Need to blow off some steam? Might we suggest a rage room to break things? In 2008, Japan originated rage rooms, also known as anger rooms or smash rooms, as a means by which to alleviate stress in a controlled environment. These facilities gained popularity during the Great Recession and spread to other countries – Serbia, U.K., Austria, Argentina, Nigeria and Canada – as people sought unconventional ways to cope with anxiety. According to ragedischarge.com, there are hundreds across America with only Alaska, Vermont and Wyoming not part of the club. The price of admission can vary from $20 to $100 and slot times run from 15 to 30 minutes. And be comforted knowing that protective gear is provided, making safe places for clientele to scream, yell, hit, punch, swing at and throw inanimate objects like electronics, furniture, glassware and plates (Opa!). While the benefits of rage rooms are short-lived and don’t address underlying causes of anger or frustration, they are a fun way to release pent-up energy and bond with friends.
Speaking of ‘bonding,’ the U.S. Treasury market did not have the feared need to rage in yesterday’s trading session. Though the July CPI and core CPI came in on the screws (0.2%/0.3% month-over-month, MoM), even a casual observer could hear a collective sigh of relief as the yield curve bull steepened. Pricing for a September rate cut rose to a nearly certain 96% and risk assets rallied. Tariff forces on core goods were not manifest in a second straight 0.2% MoM gain. The core CPI’s uptick from June’s 0.2% MoM advance was grounded in additional pressures in core services, which rose by 0.4% MoM, a six-month high. While this outcome countered our expectations, the source — heavily weighted rents (primary 0.256%, owners’ equivalent 0.278%) in the ‘low 0.3s’ – gave rates traders license to shrug off the news. They know what we know and is now forecast across platforms – that U.S. home prices are falling.
Earlier yesterday morning, the National Federation of Independent Business (NFIB) released what first appeared to be relieving good news. At 100.3, the headline small business optimism index printed above all estimates in the Bloomberg survey and prompted the authors to note this level stood slightly above the long-run average of 98. Hopes for an improving economy and an increase in views that it was a good time to expand drove the headline. However, the NFIB Uncertainty index rose 8 points to 97, the fifth highest reading ever. NFIB Chief Economist and QI mentor, Bill ‘Dunk’ Dunkelberg explained that the move is “clouding decisions about hiring, pricing, investment in plant and equipment.”
Weighed down by said uncertainty, Main Street also has a revenue problem. To that end, Current Sales eased four points to a net -9, Expected Sales fell one point to a net +6 and ‘Poor Sales’ as a top concern rose to 11, the highest since February 2021. Normalizing these top-line gauges shows an interesting evolution over the last few years. Sales expectations (green line) weakened first after COVID hit in 2020 and guided the persistent deterioration in Current Sales that followed in 2022 (yellow line).
It wasn’t until 2024 that left-tail revenue worries (blue line) began to move the needle. In the context of the U.S. public credit market, the NFIB metrics suggest an up-in-quality stance is prudent. The BB-BBB spread, light on relative value and a proxy of the U.S. unemployment cycle, is unlikely to retest the lows reached this January. A widening favoring investment grade over high yield is the path of least resistance.
In the context of the Fed’s dual mandate, with both at 11%, small businesses reported ‘Inflation’ and ‘Poor Sales’ as equally pressing concerns, the first time since 2021 that price pressures were not the dominant worry. Because ‘Poor Sales’ is also an unemployment rate proxy, it’s plain that Main Street knows Powell was out of step with the real economy when he said on July 30th that inflation was further from the Fed’s goal vis-à-vis employment. The bond market concurs. NFIB’s dual mandate shift dropped the Inflation-Poor Sales spread to zero in July (lilac line). Across cycles, the yield curve (inverted aqua line) heeds this spread and supports our tactical bull steepening call.
Shifting gears, Lightcast reported two extraordinary developments in its weekly Job Postings data. Benchmarked to January 2020, the recession-proof industries of Education & Health care registered a record 52.1% gain in the week ended July 25th (orange line). But that was blown away by a separate record high 90.9% advance for workers with Extensive Education (lime line). In stark contrast, at 4.8%, 0.8% and -1.4%, respectively, Manufacturing, Financial, and Professional/Business Services brandished no such bullishness. The wave of AI applications is clearly lambasting staffing levels for these low-productivity industries.
Elsewhere, job postings in Leisure & Hospitality slumped to -20.6%, a sharp turnabout from 19.1% in the middle of the month generating the fifth-largest two-week decline since Lightcast’s 2020 inception (purple line). Critically, this marked the worst two-week decline in the summer travel month of July not catalyzed by the 2020-21 pandemic disruption.
A whole hotel of rage rooms couldn’t relieve the price trends in the CPI for hotel rates and ship fares, which fell by 4.8% and 4.9% YoY, respectively (see table). And while airfares perked up in July, scoring a 4.0% MoM gain, the mild 0.7% YoY increase matched that for car and truck rentals. Both were about one-fifth the gain in the overall core services index which was underpinned by staples like rents, medical care and education costs. Will the Fed fade the discretionary/nondiscretionary price differential? That’s certainly how Treasury Secretary Scott Bessent sees it. He called for a 2024 Redux after the close yesterday – a 50-basis-point cut in September to correct for what the Fed should have done in July, a repeat that’s sure to relieve those positioned for further curve steepening.