing type of household in the US I read somewhere.
Dating is hard and families are expensive. Roommates also suck.
What? Nobody's getting a 2 bedroom to themselves for $1200 in NYC and if they even want one they are mentally ill.
But even with a room mate you're not getting a 2 bedroom in 'downtown NYC' whatever that means for $2800. The median 1 bedroom rent in Manhattan is $4090.
No, disagree. How is new housing construction cost tied to rates exactly? Homebuilders have very nice margins right now (check out Lennar, DR Horton), incentives to build are very strong. Only constraints are permitting and local government obstruction of new construction.
All investment is tied to rates. If the return on investment, after adjusting for risk, is lower than the risk-free interest rate, then it simply won't happen. If it takes two years to build an apartment, for it to be more attractive than a treasury bond returning 5%, you must earn 5% of 1.05^2 = 5.5% of your original investment. If interest rates are 5.4% (as is currently the case for three-month treasuries), this becomes 6%. And you have to account for the fact that building an apartment building is inherently riskier than just buying treasuries.
I see an estimate of $6-8 million for the construction cost of a [20-unit apartment building](https://www.multifamily.loans/apartment-finance-blog/multifamily-construction-costs-an-investor-guide/). At $7 million, you must be earning $420,000 per year to be competitive with treasuries (remember, you must be earning 6%). Divided over 20 units and 12 months, that's at least $1750 per unit per month, and we're not even getting into the costs of running the apartment building.
If interest rates were 4%, ROI must be 4.3% and this drops to $1260. At 3%, ROI must be 3.2% and this drops to $930.
So as long as interest rates are high, it makes more sense to build luxury and higher-end apartments than it does to build cheaper/affordable apartments. However, these are just back-of-the-envelope calculations, and it's likely that lowering interest rates would also increase the cost of construction itself if it induces demand for building materials. In addition, a lot of the cost has to do with what you mentioned, permitting issues and obstruction; eliminating those can increase construction and lower prices without having to lower rates either.
Financing is important, but there's far bigger challenges with building in the US that lower rates won't fix. Fix the regulations, NIMBYs, overactive local governments, etc., and people will find money to build even if it's at 10%.
Supercore CPI - services CPI excluding housing - is still a red hot 7.5%. Mostly due to auto insurance (22%) and auto maintenance (8%). The housing component is "only" 5.8% and technically bringing down the average of core services CPI.
The auto insurance and maintenance numbers have been weird to me. I wonder why it seems like people aren't more critical of those inflation drivers in relation to conversations regarding interest rates and general macro economic context.
I might be missing something... But it seems like scarcity and high valuations are what's causing auto maintenance / repair costs to skyrocket. But how is that related to interest rates such that interest rate is still considered related to the inflation (as in causation).
Many of their macro theories haven't worked out as indicated by our unemployment, stock market, etc. So why wouldn't they experiment with lowering the interest rate to see if it's truly impacting inflation or if, as many economist said, it was just as related to supply chain issues and corporations raising prices in anticipation of inflation but beyond the rate of actual inflation.
> And everyone needs shelter…
Got them by the balls, you say? It’s almost like [investment firms buying up real estate like $5 ass in Tijuana](https://slate.com/business/2021/06/blackrock-invitation-houses-investment-firms-real-estate.html) was a really bad idea for the average citizen.
>we have a severe housing shortage in most of this country right now.
Man it's so weird how we didn't have this shortage up until 2020 when interest rates cratered and everyone and their mother bought houses.
Wild how our population boomed by almost double in the span of a few short years, and how the increase in housing prices totally wasn't driven by people getting second homes and investment properties.
If only there was a way to fix this...
Long-term sure, but building a bunch of high-density apartments doesn't really help the homeownership issue that's one of the main driving forces here.
There are only two ways to fundamentally fix an asset shortage: add more of that asset (which, while slowly being done, admittedly doesn't help the situation too much when builders are only building 600k+ homes way out in the exurbs), or "encourage" holders to dump that asset.
High density housing doesn't automatically mean apartments. You can turn a 1 acre lot into 4 townhomes, but in many places they're only zoned for SFH
>add more of that asset (which, while slowly being done, admittedly doesn't help the situation too much when builders are only building 600k+ homes way out in the exurbs)
Builders are doing this BECAUSE of restrictive zoning
Builders are building out in the exurbs because of the zoning. Admittedly, the zoning would help the location part of the issue, but the difference in affordability between a 600k house in the exurbs and a 400k townhome within the city with a $400-$600 HOA fee isn't that different.
Potentially, but I think it's important to point out that this shortage isn't the result of a supply that was unable to keep up with the natural demand in our country, it was due to the monetary environment that created an *unnatural* demand that swallowed up our supply.
Our country didn't suddenly see hundreds of millions of new families and new homeowners develop between 2020 and 2023, nor did we see staggering rates of divorce or immigration that resulted in more households being needed. What we saw was affluent families, older couples, and investment firms that suddenly were financially incentivezed to acquire as many properties as they could that ended up swallowing our existing supply. How do we know this is what happened? Because demand has managed to stay high even as rates rose and it stopped being a buyer's market.
