Fed week. Everyone will be listening for clues on how the Fed might react to three months of disappointing inflation. It's what we won't hear that matters.
Most of mainstream macro needs to get in their heads that high rates aren't going to fix the inflation that is driven by rent and shelter costs. Its also remarkable that they don't realize that the higher rate environment is adding to inflationary pressures. Oddly enough, the re-acceleration of inflation is gravitating towards the FFR.
Take a look at the data snapshot of New Privately-Owned Housing Units Started (Single-Family Units) and Population counts comparing December 1959 and December 2023:
Year | Population | Housing Starts
1959 | 177,829,628 | 1,410,000
2023 | 334,233,854 | 1,064,000
difference population +156,404,226 and housing starts -346,000
percentage differences are +88% and -25%
Sources: Housing starts - FRED, Population - Demographia
It shows the seasonally adjusted annual rate for each month.
Notice that from 2009, after the financial crisis, up to early 2020 pre-pandemic, the housing starts crawled from super low 410,000 to 1,029,000 (which was still lower than 1959).
The US population grew 88% between 1959 and 2023, yet our housing starts have decreased by 25%.
Claudia nails it with "Build, baby, build!" — On average, we should have been building 2.6M starts per year, but just to catch up from the financial crisis slump, my guess is we should be building over 3M starts per year. Of course, there are a lot of other factors I'm not considering, such as over time shifts to urban multi-unit living, which someone could research as well.
@scottB I'm not sure what you mean. According to the US Census Bureau for July 1959 the population was 177,103,000. The US Census for January 1, 2024 is 335,893,238. That's a percent change of 89.66%.
Sorry to not be clear, and thanks to your nudge, I’m rethinking…Population in 1959 rose by 2.9 million, the increase in 2023 was half that. So I was thinking that would mean a lower number of new housing units would be needed. Looking at the detailed data, that will be true in the future, but not for the current population.
I see what you mean. My point was about aggregate demand growth over the past 63 years immensely overshadowing the stagnant and somewhat declining supply over that same period.
"The inflation in new tenant rents—which is down markedly—is a better signal of the current demand for sheltery, but it’s not fully reflected in the CPI and PCE."
Why doesn't the fed switch from average rents to market rents? Do they have a good reason for sticking with the current measure?
I believe you but this just seems like such an own goal by the Fed. We don't measure car payments on cars bought years ago. We measure the price of cars purchased today. Why do we measure rent payments on leases sign 10 months ago rather than the price of a lease signed today?!
Whenever measuring something as complex as a $28 trillion economy an sundry decisions must be made. There is a question about how the Fed should interpret it.
Apologies, I remembered reading it in passing in an article, which I now cannot find. It was when the 12-month moving average issue was in the headlines, and my recollection was that a BLS official was quoted as saying they were looking at using a more point in time measure. I may be mistaken.
Where housing (and this includes homelessness) is concerned, with apologies to Keynes: when the housing development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.
"the market" will NEVER build enough low income housing -- there isn't enough money in it. Governments need to return to building low income housing on their own, otherwise we are in Henry George territory forever and ever ...
I like it, well said! That casino, it seems me, is a large part of the problem that's getting ignored, in that they are buying up a huge percentage of homes driving up the prices. I also believe the price of auto insurance increases being attributed to the price of cars and their parts is flawed.
The price of home insurance has also seen large increases which adds to the price of rent. Auto insurance is not just responsible for auto repairs, it also covers medical bills. The COVID pandemic has placed tremendous pressure on hospitals, medical bills and insurance companies. This has to have had an effect on insurance rates.
I've consistently owned 2 to 3, even 4 new vehicles for the last 25 years while vehicle prices increased every year with very little effect on my car insurance rates, and then all of a sudden, my insurance prices nearly doubled. I have had zero accidents and tickets in the last 30 years and only one minor accident during my entire life. I have a hard time buying the price of vehicles part story.
It is my contention that the Fed is prolonging the so-call "sticky inflation" with interest rates.
I’ll say another thing about housing, we need a better system which tracks dynamically what our current inventory is, and precisely what new or converted or demolished housing stock is occurring. We do not have such a system now.
Nobody can say this in an election year but federal taxes are far too low. Trump and the gop cut taxes way back in 2017 especially on corps and ultra hnw individuals. That is a big reason for running high deficits. After the election if Biden wins I will be willing to bet that there will be some adjustments there.
