Why Are Things So Heavy In The Future?

“There’s that word again. ‘Heavy.’ Why are things so heavy in the future? Is there a problem with the Earth’s gravitational pull?” –Dr. Emmett Brown, AKA Doc

As we began 2022, the majority of prognosticators appeared to be favoring recession and were looking towards negative or tepid returns. Here’s a blog post that breaks down some of the predictions from some very smart people that happened to be almost all wrong! When that did not materialize, the S&P 500 finished solidly positive despite very few stocks that actually did well. The 2024 forecasts are predicting more of the same – an elevated chance of a (hopefully) mild recession with some bumps foreseen in the road. So why are we feeling so “heavy”?

Somewhat shockingly, if you compare one’s present situation with their own expectations, there is a massive difference between the two. Basically, it means that present economic realities do not match up with what they expect to happen in the future. Why is this? It could be because seemingly everywhere you look in the financial press and mainstream media outlets that the narrative is that we are mere moments away from recession. What will change that narrative or reinforce that we actually should be feeling a little skeptical of our current situation? I’ll break down a few positive and negative charts with some historical context.

“My Density Has Brought Me to You” – Retail Sales, Not Bad but Not Great

Treating the COVID period as an outlier, retail sales are growing, albeit slowly, and are off the flat trend rate we saw in early 2023. We are seeing some positive momentum and acceleration from last year according to the Census Bureau’s Advance Retail Sales reporting, as they indicate: “Advance estimates of U.S. retail and food services sales for November 2023, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $705.7 billion, up 0.3 percent from the previous month, and up 4.1 percent above November 2022.”

“You’re Not Thinking Fourth-Dimensionally” – Unemployment Rate is Increasing, But Only Slightly

Historically speaking, we are still looking really good for employment numbers. In 2023, we saw some reduction in staffing levels in the technology sector, however, according to CompTIA’s analysis of the Dept. of Labor statistics, technology unemployment is still very low at 2.2%. We are seeing some softness in the unemployment rates for construction and manufacturing workers, but overall, barring any unforeseen shocks to our economy, we are looking at a below average unemployment rate in 2024.

“Great Scott!” Manufacturing Contraction – Cause for Concern?

Recession is shaded here. Below 50 is contraction, above 50 is expansion. Certainly we have seen a few “head fakes” along the way, but it appears that manufacturing activity is relatively weak, and as indicated above, the unemployment rate has been ticking up. Whether this deteriorates remains to be seen, but with prices and interest rates showing signs of stabilizing it is not out of the question that a bounceback will come earlier than we think.

“This is Heavy” – Housing is Super Less Affordable!

Scary chart – purchasing an affordable home is quickly becoming very difficult – in fact, with prices that have increased and interest rates remaining elevated through 2023, this may be one of the worst times to buy. The good news here is that the Federal Reserve is expected to cut interest rates next year and inflation is abating, which will likely lead to lower interest rates in the coming years. This should help with the affordability in housing, though I wouldn’t expect any 2.5% 30-year fixed rate mortgages anytime soon.

But….”Weight Has Nothing to do with it.”

The next chart also should help with one other issue facing housing affordability – supply.

Spending remains elevated on residential construction despite elevated interest rates. This will lead to more supply hitting the housing market, further helping to curtail price inflation and helping affordability.

“Your Future is Whatever You Make it, so Make it a Good One” – Wages Are Catching Up

As our inflation rate post-COVID increased significantly, many workers were given significant raises, but in many cases they were insufficient to cover the increase in prices. This likely contributed to the feeling (rightfully so) that the economic environment was weaker and that workers eventually felt like their pocketbook was facing some sort of “recession”. More recently, wage increases have outpaced the inflation rate, allowing for workers to catch up their salaries on a net basis. This also may have contributed to the current sentiment index starting to break through to higher levels.

“Guess You Guys Aren’t Ready for That Yet” – Not Too Bad?

We could examine charts for days to find correlations and analyze data points, but one thing remains clear to me at this time – it’s not looking too bad. Whether we follow down into a light recession or keep landing softly, it appears that the data supports that we are going through only a mild slowdown. If we do see a significant economic calamity, it is much more likely that it came from a completely unforeseen place rather than something that is standing right in front of us.