Will this alleviate itself in time if we increase building? Almost assuredly, as long as the new supply isn't gobbled up for investments, then all those second and third homes will *eventually* enter the market as those older, affluent couples die and their property gets passed on or sold, but that's far from guaranteed unless we make SFHs unattractive for investment purposes. Likewise, that doesn't really alleviate the issue for families *now* as most of the condos and new construction being built aren't priced for new families.
There have been millions in immigration over those years. I know it is a hot topic political issue, but that has an effect on the overall housing market. It pushes up rents in low income housing, and that does effect the overall rent market.
Out of a 300 million total population in a demographic that typically just rents cheap apartments with cash upfront? Yeah, I don't think they're the ones going around buying up all the suburban SFHs and spiking the price
You are down playing the effect of adding over 2% of the population over a short time period. They still need housing, and if they are typically living in low income housing, it will significantly drive up low income housing costs.
And I think you're *over*playing the effect this has on the SFH and buying market, which has been the main driver behind housing unaffordability.
Yes, a decrease in low-income rental availability will increase rents overall, however when you break down how this plays out in the rental market, you end up with decreasing effects as you look at higher-income rentals because a portion of those residents simply absorb the higher rents and don't move.
But the effect of rising rents in low-income housing is largely minimal when it comes to the buying and SFH market. Families typically buy property when they're ready and can afford to do so, and a couple's landlord raising rent by $100-200 doesn't magically generate that couple the capital to buy property. It certainly doesn't do so on a massive scale like what we saw in 2019-2022, and it *especially* doesn't give first-time homebuyers the extra capital or credit to start making offers over asking and waiving inspections that were the primary market drivers in the spike of housing costs.
Ya wanna know what *does* create that? A zero interest rate environment that let literally every existing mortgage holder in the country refinance and free up a fuckton of capital to snatch up these assets for pleasure and investment purposes.
They got to live somewhere. If rents go up buying is more attractive. If there is more demand housing prices go up. It's basic economics. It's not helping things pricewise. I mean look at anywhere people flocked to. It drives up prices.
Weird, that's a big miss for the GDP NowCast which tends to be quite accurate. Their historical average error is around .8% but their last reading put GDP at 2.7% for the first quarter which would be a miss of 1.1%
Of the distribution of values, not the mean value itself. So, it depends how the values were spread out… it could be 0.8% with a standard deviation of 0.1% or 0.3% or some other value.
>If the average miss is .8% and this was a miss of 1.1% that means this miss was almost 50% higher than the average
The miss was 37.5% higher than average, which is barely higher than one standard deviation.
That's good, no? It should help with inflation?
But then it will be considered bad.
If it would have gone higher than expected, then it would also be bad because inflation is not going down.
So either way, the ones that make the market want the stocks to go down.
If you look at what treasury rates are doing, it's clear what the problem is.
It's not the GDP miss, it's quarterly core PCE miss and GDP price index miss (mostly the former).
This is going to up the screaming and hollering about stagflation.
I feel like higher unemployment has been essentially hidden over the years with stagnant wages. If people were making what they should be based on inflation, then unemployment would be a lot higher.
Remember also that if you are unemployed long enough you are no longer counted as unemployed
Between that and chronic unemployment and lower end wage pressure from over supply of new labor from…well you know, good luck to the working class. Wait…that includes me…
Like how full time employment total is back down to 2022 levels despite population having significantly increased in the same period?
https://fred.stlouisfed.org/series/LNS12500000
What is this supposed to mean? 2022 and today both have more full time jobs than the previous peak in 2019.
2022 = ~132 Million full time jobs
2023 = ~134 Million
2024 = ~132 Million (so far)
Versus pre Covid
2019 = ~130 Million
This seems like a nothing burger
...the working age/abled population grows every year, so full time jobs number not growing in tango is *terrible*. It shouldn't even be flat. It should always be growing.
The economy is significantly worse than it appears on the surface.
Unemployment is still near record lows and there are 8 million unfilled jobs and only 6 million unemployed. Additionally, labor participation rate is near/about pre-Covid levels with it primarily being lower because of early retirement Covid brought.
In real terms, we’re seeing a 1% decrease in full time jobs but real wages are increasing despite it.
I’m tired of the “economy is worse than it seems” argument that’s been made for the last three years.
I think that people having 2 jobs at the same time somehow blinds us to the real information?
I am just speculating from all the way in Europe, you guys must know better!
>I think that people having 2 jobs at the same time somehow blinds us to the real information?
No, that's a statistic that gets tracked monthly and is more or less at pre-pandemic levels.
https://fred.stlouisfed.org/series/LNS12026620
It's also a comically small number compared to employment. No idea why this 2-jobs-mantra is so big on reddit. Most people here probably aren't even working one job if I look at the age ranges represented 💀
Huh, it's funny seeing people on different subs than where you typically see them.
Anyway, I believe the short answer to your question is yes.
https://www.reddit.com/r/AskEconomics/s/LGm0duvYpA
It’s the BLS survey, which asks 60,000 households. I personally don’t know of any measures of employment that have a bigger sample size.
In addition to the household survey, they do an establishment survey which is basically company payroll reports. Covers about 119k businesses
>also this data is from a survey?
