Welcome to my newsletter!
Sunshine Corner is SRR Consulting’s bi-monthly newsletter with updates, news, and Sara's views on the US economy and commercial real estate.
Issue 2024:7
Happy Summer Solstice! To celebrate, use code SUMMER for 25% off a new subscription… for you or a friend🌞
In this issue, I will review the Fed decision last week and share SRR Consulting’s view on interest rates through year-end. Next up is a review of the historically strong US labor market, which is always good for real estate demand.
Nailed it. Again
Last week, the Fed kept its benchmark rate at 5.25%-5.50%, meeting SRR Consulting’s expectations. The lack of interest rate movement also met the expectations of 99% of respondents to MacroPolicy Perspectives’ June 2024 Shadow Survey of Market Participants, so I am in good company.
Recent inflation and employment data plus the June 2024 Fed Summary of Economic Projections (shown below) imply that a cut will not happen in July and is unlikely at the September meeting.
Another month of data is not enough to show a significant shift in inflation or employment trends, taking July off the table. For the Fed to cut the federal funds rate in September, the summer months would need to show a clear downward trend in inflation with a rising unemployment rate. I find this situation unlikely with US airlines set for record summer travel and US leisure travel spending expected to return to 2019 levels.
The bottom line.
The low-end of the Fed’s policy rate will be at least 5% at year-end 2024. If a cut occurs this year, I expect it to happen in December and be a 25-bps cut. Presidential elections tend to keep the Fed inactive, so I am doubtful that a move will be made on at November 6-7 meeting.
The Labor Market Rocks
Labor – as an economic concept – is having an incredibly good run. The national unemployment rate has held below 4.5% for the past 31 months (ending May 2024), the longest period of low unemployment since the late 1960s.
Full-time wage and salary workers are finally earning more on an inflation-adjusted basis too.
As shown in the first chart, real weekly wages for these US workers hit a peak of $339 per week in Q1 1979, then spent 22 years trying to get back to that level through two recessions and the 1990s, aka the former longest economic expansion. Then, real wages flucutated near within $10 of that peak for another 13 years.
It was the post-GFC recovery in the mid-2010s that finally began to push up real wages. There was a brief spike in 2020 that has largely corrected, leaving Q1 2024 real median full-time wages up 8.3% from the peak on my third birthday.
For context, the US Bureau of Economic Analysis data shows that real pre-tax corporate profits rose 1,136% over the same Q1 1979 to Q1 2024 period, while after-tax corporate profits rose 1,338%. Getting from $339 per week to $367 per week is good, I suppose, but $339 to $4,190 would match the growth rate of pre-tax profits.
Perhaps labor needs better representation.
Thanks for reading!
Fun Facts: Sunshine marks the start and end of each day and illuminates the moon to mark the start and end of each month. New data covering the economic and demographic drivers of real estate performance are released at differing monthly and quarterly cadences such that an important data release occurs at least once a week. It is chaos. To build this newsletter's calendar, I chose to follow sunshine and release this newsletter twice per month, at the start (new moon) and end (full moon) of a lunar month. Problem solved. 🌞