An Impossibly Short Four Years

“The days are long, but the years are short.” Upon recently hearing these words for the first time, I remain numb at their cruel veracity. I navigate my days in uncharted territory, mourning the imminent high school graduation of my middle son. These four years have been impossibly short. The tears spill unconsciously with every “last.” Desperate to impart wisdom, I borrow first from Beverly Sills’ 1981 commencement speech at Barnard College: “If you wonder when you’ll get time to rest, well, you can sleep in your old age if you live that long. You may be disappointed if you fail, but you are doomed if you don’t try.” My favorite is from Ralph McGill, editor of the Atlanta Constitution at the University of Miami in 1949: “It has sometimes been my idea that instead of a speaker offering sage advice, it would be a far better idea to place before a graduating audience a fine symphony…or a magnificent ballet, and when this had been completed, to say; ‘Ladies and gentlemen, life can be very lovely or very sad. It probably will be a mixture of both…Goodbye, and God go with you.”

Perhaps it’s because we sent him away as a freshman to a sealed campus as Culver struggled to administer a global student body amidst a global pandemic. There’s a special guilt reserved for parents who discharge their 14-year-old charge to boarding school thousands of miles from home during Covid. If nothing else, he’s not a Class of 2024 college graduate. A weekend Financial Times interview featured a finance undergraduate grappling with gaslighting. To protect his shot at landing a job, he asked his name not be revealed. “On one hand I’m going into a great workforce and on the other hand there are not a lot of jobs,” he said. “I do not know what to believe…it is a little worrisome.” His experience is not unique. According to the National Association of Colleges and Employers. U.S. employers will cut hiring of fresh graduates by 5.8% year-over-year, the steepest decline since the series’ 2015 inception. As for college grads aged 20-24, their unemployment rate rose to 5% from 4.2% in the last year.

Adherents to the Sahm Rule, triggered when the 3-month moving average unemployment rate is 0.5% off its prior 12-month low point, recognize that college graduates are experiencing recession. As for the broad economy, the Sahm Rule is flashing red in 37% of states (fuchsia line). This suggests the U.S. economy is roughly five months into recession based on this critical mass having been hit in April 2008. The month recession began, December 2007, saw 20% of states with the Sahm Rule activated. As for the McKelvey Rule, which has a track record that’s equally perfect though its bogey is only a 0.3% increase on the same basis, it’s been sparked in 65% of states, the highest since June 2008, seven months into the Great Recession (teal line). This aligns with our call that recession should be backdated to October 2023 as revised data out of the Bureau of Labor Statistics shows 192,000 jobs were shed in last year’s third quarter.

Drilling down, the economy’s cyclicality is on full display. In the ten states in which manufacturing contributes the most to Gross State Product, the Quits rate has been falling since May 2022 (red line). No coincidence, that timing coincides with the beginning of the decline in Industrial Production outside the auto sector. As for Leisure & Hospitality, job insecurity began to grow in October 2022 (blue line). QI’s Dr. Gates observes, “Cooling Quits trends in cyclical sectors point to fewer opportunities to earn more money, which is, by definition, disinflationary. Most notably, the 20 states that illustrate this are exclusive of each other.”

Leisure & Hospitality waning gels with the latest data out of Redfin on demand for that summer ocean or lake house. Per the data provider, “U.S. homebuyers took out 90,772 mortgages for second homes in 2023, down 40% from a year earlier and down 65% from the height of the pandemic housing boom in 2021.” Last year, the usual suspects of Austin and San Francisco saw the biggest declines in demand for second homes. Redfin continued with, “An early look at this year’s data shows that demand for vacation homes hasn’t picked up in 2024; interest in second-home mortgages has been sitting near an eight-year low all year.”

As for primary homes, the refusal of Federal Reserve Chair Jerome Powell to bend on Higher for Longer has sent Buyer Traffic back down as per the National Association of Home Builders (purple line). After dueling flirtations with recovery, data via the Mortgage Bankers Association (MBA) concur. The Purchase Index for mortgages remains mired in negative territory YoY (lime line) while Average Loan Size has fallen back into the red, presaging the temporary nature of recent home price gains (orange line). What’s to come? After a four-month reprieve of positivity, Redfin’s Pending Home Sales index fell back into YoY contraction in May (yellow line). At the same time, at 40 days, Median Days on the Market is at the highest since September 2020 (lilac line) while Active Listings are up by 14.2% YoY, a fourth month in the black after nine months of YoY declines (light aqua line). To the list of things high school grads will avoid this summer, we can add a slow-moving housing correction.

Posted in Daily Feather.