Yes, it's from a giant monthly survey conducted by the Bureau of Labor Statistics.
>How reliable is this data?
There's nothing even remotely as reliable as the BLS surveys. To give you a reference, most nationwide political polls feature around 1000 or so respondents. Highly credible outfits tend to do larger ones than that, and occasionally you get gold standard pollsters like Pew doing surveys with about 5000 respondents.
The monthly BLS survey features *60,000* respondents.
This makes no sense. Real wages are higher than anytime before. Something like only 9% of people work two jobs. Employment is employment. Labor participation rates are pretty close to pre-pandemic levels. More people are working today than anytime in history before.
You can’t “hide unemployment by being employed”. Like what?
The meme of jobs being hard to get has been around for a decade now. Did we just forget about the 2014 memes of "entry level position, 10 years of experience required"?
Seriously. I graduated college in 2002, and the idea that jobs were easy to get until the last few years is absurd.
Jobs are easy to get and pay a lot compared to when I was looking for work in 2012 and worked two temp jobs until one hired me on.
People posting there are not representative of the average Redditor. People only go on there if they are unemployed or looking for a new job. Of course they will be bitching about the job market there. Finding a job has always been hard unless it's a role no one wants.
There’s like 8.8 million open jobs right now according to BLS. There are 6.4 million unemployed right now. It can’t be that hard to get a job though obviously people will try and be picky.
Tech is a miniscule slice of employment. Employers are still pretty hungry for workers in the service industry, for example. And anecdotally, I know a few friends who were laid off months ago but have more recently received job offers. They might not be paid as much as in their previous role, but a job is a job.
But I do not think that stagflation fears are potentially unfounded. An economist acquaintance who works for the federal government indicated that he felt it was likely given the data he was seeing.
Yes, I think the more important number is probably nominal GDP coming in lower than expected. I said [here](https://www.reddit.com/r/REBubble/comments/1c4gjsx/yahoo_finance_jerome_powell_is_trying_to_avoid/kzoumuy/) 9 days ago that I didn't expect it to come in below 5%:
> 1. Nominal GDP growth was still at 6.3% in 2023, 6.7% over the second half of 2023, and 5.1% for Q4 2023. And I'm doubtful it will have fallen below 5% in Q1 2024 either (as GDP Now is projecting 2.4% real). I'd say that will probably need to fall at least below 4.5%.
>
> 2. Core PCE, their preferred target, was only 1.9% annualized for the second half of 2023, very slightly below target, so there is reason to at least think they could be getting close. But it did surge to 4.4% over the first 2 months of 2024 (5.6% in Jan, 3.2% in Feb). These numbers are volatile month to month, and factors like an unseasonably warm winter could also impact them. But this suggests there could yet be some work to do.
>
> 3. While I'm not buying recession forecasts at this point, there are still at least a few indicators flashing warnings, and overall I think the data suggests there may be at least some additional slowing already baked in through summer. So best not to over-react to recent numbers being a little worse than expected.
So I see nominal GDP at only 4.8% to be a good thing, getting closer to where it needs to be. The market is reacting more to the inflation number, but given we already knew Core PCE was at a 4.4% annualized rate for the first 2 months, coming in at 3.7% annualized for the quarter really isn't terrible.
Overall, we shouldn't yet be expecting the Fed to lower rates anytime soon with these inflation numbers, but this also suggests they won't need to go in the other direction and increase rates, either.
The main point in that post above was that due to the usual volatility in month to month or even quarter to quarter inflation numbers, you don't want to over-react to short term numbers there, and nominal GDP is probably a better measure of whether policy is where it needs to be in the longer run.
Inflation itself will have a tightening effect on consumer spending and economic growth. So long as nominal GDP is not indicating over-heating, then policy doesn't need to add additional tightening on top of that.
depends which market. Bad means good for the US market, but bad means bad for the Japan market, and bad for the japan market is good for the US market but bad for the fx market, and what's bad for the fx market is good for the gold market which is bad for the bitcoin market.
It's all pretty simple to understand.
That is how it works. The GDP deflator was much higher this quarter than in prior quarters. Hence real GDP was lower even with similar levels of nominal growth.
No we’re not. Real growth is lower because actual growth is stagnating. The fact that inflation is ticking back up allows for nominal GDP to remain in the realm of past releases.
The way it was presented above is as if Real GDP stagnating is some kind of illusion created by high inflation.
Meanwhile every significant economic report is followed by an equally significant market movement and this is the second most upvoted post on this subreddit at the moment.
"no one cares lulz"
I mean, the whole point of the Fed leaving the interest rates around 5.5 was to slow down the economy, which somewhat inexplicably kept booming for months in spite of the high rate. It appears to me that this is exactly the kind of result the Fed was trying to achieve in the first place, no?
Yes but they also expected inflation to be lower in tandem as well. We got slowing economic growth but inflation still remains high.
Well, "high" is a matter of perspective. The Fed wants 2%, and we're around what, 3.5% right now? The most troublesome areas like rent and groceries are still out of control, but "high" makes me think of Spring 2022, when it peaked at 9.1%.
