Post 257

A snapshot of what’s going on in the world’s economy.  Financial Ructions and book reviews can be a bit more technical so feel free to skip them.  See disclaimer at the end of this note.

Summary

  • Resuscitation Hardware comeback?
    • Plus a repeat post of a bit about their business: it’s pretty cool.
  • Tesla car deliveries rebound from previous quarter.
    • But down from last year.
  • Air travel continues to grow globally.
    • But declining in Japan.
      • Shopping in the US is getting expensive for Japanese.
  • Used car prices are falling, but still around 30% higher than pre-COVID.
    • New cars are also up around the same amount.
  • 60% of US homes were built before 1980.
    • New home sales still benefiting from low existing home sales.
  • US job growth is slowing:
    • Jobs created over the last 12 months:
      • Full-time jobs: 1.5 million lost
      • Part-time jobs: 1.8 million gained
  • Unemployment is slowly rising.
  • Canada jobs situation deteriorating markedly.
  • In Financial Ructions:
    • Office property vacancy continues to rise.
      • And prices continue to fall.
    • US and Eurozone inflation: Stalling?
    • US large caps rising.
      • Small caps falling.

News

Resuscitation Hardware Coming Back To Life?

RH 1Q/2024 Results:

  • Sales: down 1.7%
  • Operating profit: down 45%
    • Strong growth in cost of goods sold and SG&A.

The CEO said that this is “the most challenging housing market in three decades.”

Sales growth by quarter:

  • 1Q/2023: -22.8%
  • 2Q/2023: -19.4%
  • 3Q/2023: -13.6%
  • 4Q/2023: -4.4%
  • 1Q/2024: -1.7%

Here is my note from December 2023:

RH, formerly known as Restoration Hardware, is a luxury furniture retailer.

  • Sofas can cost well over $10,000.
  • The retail stores are called “Design Galleries.”
    • They are meant to be “architecturally impressive” and be a “multi-level expression of the RH brand.”
    • One of their most recent Design Galleries is in the UK and it’s a 17th-century 73-acre estate.
    • They’re opening one in the luxury area of Paris.
      • It “will be a six-floor jewel-box connected by a dramatic, ornate scissor stair and a central glass elevator that will whisk you up to the fifth floor and rooftop Champagne & Caviar Bar, where you can take in views of the Eiffel Tower while enjoying our innovative menu featuring the finest Petrossian Caviars.”
      • Or you can slum-it on their second-floor dining room with an “onyx-carved bar, floors, walls and tables.”
    • They also opened a Gallery in Indianapolis which is on a 151-acre estate.
    • They have a “hospitality experience” in 14 of them which includes restaurants and wine bars.
    • We’ve been in the one in West Palm Beach and the food was really good.
      • We didn’t buy anything.
    • Their goal is to move beyond just selling high-end furniture to build an “ecosystem of Products, Places, Services and Spaces that establishes the RH brand as a global thought leader, taste and place maker.”
    • They are opening RH Guest Houses offering “privacy and luxury in the $200 billion North American hotel industry.”
    • In addition, they are launching RH Residences: “fully furnished luxury homes, condominiums and apartments.”
    • They have two luxury private jets: RH1 and RH2
    • And one luxury yacht, RH3, that can be chartered.

They say that “For the past 23 years we’ve heard others tell us what can’t be done, and for the past 23 years we’ve failed…to listen.”

  • I like it.  And while there’s a risk they may be biting off more than they can chew they certainly know what they stand for in terms of luxury.
  • Slow home sales have impacted sales of new furniture.
    • They expect this situation to continue until “interest rates and/or home prices fall meaningfully.”
    • They also said that the home furnishings market is increasingly promotional i.e. bigger discounts

My post from September 2022

Restoration Hardware CEO said that “People keep saying, are we going to be in a recession?  We’re in a recession.  Anybody who thinks we’re not in a recession is crazy.”

  • PM: Furniture recession perhaps.

Tesla Deliveries:

Car deliveries by quarter:

  • 1Q/2022: 310,048
  • 2Q/2022: 254,695
  • 3Q/2022: 343,830
  • 4Q/2022: 405,278
  • 1Q/2023: 422,875
  • 2Q/2023: 466,140
  • 3Q/2023: 435,059
  • 4Q/2023: 484,507
  • 1Q/2024: 389,810
  • 2Q/2024: 443,956
    • Up 13.9% from previous quarter.
    • Down 4.8% from last year.

