On the east side of Amarillo, Texas, right off I-40, sits The Big Texan Steak Ranch & Brewery, known for its famous “72 oz. Steak Dinner Challenge.” Diners who choose to participate are given one hour to consume the following:
- An order of shrimp cocktail,
- A baked potato,
- A side salad,
- A roll (with butter), and
- A 72 oz. steak cooked to their liking (we’re partial to medium rare ourselves)
Once the timer starts, you’re not allowed to get up from your table and are disqualified if you become ill. The prize for success? Getting the $72 meal comped by the restaurant, and having your name added to their “Hall of Fame”, which includes world-famous competitive eaters Joey Chestnut and Molly Schuyler, who both completed the challenge in under 10 minutes. You’ll find yourself in rare company should you emerge victorious. The challenge dates back to 1962, and only 11% of the more than 94,000 attempters over the years have succeeded.
Similar to the distinguished group of eaters who’ve conquered the 72 Oz. Steak Challenge, supercore PCE found itself in rare territory in April. Per the Census Bureau’s latest Personal Income and Outlays report, the gauge printed at -0.02% MoM, the first in the red since March 2017, excluding the initial COVID shutdown (green line). Furthermore, this was just the 15th negative sequential reading in more than 360 months of data back to 1995, a 4th percentile event. As a reminder, “supercore” strips housing, food, and energy from services inflation and has been a preferred gauge for Federal Reserve officials in recent years. In a 2022 Brookings Institution speech, Jerome Powell said it “may be the most important category for understanding the future evolution of core inflation.” The fact that it’s breached negative territory only reinforces the bind in which the Fed has put itself, running dry of excuses to justify Higher for Longer.
The April PCE data also made clear that consumers are choosing to hunker down in the face of an acutely uncertain economic landscape. Personal savings as a percentage of disposable income rose from 4.3% to 4.9% in April, the highest rate since May of last year. Additionally, personal savings in recent months have been revised materially upwards. From October 2024 through March of this year, personal savings previously averaged $906 billion a month. Post-revisions, that number now sits at $976 billion. March’s initial print was revised from $872.3 billion to $976.1 billion, and April’s preliminary $1.12 trillion estimate is the highest in more than a year (red line). This trend toward saving is consistent with recent signals from airlines and retailers who’ve lowered their guidance citing softening demand. We’ll get fresh insights from Lululemon, Dollar Tree, and Dollar General when all three report earnings this week.
In addition to the PCE report, Friday’s data docket gave us the University of Michigan’s final take for May. Headline consumer sentiment was unchanged from April, with director Joanne Hsu noting that “Sentiment had ebbed at the preliminary reading for May but turned a corner in the latter half of the month following the temporary pause on some tariffs on Chinese goods. Expected business conditions improved after mid-month, likely a consequence of the trade policy announcement. However, these positive changes were offset by declines in current personal finances stemming from stagnating incomes throughout May.” In the May 19th Feather, with only preliminary data in hand, we charted the divergence between real consumer spending and aggregated 5-year job loss fears. Now, with the final data allowing us to break out demographic cohorts, what concerns us is where these long-term job loss fears are most acute, which is among upper-income and college-educated Americans, who account for most of the nation’s consumption.
As we mentioned in Saturday’s Intelligence Briefing, MacroEdge’s final job cut tally for May was 107,965, the fourth straight six-figure print dominated by the private sector. As the layoff cycle marches on, job loss fears for the highest income-earners have risen appreciably. UMich’s Probability of Losing a Job in The Next 5 Years for this highest-earner group spiked from the first quarter’s 22.5% average to 24.3% thus far in the second quarter (purple line). Should this hold through June, it would be a record high in data to 1998, eclipsing the 23.6% peak from 2009’s first quarter. By contrast, lower/middle-income fears haven’t seen the same rapid rise, ticking up from the first quarter’s 20.1% to 20.4% (pink line). The current 3.9-point gap between these cohorts has only been wider three other times: in 2000 and 2001’s respective fourth quarters (the dotcom bust), and in 2010’s third quarter (the GFC aftermath).
It’s a similar story for college degree holders, as their long-term fears of being made redundant have also spiked to a record high (teal line). The last chart demonstrates the relationship between this group’s long-term perceived job security and inverted M&A deal volumes (orange line). As deal activity slows, those working these transactions on Wall Street naturally become more anxious. Deal volume peaked this cycle at $215 billion in 2021’s second quarter, and their 5-Year Job Loss Probability hit a low shortly thereafter, at 13.2% in 2022’s second quarter. The current quarter’s $27 billion run rate is on track to take out the GFC low of $30 billion from 2009’s third quarter, and 5-Year Job Loss fears sit at 23.4%, besting 2002’s fourth-quarter peak of 23.3%.