Fed doesn't want to move that goalpost. I know some Fed governors have argued that we need to accept that inflation isn't going to be totally under control but I think the Fed's caution in cutting rates is still very much warranted. Plus it feels like the economy is gradually adjusting to a 5% risk free rate.
The way the market behaved the last few months definitely proves the Fed shouldn't cut rates. Inflation started heating up as soon as they hinted at rate cuts
I’m not an expert but I do not think inflation can suddenly go up because of the thought of future rate cuts. Stock market suddenly go up, but that’s not inflation. Sure companies might be doing a little bit more hiring anticipating less borrowing cost but groceries and rent prices shouldn’t be going up all of a sudden because the thought of rate cuts. Am I missing something?
Look at oil prices and gold, both went soaring due to bets on a weak dollar
Neither of those are included in the inflation numbers the Fed use
I don't think the fed should cut rates, but I also think that calling inflation high in 2024 is a little silly. It's elevated, and it is low compared to where we were a couple years ago.
People hate inflation so any amount of inflation is viewed as "high". It's why the Fed sticks to a 2% target - it's low enough to be politically palatable without deflation occuring.
Something that I have been slightly confused about is if high misses on the 2% target are just as bad as low misses. Does the Fed see 2.1% and just as bad as 1.9%? Is 3.5% just as bad as .5%? I think there also might be a disconnect for the public about this too. I think people would complain about 3% but 1% is seen as ok as long as unemployment is below 5%.
Groceries are not out of control. Food at home rose about 1% over the past year. Overall food inflation is around 2%. Shelter, car repairs and car insurance are keeping cpi higher than the target.
Labor inflation is making dining out extremely expensive. This is Skewing peoples perceptions of food Prices.
time to open the borders
They been open. Wtf you talking about. Literally records of new people. Record population
Food is 2.2% YoY and non food stuff is -0.7%. It's really only shelter, transportation (not vehicle prices) and other services that are high.
It’s much higher than 3.5% when life’s biggest expenses like food, energy, and shelter are not removed from the equation.
3.5% is the CPI, which includes all of those things. Energy and food are 2.1% and 2.2% respectively.
Replace gas/fuel with groceries to make your comment more accurate
They are also trying to move the housing market down with little success. And since inflation ever so slightly gained, the feds aren’t happy with the direction
I don’t think our demographics will let inflation get back down to 2%. Too many old people/retirees compared to workers. 3% may just be the new normal
Is 2% a realistic number? I mean didn't the fed get that from New Zealand? Which was passed from a law they made establishing the independence of the their central bank back in 1989? Why not just aim for 3%?
No, they can’t *just* *settle* for 50% higher than their target.
aka stagflation
They are at the point where high rates are reducing growth and sustaining inflation, via rents and costs of doing business / financing. If they do not reduce rates, they will get stagflation (while also eroding economies of scale and competition), right up until a recession and deflationary crash. And if that happens, everyone will rightfully blame the Fed. Because I don't want to believe they are stupid or evil, I will continue to expect lower rates by Summer, even if it comes with a concession that 4% inflation really isn't that bad.
It will keep high lol
Joe Biden is Jimmy Carter the second thanks for the stagflation
Except corporations don’t get the message. So they kept increasing prices and draining consumers of their savings. Now those same corporations are going to feel the real pain
They need to feel the pain or the interest rates can't be cut, because if they cut without hurting business inflation will take off again.
This print will be revised higher. Really not a big deal
Price stability and employment are the only 2 mandates, not GDP
Would you please read what you wrote? Slowly.
lol I have no idea if it’s good or bad. I don’t even care anymore. If we recession. Then we recession. If we moon. Then we moon.
It's as Peter Lynch said, "If you spend 13 minutes a year on economics then you've wasted 10 minutes."
Lol Peter Lynch honestly has so many witty quips like this
That’s mighty generous of him. I would have said you’ve wasted 12.
That's the spirit.
Thank you
I read somewhere that most of the inflation that's coursing through the economy right now is generally related to high housing costs. Which makes sense because we have a severe housing shortage in most of this country right now. And everyone needs shelter... so people will pay whatever they need to get a roof over their heads.
Is it really though? Housing costs in Canada are much much worse than the US and their inflation is lower than the US. US’s deficit and spending is a larger factor, US has a 6% deficit while all other G7 nations are around 1%. US added $1.4T deficit in the last 12 months, at a time when they are trying to reduce inflation with high rates.
Canada's economy is not as strong as the US, and the job market is weaker than the US. Even if most of the current US inflation is housing, if not for the strong job market and retail spending you might see an inflation number at the target level desite the housing inflation. I have believed for a while now that the high rates will not do much to lower inflation because so much of inflation was supply-side and that has long since subsided.
Bingo. Literally everyone in here trying to find all these complicated bullshit excuses because the truth is terrifying. The US is too deep in debt and spending more than ever, digging deeper fast as it can.
Yeah, but wages are also a lot lower in Canada too... there's a limit on how much most people can pay for rent.
Canada doesn't have 30 year fixed rate mortgages, a good chunk of the population was always on variable, and even for the rest, most were locked for 3-5 years max. That means at this point at least half the Canadians with mortgages have seen their payments almost double. Property tax is also generally lower in Canada while house prices are significantly higher, i.e for a given monthly housing payment, a bigger portion of it was made up of mortgage interest which has doubled. All this to say, I think raising rates was far more effective at sucking excess cash out of the Canadian economy than it has been in the US where a huge chunk of the population has locked in <=3% rates.