US Travellers

Daily US TSA checkpoint travel numbers TSA on June 30th:

  • 2019: 2.632 million
  • 2020: 0.530 million
  • 2021: 1.938 million
  • 2022: 2.456 million
  • 2023: 2.530 million
  • 2024: 2.835 million
    • Up 12% from last year
    • Up 7.7% from pre-COVID
      • 1.5% annual growth rate

The US Federal Aviation Administration handles 45,000 flights per day.

  • 1,875 per hour.
  • 30 per minute.
  • 1 every 2 seconds

Annual growth rate of revenue passenger kilometers (RPK) by region (IATA):

  • China: +7.6%
  • US: +6.0%
  • India: +4.6%
  • Australia: +4.4%
  • Brazil: +0.6%
  • Japan: -1.8%

The weak Japanese Yen is likely having an impact as it makes international travel more expensive for Japanese travelers.

  • Japanese Yen:
    • Jul 2020: 107.5
    • Jul 2022: 135.2
    • Jul 2024: 160.9

PM: For context, for a Japanese tourist going to the US the price of a $10,000 Hermes Birkin bag would be the following in terms of Japanese Yen:

  • Jul 2020: JPY1.075 million
  • Jul 2022: JPY1.352 million
  • Jul 2024: JPY1.609 million
    • Up 19% from 2022
    • Up 50% from 2020

Globally there are more than 1 million people up in the air at any point in the day.

Cars in the US:

Prices:

New cars (Statista):

  • 2019: $36,800
  • 2023: $47,010
    • Up 28%

Used cars (Manheim Index)

  • Down over 20% from its peak in 2021
  • Still up around 30% from pre-COVID
    • Up 29% according to FRED

New Cars Sold (FRED):

  • May 2016: 17.7 million
  • May 2019: 18.0 million
  • May 2022: 13.4 million
  • May 2024: 16.4 million

5-Year Auto Loan Rate (FRED)

  • May 2016: 4.15%
  • May 2019: 5.36%
  • May 2022: 4.85%
  • Feb 2024: 8.22%

Home Sales

New Homes:

From home builder Toll Brothers:

  • The median age of a home in the US: 40 years+
  • Percentage of homes in the US built before 1980: 60%
  • The company claims that this is the main reason why new home sales are so strong.
  • And that even if interest rates decline and unlock the resale market (those who are trapped in generationally low 30 yr mortgages) that the superiority of new homes will continue to drive sales.
    • PM: We’ll see.

New One Family Homes for sale:

  • Jul 2016: 238,000
  • Feb 2020 (pre-COVID): 329,000
  • Oct 2020 (low): 282,000
  • May 2024: 481,000
    • Highest since Jan 2008.

New One Family Homes sold (FRED):

  • Jul 2016: 628,000
  • Feb 2020 (pre-COVID): 707,000
  • Oct 2020 (high): 1,031,000
  • Jul 2022 (low): 519,000
  • May 2024: 619,000

Existing Homes:

US Active Home Listings (FRED):

  • Jul 2016: 1.463 million
  • Feb 2020 (pre-COVID): 928,000
  • Feb 2022 (low): 345,000
  • May 2024: 788,000
    • Up 128% from the low
    • Down 15% from pre-COVID

Existing homes sold (mortgagenewsdaily):

  • Feb 2016: 5.07 million
  • Feb 2020: 5.76 million
  • Feb 2024: 3.97 million
    • Down 31% from pre-COVID

US Jobs

Establishment Survey: 206,000

  • Government: 70,000
    • 34% of the total

Household Survey: 116,000

ADP: 150,000

Establishment Survey:

  • Mar: 310,000
  • Apr: 108,000
  • May: 218,000
  • Jun: 206,000

Household Survey: Number of jobs created over previous 12-months:

  • Jan 23 to Jan 24: 1,000,000
  • Feb 23 to Feb 24: 667,000
  • Mar 23 to Mar 24: 642,000
  • Apr 23 to Apr 24: 529,000
  • May 23 to May 24: 376,000
  • Jun 23 to Jun 24: 195,000:
    • Full-Time: -1.551 million
    • Part-Time: +1.806 million

Multiple job holders vs. last year:

  • +319,000

Unemployment rate:

  • Jun 2023: 3.6%
  • Jun 2024: 4.1%

Canada Jobs

New jobs:

  • Dec: 100
  • Jan: 37,000
  • Feb: 41,000
  • Mar: -2,200
  • Apr: 90,000
  • May: 27,000
  • June: -1,400

The employment rate is falling: the percentage of those 15 years and older in the workforce.