My guess is there's a much larger reserve army in upper income (people who can afford an extended "career break" or "sabbatical"). Less labor organizing (or the threat of) is going on there too.
I think you may be underestimating the impact of wages. Consider that both Biden and Trump are running populist campaigns and that means both are siding with labor over capital. That is a strong indication that wage pressures will continue and push inflation higher
What are you talking about? Trump is not siding with labor! It's all talk coming from Trump....as usual! During the current inflationary episode, labor has seen a significant loss in real wages. What we are witnessing is wages chasing inflation, not wages driving inflation. I don't know where you people come up with this nonsense. What's going to drive spending (income) without wage increases?.....You are left with just one choice: an increase in Federal Government "net spending" (Federal Government Deficits). The average wage worker in the US is getting hammered by unwarranted price increases on one end and hammered by the Fed's junk economic policy (monetarism/ high interest rates) on the other. Hammering the people who can least afford it with high interest rates while claiming to be looking out for the consumer is an absurd way of reducing inflation. All the Fed is doing is increasing the income of people who already have money (unearned income) and throwing far too many people on the streets. These shows like the "Squawk Box" spread this nonsense all day long.
Someone needs to inform the Squawk Box, CEOs, and its viewers who want to insist that is spending that's causing the current inflationary episode that any spending in a supply-constrained environment can cause inflation, not just government spending. When the Federal Government "net spends" (deficit spends), the net spending is offset by Treasury bills (savings). Those large COVID pandemic spending bills by the US government have been converted into savings at this point. If the Fed wants to reduce spending (reduce inflation) and Federal Government deficits, as Powell claims, maybe the Fed should bring down the rates paid on Treasury securities instead of hammering low-income workers.
This somehow backward nonsense about it being the low-wage worker that is to blame is not only completely wrong but quite frankly insulting to one's intelligence.
It would kind of help if federal spending weren’t so astronomical. It’s unconscionable to run these kind of spending driven deficits outside the context of a national emergency.
The last three investment packages from Congress are not about emergency spending. They are about keeping our economy dynamic and preparing us to fight future disasters. Also, with the aging of the population the outlays on Medicare and Social Security are large and growing.
I suppose you can have differing views of whether this was a good idea or not. I don’t think that addresses the fact that deficit spending approaching 10% of gdp is inflationary.
Your using junk economic theory! Why is that the rest of world seeing high inflation if it's the US debt to GDP driving inflation? When the Federal Government "net spends" (deficit spends), the US treasury match's that amount of net spending in the sale of US Treasury bills. So, what is taking place is the Federal Governments net spending is increasing savings (stocks not flows). Whose savings would you like to reduce? Who and how many people would you like to have seen out of work and unable to pay their bills and feed their families?
Anytime you lose a large percentage of your productive capacity any spending will increase inflationary pressures, not just government spending. Did the price of cars go up because the US "debt" to GDP was approaching 10%, or did they go up because of lack of supply?
The spending is primarily coming from private sector debt (bank credit), and interest paid from the Feds monetary policy (interest rates), not "Federal Government deficits" at this point. Those dollars have long worked their way through the economy as they did their job of restarting an economy that was never going to do in on its own. We have over two centuries of data to show what happens when down turns in the economy are left to "the markets" to come back.
I really like the invocation of price signals as a description of the housing factor. I makes for such a plain spoken argument. Prevailing rates impede accomodations to this demand problem, acting in concert with the interests of hodl/home owners. To say nothing of the impact on clean energy projects.
I guess a recession will achieve policy goals, blunt instruments being a feature not a bug?
I said very early this inflation was driven by shelter inflation and I agree,that higher interest rates will not be helpful in solving it.
The policy is the wrecking ball.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Most of mainstream macro needs to get in their heads that high rates aren't going to fix the inflation that is driven by rent and shelter costs. Its also remarkable that they don't realize that the higher rate environment is adding to inflationary pressures. Oddly enough, the re-acceleration of inflation is gravitating towards the FFR.
Suicide of the West is the policy.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
That last sentence is Mosler's point.