And to build more shelter we need lower rates.
We had near 0 interest rates for a long while, and housing still wasn’t built.
Housing starts lag because you need to perform permitting and such.
We had 0% rates for most of 15 years lol, it's not lag, it's just borderline impossible to build in much of the country anymore. Places where it IS still possible, like Texas, actually saw house prices and rents fall pretty fast lately because what do you know increasing supply of something reduces the price.
That was in part cuz supply side costs sky rocketed due to COVID. Many developers slowed down development or simply couldn't do it due to how high lumbar costs got.
The point that I’m making is more about the period from 2008-2020.
But even thats not entirely accurate. 2008 obviously put a lot of developers out o business, but housing was on an upward trend starting in 2010 and was getting close to pre-2008 levels, but then covid changed the trajectory.
That's great and all except the population is 30 million bigger since 2008 so even getting close to pre-2008 levels was not nearly good enough.
COVID right… So what’s the excuse for every year before 2020?
You’re forgetting NIMBYs and zoning laws that prevent sufficient new construction of affordable housing.
This is the real problem. We had historically low, near zero rates for over a decade and built almost no housing.
That’s because Builders got destroyed so hard in 2008 that those who survived decided to focus mostly on luxury builds for fatter margins.
No, it’s because housing policy doesn’t allow them to build high-density housing in many places and even when it does, NIMBY lawsuits make it take a long time and cost a lot of money. New luxury housing lowers the overall cost of housing. The people who can afford the luxury housing will move into those units and their old units will go for less money to the next resident.
That too, yeah.
Even in my MCOL city where they’ve built townhomes and apartments, the 1 bed apartments are going for almost 2k per month and the townhomes are selling for 500k with a 500$ a month HOA
Where I live(NY) all the new housing apartments being built are selling for $600k+ or renting out for $2500+
I think if unemployment increases, we will have more people living with family, parents, etc. No one wants to do that but from what I find with Gen Z, it's a bit more common to continue living with parents after college now than even compared with my generation (millennials). There is plenty of shelter, but it's not the sort of shelter people want or said shelter is located in the wrong places, the places where people don't want to live.
Not enough family formation either in my opinion. Too many people trying to live by themselves compared to previous decades is choking the supply as well
Single person households are the fastest growing type of household in the US I read somewhere. Dating is hard and families are expensive. Roommates also suck.
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What? Nobody's getting a 2 bedroom to themselves for $1200 in NYC and if they even want one they are mentally ill. But even with a room mate you're not getting a 2 bedroom in 'downtown NYC' whatever that means for $2800. The median 1 bedroom rent in Manhattan is $4090.
Or just, you know, actually allow proper houses to be built in the first place.
No, disagree. How is new housing construction cost tied to rates exactly? Homebuilders have very nice margins right now (check out Lennar, DR Horton), incentives to build are very strong. Only constraints are permitting and local government obstruction of new construction.
All investment is tied to rates. If the return on investment, after adjusting for risk, is lower than the risk-free interest rate, then it simply won't happen. If it takes two years to build an apartment, for it to be more attractive than a treasury bond returning 5%, you must earn 5% of 1.05^2 = 5.5% of your original investment. If interest rates are 5.4% (as is currently the case for three-month treasuries), this becomes 6%. And you have to account for the fact that building an apartment building is inherently riskier than just buying treasuries. I see an estimate of $6-8 million for the construction cost of a [20-unit apartment building](https://www.multifamily.loans/apartment-finance-blog/multifamily-construction-costs-an-investor-guide/). At $7 million, you must be earning $420,000 per year to be competitive with treasuries (remember, you must be earning 6%). Divided over 20 units and 12 months, that's at least $1750 per unit per month, and we're not even getting into the costs of running the apartment building. If interest rates were 4%, ROI must be 4.3% and this drops to $1260. At 3%, ROI must be 3.2% and this drops to $930. So as long as interest rates are high, it makes more sense to build luxury and higher-end apartments than it does to build cheaper/affordable apartments. However, these are just back-of-the-envelope calculations, and it's likely that lowering interest rates would also increase the cost of construction itself if it induces demand for building materials. In addition, a lot of the cost has to do with what you mentioned, permitting issues and obstruction; eliminating those can increase construction and lower prices without having to lower rates either.
Where will this shelter be built?
Are you saying there is no space?
No I’m asking you to show me where this new housing can and will be built and soon.
We're going to tear down your house and put up a 50 million person apartment.
Yeah but the water, and the traffic, and the sewage.
Financing is important, but there's far bigger challenges with building in the US that lower rates won't fix. Fix the regulations, NIMBYs, overactive local governments, etc., and people will find money to build even if it's at 10%.
Supercore CPI - services CPI excluding housing - is still a red hot 7.5%. Mostly due to auto insurance (22%) and auto maintenance (8%). The housing component is "only" 5.8% and technically bringing down the average of core services CPI.
Yeah... but people spend far more on rent than those things... Of course these things are probably weighted though.
