While low-income consumers appear to be adjusting their spending patterns to accommodate for the heightened costs of necessities, it seems the wealthy have been far less sensitive. One unique indicator of this is pool construction. One would expect that as interest rates rise and inflation eats up more and more of a consumer’s paycheck, splurging on a pool wouldn’t be an option, but the pool industry has yet to see a slowdown. According to Pool Magazine, a residential pool that would have cost $40,000 in 2019 currently sells for $65,000, yet residential pool construction boomed in 2021 and is expected to reach similar levels this year.
There are a lot of signs that the housing market is in a period of turmoil. Mortgage volume is plummeting, people are backing out of purchase agreements, and renters are reportedly being forced to move back in with their parents. That said, it’s not all bad news. For example, homeowner equity continues to grow and the overall rate of homeownership continues to rise.
Consumer Credit growth far exceeded Bloomberg forecasts coming in at $32 billion compared to $25 billion expected. Markets, already down for the day, were relatively unchanged at this news as the bigger data release Friday was unemployment.
Because of the way the BLS gathers rental data, there is some sentiment that rents are somewhat lagged. As an alternative source, Zillow also provides rental data in its Zillow Observed Rent Index (ZORI). If we think of the ZORI as a leading indicator of rents, than shelter inflation has a ways to go. The ZORI peaked at 17% YoY back in February and has made its way down since. By August, rents were still up over 12% YoY.
Stagnant or decelerating consumer prices seem unlikely after the Bureau of Labor Statistics reported yesterday that US producer prices increased more than forecasted in September. In the last decade, the relationship between the two price indexes has been relatively strong, with a positive correlation of approximately 0.78.
Since the Fed moved from forward guidance to data dependence, markets have been increasingly volatile on days of major economic releases. More recently, the phrase “bad news is good news” has been popularized, referring to how markets have reacted positively to traditionally negative economic data. The rationale behind this phenomenon is simple: if data suggests the economy is weakening (strengthening), we are (not) closer to a Federal Reserve policy pivot, and investors take on a bullish (bearish) stance. To see when this ideology began to grip markets, we look at one-day changes in the S&P 500 and the 10-year treasury on days when “major” labor market data has been released.