A point that so many people are missing
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Take a look at the data snapshot of New Privately-Owned Housing Units Started (Single-Family Units) and Population counts comparing December 1959 and December 2023:
Year | Population | Housing Starts
1959 | 177,829,628 | 1,410,000
2023 | 334,233,854 | 1,064,000
difference population +156,404,226 and housing starts -346,000
percentage differences are +88% and -25%
Sources: Housing starts - FRED, Population - Demographia
Take a look at the FRED chart: https://fred.stlouisfed.org/series/HOUST1F
It shows the seasonally adjusted annual rate for each month.
Notice that from 2009, after the financial crisis, up to early 2020 pre-pandemic, the housing starts crawled from super low 410,000 to 1,029,000 (which was still lower than 1959).
The US population grew 88% between 1959 and 2023, yet our housing starts have decreased by 25%.
Claudia nails it with "Build, baby, build!" — On average, we should have been building 2.6M starts per year, but just to catch up from the financial crisis slump, my guess is we should be building over 3M starts per year. Of course, there are a lot of other factors I'm not considering, such as over time shifts to urban multi-unit living, which someone could research as well.
Also population growth is much lower.
@scottB I'm not sure what you mean. According to the US Census Bureau for July 1959 the population was 177,103,000. The US Census for January 1, 2024 is 335,893,238. That's a percent change of 89.66%.
Sorry to not be clear, and thanks to your nudge, I’m rethinking…Population in 1959 rose by 2.9 million, the increase in 2023 was half that. So I was thinking that would mean a lower number of new housing units would be needed. Looking at the detailed data, that will be true in the future, but not for the current population.
But households are smaller in size. So population does not mean the same thing for demand for housing.
Yes, absolutely. But I was thinking the drop in the cohort would outweigh that. I should do a real data analysis before saying anything more! 😝
I see what you mean. My point was about aggregate demand growth over the past 63 years immensely overshadowing the stagnant and somewhat declining supply over that same period.
"The inflation in new tenant rents—which is down markedly—is a better signal of the current demand for sheltery, but it’s not fully reflected in the CPI and PCE."
Why doesn't the fed switch from average rents to market rents? Do they have a good reason for sticking with the current measure?
The Fed cannot switch targets now, but they can interpret their progress differently.
I believe you but this just seems like such an own goal by the Fed. We don't measure car payments on cars bought years ago. We measure the price of cars purchased today. Why do we measure rent payments on leases sign 10 months ago rather than the price of a lease signed today?!
Whenever measuring something as complex as a $28 trillion economy an sundry decisions must be made. There is a question about how the Fed should interpret it.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
BLS is currently looking at changing the way they measure rental prices.
Do you have a link to that? Genuinely curious.
Apologies, I remembered reading it in passing in an article, which I now cannot find. It was when the 12-month moving average issue was in the headlines, and my recollection was that a BLS official was quoted as saying they were looking at using a more point in time measure. I may be mistaken.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Where housing (and this includes homelessness) is concerned, with apologies to Keynes: when the housing development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done.
"the market" will NEVER build enough low income housing -- there isn't enough money in it. Governments need to return to building low income housing on their own, otherwise we are in Henry George territory forever and ever ...
I like it, well said! That casino, it seems me, is a large part of the problem that's getting ignored, in that they are buying up a huge percentage of homes driving up the prices. I also believe the price of auto insurance increases being attributed to the price of cars and their parts is flawed.
The price of home insurance has also seen large increases which adds to the price of rent. Auto insurance is not just responsible for auto repairs, it also covers medical bills. The COVID pandemic has placed tremendous pressure on hospitals, medical bills and insurance companies. This has to have had an effect on insurance rates.
I've consistently owned 2 to 3, even 4 new vehicles for the last 25 years while vehicle prices increased every year with very little effect on my car insurance rates, and then all of a sudden, my insurance prices nearly doubled. I have had zero accidents and tickets in the last 30 years and only one minor accident during my entire life. I have a hard time buying the price of vehicles part story.
It is my contention that the Fed is prolonging the so-call "sticky inflation" with interest rates.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
I’ll say another thing about housing, we need a better system which tracks dynamically what our current inventory is, and precisely what new or converted or demolished housing stock is occurring. We do not have such a system now.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
You will like this podcast:
https://spotifyanchor-web.app.link/e/jarqFidjmJb
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Nobody can say this in an election year but federal taxes are far too low. Trump and the gop cut taxes way back in 2017 especially on corps and ultra hnw individuals. That is a big reason for running high deficits. After the election if Biden wins I will be willing to bet that there will be some adjustments there.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Mailbag question: what could explain the odd bifurcation in employment prospects being reported between upper and lower income peeps
Good question. In general, this recovery has benefited low-wage workers. https://www.atlantafed.org/chcs/wage-growth-tracker Of course, that comes off already too-low wages and far from on equal footing.