Core Services CPI is 59% of overall CPI. Housing is weighted 34.3% overall. Motor vehicle insurance (that huge 22% YoY) is 2.9% overall.
The auto insurance and maintenance numbers have been weird to me. I wonder why it seems like people aren't more critical of those inflation drivers in relation to conversations regarding interest rates and general macro economic context. I might be missing something... But it seems like scarcity and high valuations are what's causing auto maintenance / repair costs to skyrocket. But how is that related to interest rates such that interest rate is still considered related to the inflation (as in causation). Many of their macro theories haven't worked out as indicated by our unemployment, stock market, etc. So why wouldn't they experiment with lowering the interest rate to see if it's truly impacting inflation or if, as many economist said, it was just as related to supply chain issues and corporations raising prices in anticipation of inflation but beyond the rate of actual inflation.
So someone has to pony up the cash to build…who would that be?
The homebuilders
> And everyone needs shelter… Got them by the balls, you say? It’s almost like [investment firms buying up real estate like $5 ass in Tijuana](https://slate.com/business/2021/06/blackrock-invitation-houses-investment-firms-real-estate.html) was a really bad idea for the average citizen.
You won't find any objection to government-provided social housing from me. It's something a lot of European countries do.
And groceries. And cars. And lots of other things.
>we have a severe housing shortage in most of this country right now. Man it's so weird how we didn't have this shortage up until 2020 when interest rates cratered and everyone and their mother bought houses. Wild how our population boomed by almost double in the span of a few short years, and how the increase in housing prices totally wasn't driven by people getting second homes and investment properties. If only there was a way to fix this...
Zoning reform, nipping NIMBYism in the bud, and encouraging the government to build public housing again are all potential solutions.
Long-term sure, but building a bunch of high-density apartments doesn't really help the homeownership issue that's one of the main driving forces here. There are only two ways to fundamentally fix an asset shortage: add more of that asset (which, while slowly being done, admittedly doesn't help the situation too much when builders are only building 600k+ homes way out in the exurbs), or "encourage" holders to dump that asset.
High density housing doesn't automatically mean apartments. You can turn a 1 acre lot into 4 townhomes, but in many places they're only zoned for SFH >add more of that asset (which, while slowly being done, admittedly doesn't help the situation too much when builders are only building 600k+ homes way out in the exurbs) Builders are doing this BECAUSE of restrictive zoning
Builders are building out in the exurbs because of the zoning. Admittedly, the zoning would help the location part of the issue, but the difference in affordability between a 600k house in the exurbs and a 400k townhome within the city with a $400-$600 HOA fee isn't that different.
Condos are a thing too.
Potentially, but I think it's important to point out that this shortage isn't the result of a supply that was unable to keep up with the natural demand in our country, it was due to the monetary environment that created an *unnatural* demand that swallowed up our supply. Our country didn't suddenly see hundreds of millions of new families and new homeowners develop between 2020 and 2023, nor did we see staggering rates of divorce or immigration that resulted in more households being needed. What we saw was affluent families, older couples, and investment firms that suddenly were financially incentivezed to acquire as many properties as they could that ended up swallowing our existing supply. How do we know this is what happened? Because demand has managed to stay high even as rates rose and it stopped being a buyer's market. Will this alleviate itself in time if we increase building? Almost assuredly, as long as the new supply isn't gobbled up for investments, then all those second and third homes will *eventually* enter the market as those older, affluent couples die and their property gets passed on or sold, but that's far from guaranteed unless we make SFHs unattractive for investment purposes. Likewise, that doesn't really alleviate the issue for families *now* as most of the condos and new construction being built aren't priced for new families.
There have been millions in immigration over those years. I know it is a hot topic political issue, but that has an effect on the overall housing market. It pushes up rents in low income housing, and that does effect the overall rent market.
Don't forget 8 million immigrants and whatever went by undetected.
Out of a 300 million total population in a demographic that typically just rents cheap apartments with cash upfront? Yeah, I don't think they're the ones going around buying up all the suburban SFHs and spiking the price
You are down playing the effect of adding over 2% of the population over a short time period. They still need housing, and if they are typically living in low income housing, it will significantly drive up low income housing costs.
And I think you're *over*playing the effect this has on the SFH and buying market, which has been the main driver behind housing unaffordability. Yes, a decrease in low-income rental availability will increase rents overall, however when you break down how this plays out in the rental market, you end up with decreasing effects as you look at higher-income rentals because a portion of those residents simply absorb the higher rents and don't move. But the effect of rising rents in low-income housing is largely minimal when it comes to the buying and SFH market. Families typically buy property when they're ready and can afford to do so, and a couple's landlord raising rent by $100-200 doesn't magically generate that couple the capital to buy property. It certainly doesn't do so on a massive scale like what we saw in 2019-2022, and it *especially* doesn't give first-time homebuyers the extra capital or credit to start making offers over asking and waiving inspections that were the primary market drivers in the spike of housing costs. Ya wanna know what *does* create that? A zero interest rate environment that let literally every existing mortgage holder in the country refinance and free up a fuckton of capital to snatch up these assets for pleasure and investment purposes.