  • Feb 2020: 62.1%
  • Jun 2023: 62.2%
  • Jun 2024: 61.1%
  • PM: Outside of COVID, this is the lowest number in 22 years (2002).

The employment rate has not increased since January 2023 (62.4%).

Jobs over the last twelve months:

  • Private sector: 106,000 (+0.8%)
  • Public sector: 183,000 (+4.3%)
    • PM: This is an outrageous number.

Unemployment rate:

  • Feb 2020: 5.7%
  • Jun 2023: 5.4%
  • Jun 2024: 6.4%

But wage growth rising:

  • May: 5.1%
  • Jun: 5.4% ($34.91 per hour)
    • At 40 hours per week and 52 weeks per year: $72,612 per year.

Financial Ructions

Note: ‘Financial Ructions’ is optional-to-read for those who are interested in taking a bit of a deeper dive…

US Office Real Estate (commercialedge)

  • US office vacancy rate:
    • May 2023: 17.0%
    • May 2024: 17.8%
      • San Francisco: 25.2%
      • Seattle: 23%
      • Tampa: 13.1%
      • Miami: 12.3%
  • Percentage of office properties sold at a loss:
    • 2023: 20%+
    • 2024 YTD: 30%
  • Average sales price of office property in Manhattan vs. last year:
    • Down 66%

US Inflation: Stalling?

Personal Consumption Expenditures Price Index (PCE)

  • Feb: 2.5%
  • Mar: 2.7%
  • Apr: 2.7%
  • May: 2.6%
    • Goods: -0.1%
    • Services: +3.9%

Core excluding food and energy:

  • Feb: 2.8%
  • Mar: 2.8%
  • Apr: 2.8%
  • May: 2.6%

PM: A reminder here of the difference between CPI and PCE:

Some of you may have noticed that each month there are two different inflation numbers that are released in the US: CPI and PCE.

  • The Bureau of Labor Statistics or BLS produces CPI (consumer price index).
  • The Bureau of Economic Analysis produces PCE (personal consumption expenditure).

Click ‘here’ for 29-page explanation, and gets quite complicated but here is a stab at some of the main differences between the two:

1.     

  • CPI only considers out-of-pocket expenditures.
  • PCE includes both out-of-pocket and expenditures made on behalf of consumers i.e. not out of their own pocket.
    • Those spending on behalf of consumers would include:
      • Government
      • Non-profit organizations
      • The private sector

2.     

  • CPI only measures spending by urban consumers.
  • PCE measures spending by both urban and rural consumers.

3.     

  • CPI measures what consumers purchase from businesses.
  • PCE measures what businesses sell to consumers.

4.

  • CPI is a better short-term measure
  • PCE is a better long-term measure.

The weightings of different goods can vary significantly with the two largest being housing and healthcare (Morningstar).

 CPIPCE
Housing32%15%
Healthcare9%21%

The Federal Reserve prefers to use PCE when determining monetary policy, but the report says that this does not mean the PCE is a better gauge of inflation (some claim that the Fed prefers it because it usually gives a lower number)

  • The Fed prefers PCE because it:
    • Reduces substitution bias.
      • This happens because CPI keeps weights in the CPI basket fixed for a year.
      • So, if consumers are switching from more expensive apples to less expensive oranges then the weight of the more expensive apples in the CPI should go down as people are buying fewer apples.
      • PM: Seems to me that by reducing the weight of apples CPI would then be understating inflation.  Yes, people are buying fewer of them but only because their price went up.
    • Captures a broader part of the economy.
    • Better reflects methodological changes (whatever that means).

Eurozone Inflation: Stuck

  • Feb: 2.6%
  • Mar: 2.4%
  • Apr: 2.4%
  • May: 2.6%
  • Jun: 2.5%
    • Services: 4.1%.

Bifurcation

Year-to-date returns including dividends (Charlie Bilello):

  • S&P 500: +15.0%
  • S&P Small Caps: -1.6%

Disclaimer: Note that Paulitical Economy™ should not be considered as investment advice, and I have not verified all of the sources of information.  It is meant for general interest purposes only.  Please consult an advisor if you plan on putting any of your hard-earned capital to work during these turbulent times.

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