My guess is there's a much larger reserve army in upper income (people who can afford an extended "career break" or "sabbatical"). Less labor organizing (or the threat of) is going on there too.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
I think you may be underestimating the impact of wages. Consider that both Biden and Trump are running populist campaigns and that means both are siding with labor over capital. That is a strong indication that wage pressures will continue and push inflation higher
What are you talking about? Trump is not siding with labor! It's all talk coming from Trump....as usual! During the current inflationary episode, labor has seen a significant loss in real wages. What we are witnessing is wages chasing inflation, not wages driving inflation. I don't know where you people come up with this nonsense. What's going to drive spending (income) without wage increases?.....You are left with just one choice: an increase in Federal Government "net spending" (Federal Government Deficits). The average wage worker in the US is getting hammered by unwarranted price increases on one end and hammered by the Fed's junk economic policy (monetarism/ high interest rates) on the other. Hammering the people who can least afford it with high interest rates while claiming to be looking out for the consumer is an absurd way of reducing inflation. All the Fed is doing is increasing the income of people who already have money (unearned income) and throwing far too many people on the streets. These shows like the "Squawk Box" spread this nonsense all day long.
Someone needs to inform the Squawk Box, CEOs, and its viewers who want to insist that is spending that's causing the current inflationary episode that any spending in a supply-constrained environment can cause inflation, not just government spending. When the Federal Government "net spends" (deficit spends), the net spending is offset by Treasury bills (savings). Those large COVID pandemic spending bills by the US government have been converted into savings at this point. If the Fed wants to reduce spending (reduce inflation) and Federal Government deficits, as Powell claims, maybe the Fed should bring down the rates paid on Treasury securities instead of hammering low-income workers.
This somehow backward nonsense about it being the low-wage worker that is to blame is not only completely wrong but quite frankly insulting to one's intelligence.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Curious about your thoughts on r* and how that might impact the feds response to inflation.
I am highly skeptical of r-star as a knowable concept, but I more about it soon.
It would kind of help if federal spending weren’t so astronomical. It’s unconscionable to run these kind of spending driven deficits outside the context of a national emergency.
The last three investment packages from Congress are not about emergency spending. They are about keeping our economy dynamic and preparing us to fight future disasters. Also, with the aging of the population the outlays on Medicare and Social Security are large and growing.
I suppose you can have differing views of whether this was a good idea or not. I don’t think that addresses the fact that deficit spending approaching 10% of gdp is inflationary.
Your using junk economic theory! Why is that the rest of world seeing high inflation if it's the US debt to GDP driving inflation? When the Federal Government "net spends" (deficit spends), the US treasury match's that amount of net spending in the sale of US Treasury bills. So, what is taking place is the Federal Governments net spending is increasing savings (stocks not flows). Whose savings would you like to reduce? Who and how many people would you like to have seen out of work and unable to pay their bills and feed their families?
Anytime you lose a large percentage of your productive capacity any spending will increase inflationary pressures, not just government spending. Did the price of cars go up because the US "debt" to GDP was approaching 10%, or did they go up because of lack of supply?
The spending is primarily coming from private sector debt (bank credit), and interest paid from the Feds monetary policy (interest rates), not "Federal Government deficits" at this point. Those dollars have long worked their way through the economy as they did their job of restarting an economy that was never going to do in on its own. We have over two centuries of data to show what happens when down turns in the economy are left to "the markets" to come back.
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
Thank you for your feedback,for more information on how to be successful ,WH'AT'S'AP'P ME 十
+•1•765=2•0=8•=3=••9=••5=••7=•√•✔️✔️✔️✔***
I really like the invocation of price signals as a description of the housing factor. I makes for such a plain spoken argument. Prevailing rates impede accomodations to this demand problem, acting in concert with the interests of hodl/home owners. To say nothing of the impact on clean energy projects.
I guess a recession will achieve policy goals, blunt instruments being a feature not a bug?