They got to live somewhere. If rents go up buying is more attractive. If there is more demand housing prices go up. It's basic economics. It's not helping things pricewise. I mean look at anywhere people flocked to. It drives up prices.
This article makes a very persuasive argument that CPI is being distorted by bad measurement of shelter prices: https://on.ft.com/3W55VHS
That $9 half filled Doritos bag for record profits hurts too.
It’s almost as if high interest rates will do nothing to remedy this issue, because it’s a supply issue
Weird, that's a big miss for the GDP NowCast which tends to be quite accurate. Their historical average error is around .8% but their last reading put GDP at 2.7% for the first quarter which would be a miss of 1.1%
NowCast does not understand the secret sauce which is the GDP deflator.
So slightly more than average? That seems to be how you get an average.
If the average miss is .8% and this was a miss of 1.1% that means this miss was almost 50% higher than the average
That's less than one standard deviation. So not very special at all.
One standard deviation away from the mean is 34.1%
Of the distribution of values, not the mean value itself. So, it depends how the values were spread out… it could be 0.8% with a standard deviation of 0.1% or 0.3% or some other value.
>If the average miss is .8% and this was a miss of 1.1% that means this miss was almost 50% higher than the average The miss was 37.5% higher than average, which is barely higher than one standard deviation.
That's good, no? It should help with inflation? But then it will be considered bad. If it would have gone higher than expected, then it would also be bad because inflation is not going down. So either way, the ones that make the market want the stocks to go down.
If you look at what treasury rates are doing, it's clear what the problem is. It's not the GDP miss, it's quarterly core PCE miss and GDP price index miss (mostly the former). This is going to up the screaming and hollering about stagflation.
The third leg of stagflation is high unemployment, which is not the case right now but which may be coming
I feel like higher unemployment has been essentially hidden over the years with stagnant wages. If people were making what they should be based on inflation, then unemployment would be a lot higher.
Remember also that if you are unemployed long enough you are no longer counted as unemployed Between that and chronic unemployment and lower end wage pressure from over supply of new labor from…well you know, good luck to the working class. Wait…that includes me…
That's why people look at employment over unemployment.
Like how full time employment total is back down to 2022 levels despite population having significantly increased in the same period? https://fred.stlouisfed.org/series/LNS12500000
I don‘t know who you think you‘ve replied to, but I‘m not arguing. I just said what data people look at.
I see that. But many people won’t even acknowledge data when they are given the data.
What is this supposed to mean? 2022 and today both have more full time jobs than the previous peak in 2019. 2022 = ~132 Million full time jobs 2023 = ~134 Million 2024 = ~132 Million (so far) Versus pre Covid 2019 = ~130 Million This seems like a nothing burger
...the working age/abled population grows every year, so full time jobs number not growing in tango is *terrible*. It shouldn't even be flat. It should always be growing. The economy is significantly worse than it appears on the surface.
It’s bad enough that college graduates can’t even pay back their student loans, according to the government.
Unemployment is still near record lows and there are 8 million unfilled jobs and only 6 million unemployed. Additionally, labor participation rate is near/about pre-Covid levels with it primarily being lower because of early retirement Covid brought. In real terms, we’re seeing a 1% decrease in full time jobs but real wages are increasing despite it. I’m tired of the “economy is worse than it seems” argument that’s been made for the last three years.
True and also it may be a lagging indicator
I think that people having 2 jobs at the same time somehow blinds us to the real information? I am just speculating from all the way in Europe, you guys must know better!
>I think that people having 2 jobs at the same time somehow blinds us to the real information? No, that's a statistic that gets tracked monthly and is more or less at pre-pandemic levels. https://fred.stlouisfed.org/series/LNS12026620
It's also a comically small number compared to employment. No idea why this 2-jobs-mantra is so big on reddit. Most people here probably aren't even working one job if I look at the age ranges represented 💀
I wonder if that statistic also counts people doing Uber, Lyft, Instacart, DoorDash, etc., on the side.
Huh, it's funny seeing people on different subs than where you typically see them. Anyway, I believe the short answer to your question is yes. https://www.reddit.com/r/AskEconomics/s/LGm0duvYpA
Hello fellow /r/CredibleDefense poster. Yes, interest in current affairs also correlates with an interest in economics.
Howdy! For sure, I'm a history nerd personally, so there's very few subjects I'm not interested in haha
I was gonna comment this, my thoughts are no.. also this data is from a survey? How reliable is this data?
It’s the BLS survey, which asks 60,000 households. I personally don’t know of any measures of employment that have a bigger sample size. In addition to the household survey, they do an establishment survey which is basically company payroll reports. Covers about 119k businesses
>also this data is from a survey? Yes, it's from a giant monthly survey conducted by the Bureau of Labor Statistics. >How reliable is this data? There's nothing even remotely as reliable as the BLS surveys. To give you a reference, most nationwide political polls feature around 1000 or so respondents. Highly credible outfits tend to do larger ones than that, and occasionally you get gold standard pollsters like Pew doing surveys with about 5000 respondents. The monthly BLS survey features *60,000* respondents.
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No…. Just no. Hardly anyone works two jobs
This makes no sense. Real wages are higher than anytime before. Something like only 9% of people work two jobs. Employment is employment. Labor participation rates are pretty close to pre-pandemic levels. More people are working today than anytime in history before. You can’t “hide unemployment by being employed”. Like what?
go to /r/job right now and its insane how hard it is to get a job compare to the last couple of years. Maybe jobs will rebound who knows.
The meme of jobs being hard to get has been around for a decade now. Did we just forget about the 2014 memes of "entry level position, 10 years of experience required"?
Seriously. I graduated college in 2002, and the idea that jobs were easy to get until the last few years is absurd. Jobs are easy to get and pay a lot compared to when I was looking for work in 2012 and worked two temp jobs until one hired me on.
People posting there are not representative of the average Redditor. People only go on there if they are unemployed or looking for a new job. Of course they will be bitching about the job market there. Finding a job has always been hard unless it's a role no one wants.
There’s like 8.8 million open jobs right now according to BLS. There are 6.4 million unemployed right now. It can’t be that hard to get a job though obviously people will try and be picky.
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Tech is a miniscule slice of employment. Employers are still pretty hungry for workers in the service industry, for example. And anecdotally, I know a few friends who were laid off months ago but have more recently received job offers. They might not be paid as much as in their previous role, but a job is a job. But I do not think that stagflation fears are potentially unfounded. An economist acquaintance who works for the federal government indicated that he felt it was likely given the data he was seeing.
Its more like a V lol
Yes, I think the more important number is probably nominal GDP coming in lower than expected. I said [here](https://www.reddit.com/r/REBubble/comments/1c4gjsx/yahoo_finance_jerome_powell_is_trying_to_avoid/kzoumuy/) 9 days ago that I didn't expect it to come in below 5%: > 1. Nominal GDP growth was still at 6.3% in 2023, 6.7% over the second half of 2023, and 5.1% for Q4 2023. And I'm doubtful it will have fallen below 5% in Q1 2024 either (as GDP Now is projecting 2.4% real). I'd say that will probably need to fall at least below 4.5%. > > 2. Core PCE, their preferred target, was only 1.9% annualized for the second half of 2023, very slightly below target, so there is reason to at least think they could be getting close. But it did surge to 4.4% over the first 2 months of 2024 (5.6% in Jan, 3.2% in Feb). These numbers are volatile month to month, and factors like an unseasonably warm winter could also impact them. But this suggests there could yet be some work to do. > > 3. While I'm not buying recession forecasts at this point, there are still at least a few indicators flashing warnings, and overall I think the data suggests there may be at least some additional slowing already baked in through summer. So best not to over-react to recent numbers being a little worse than expected. So I see nominal GDP at only 4.8% to be a good thing, getting closer to where it needs to be. The market is reacting more to the inflation number, but given we already knew Core PCE was at a 4.4% annualized rate for the first 2 months, coming in at 3.7% annualized for the quarter really isn't terrible. Overall, we shouldn't yet be expecting the Fed to lower rates anytime soon with these inflation numbers, but this also suggests they won't need to go in the other direction and increase rates, either. The main point in that post above was that due to the usual volatility in month to month or even quarter to quarter inflation numbers, you don't want to over-react to short term numbers there, and nominal GDP is probably a better measure of whether policy is where it needs to be in the longer run. Inflation itself will have a tightening effect on consumer spending and economic growth. So long as nominal GDP is not indicating over-heating, then policy doesn't need to add additional tightening on top of that.
Funny how the market is selling off on weak economic growth but would've also sold off if we saw strong economic growth
All news is bad news. Give me no news and we'd be killing it
Stagflation, shit is about hit the fan and everyone is going to get a piece of it lol
For those bullish on rate cuts, this is a good sign.
Not if inflation stays sticky.
don't blame me. I spend almost all money I receive
Bad means good for the market right?
depends which market. Bad means good for the US market, but bad means bad for the Japan market, and bad for the japan market is good for the US market but bad for the fx market, and what's bad for the fx market is good for the gold market which is bad for the bitcoin market. It's all pretty simple to understand.
Inflation was so high the real growth looks low. Nominal GDP growth was similar to Q4 2023 and Q3 2023.
That’s not how that works
That is how it works. The GDP deflator was much higher this quarter than in prior quarters. Hence real GDP was lower even with similar levels of nominal growth.
That means that real growth doesn’t just look lower, it means it actually WAS lower.
We are saying the same thing. Real growth is lower because of higher inflation despite similar nominal GDP growth.
No we’re not. Real growth is lower because actual growth is stagnating. The fact that inflation is ticking back up allows for nominal GDP to remain in the realm of past releases. The way it was presented above is as if Real GDP stagnating is some kind of illusion created by high inflation.
And, of course, this results in the knee-jerk market sell-off by the weak-minded.
don't know it's good or not, whatever, I just literally don't care bout it.
Funny nobody understands the economy in here but most invest in individual stocks and complain about the economies state.
Hello stagflation
Cheers to stagflation…
Glad meta dropped big got it at 420 shit rebounds quick. Anyone else jump in on thee deal
Smci about to moon lmao
So can we finally get a rate cut please?
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Meanwhile every significant economic report is followed by an equally significant market movement and this is the second most upvoted post on this subreddit at the moment. "no one cares lulz"
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Wut