QUICK QUILL — ‘Inflation’ is waning in mentions on earnings calls, but households are increasingly concerned. Prospects for the improved compensation that accompanied a better job would remedy the anxiety of the latter, but perceptions there are deteriorating, pointing to further wage disinflation. Indeed’s Wage Tracker shows fresh downside that will filter through to official data with a lag. The job postings angle adds color and shows an abrupt drop for positions requiring minimal education, a cohort that HAD unusual negotiating power in the post-stimulus years. Risk for higher jobless claims is the takeaway as these workers have the highest propensity to swiftly file for unemployment insurance. The breadth of job postings by category also shows broad-based weakness, save for the one diamond in the rough – insurance.

TAKEAWAYS

1. Per FactSet, 219 S&P 500 companies have cited “inflation” in their Q1 earnings calls, the lowest since Q1 2021’s 218 and seventh straight QoQ decline; despite the downward trend, a record 41% of households, per Gallup, cited inflation as their top financial problem in 2024
2. In April, only 49% of households surveyed by Gallup saw now as a good time to find a quality job, the first sub-50 reading in eight years; given the series has historically moved with worker average hourly earnings growth, additional wage disinflation appears in store
3. Overall Indeed job postings have not risen MoM since 2021, and 40 of 47 job categories have posted MoM declines thus far in May; similarly, Lightcast job postings requiring Minimal Education have nosedived to -17.6% vs. pre-COVID levels, a red flag for initial claims

QUICK QUILL — The U.S. government is not insulated from what buffets the U.S. economy. Real government receipts have been in contraction for more than a year with the latest decline rivaling recessions. In turn, the labor cycle in the D.C./Maryland/Virginia region has inflected. Government dissaving inverting with private saving deepens the current recession. While the investing world awaits Nvidia earnings as it once did Cisco Systems in 2000, be cognizant of the downside risk to S&P sectors with high cyclical and interest-rate sensitivity that could buckle before speculative juices run dry.

TAKEAWAYS

1. Unemployment in DC/MD/VA triggered the McKelvey Rule in October 2023, and the White House’s FY25 budget plans to moderate federal hiring; real government receipts have also fallen YoY for five straight quarters, an occurrence seen in most postwar recessions
2. The spread between government dissaving and private saving inverted to -$70.8 billion at the end of 2023 on a 4QMA basis, a far cry from the +$400 billion seen at the end of 2022; the current inversion is a rarity in the postwar era, only otherwise seen during the GFC
3. Per FactSet, S&P 500 revenues were up 4.2% YoY in Q1 and are currently up 4.6% YoY for Q2; however, underneath this topline, cyclical and rate-sensitive sectors such as Industrials, Real Estate, and Consumer Discretionary have notably decelerated into Q2

QUICK QUILL — We see recession recognition as gaining speed and momentum. Be positioned to take advantage of rising volatility and falling bond yields.

TAKEAWAYS

1. The Sahm Rule, which triggers when the 3MMA unemployment rate is 0.5% off its 12-month low, is now flashing in 37% of states; this state breadth level was crossed five months into the GFC, supporting QI’s call that recession should be backdated to October 2023
2. In the ten most manufacturing-intensive states, the Quits Rate has been falling YoY since May 2022, coinciding with when ex-auto IP started declining; similarly, in the top ten Leisure & Hospitality-intensive states, the Quits Rate has fallen YoY since October 2022
3. With Powell holding steadfast to Higher for Longer, NAHB Buyer Traffic has taken a turn for the worse; Redfin data is also raising a red flag, with Median Days on the Market ticking up to 40, their highest since September 2020, while Active Listings are up 14.2% YoY

QUICK QUILL — The Conference Board’s Leading Economic Index is set to be released this morning. Odds are this will be the first time in a year it’s a little harder to dismiss as a has-been economic indicator. As it becomes increasingly difficult to keep up with the constant stream of layoffs, volatility remains a screaming buy.

TAKEAWAYS

1. On a 13-week annualized basis, initial jobless claims are now rising 5%, a far cry from last September when they were falling by -20%; meanwhile, continuing claims have moved in the opposite direction, going from a 16% advance in February 2023 to their current flatlining
2. In the Philly Fed’s May Mfg data, New Orders and Shipments both fell more than 20 points, something only seen 8 other times; notably, combined Philly / NY Fed Mfg data, when weighted to proxy the ISM headline, signals that the Northeast is vastly underperforming the broader U.S.
3. Philly Fed Mfg Current Employment and Workweek both remain in deep contraction as U.S. Mfg capacity utilization continues to slide; with non-auto Mfg underwater since late 2022 and rail carloads underperforming relative to output, both the supply and demand sides are challenged

QUICK QUILL — Imbalances between the volume of retail demand and supply and stirrings of a deteriorating capex outlook point toward weaker growth and a further deepening in goods deflation. Risk of higher unemployment is acute with state-level WARN notices rising and ‘severance pay’ trending. There is further downside in yields and upside in volatility.

TAKEAWAYS

1. Real Retail Sales downshifted to a 1.5% two-quarter annualized rate in April, materially lower than Q1’s 1.9% and Q4 2023’s 3.7%; Real Retail Sales have also run ahead of Real Retail Inventories for the last four quarters, flagging further goods deflation ahead
2. In the NY Fed’s Empire Mfg survey, Future Capex fell to 2.0 in May and on a z-score basis is in recessionary territory; similarly, the Nondefense Capital Goods Ex-Aircraft Orders-Shipment spread inversion continues to deepen, validating the negative capex outlook
3. WARN Notices in the Top 15 states tallied 28,291 in April, a reading consistent with Great Recession levels; notably, the 2024 YTD average is the highest since 2009, and the uptick in Google search interest for “severance pay” flags upside risk for job losses through this year

QUICK QUILL — Inflation guides from the NFIB survey and the PPI point to sticky core service prices, a disinflationary path for rents and more deflation in core goods prices. Stagflation risks from Main Street add conviction to our curve steepener call as evidence mounts that job losses will force the Fed’s hand sooner than one Jerome Powell would like.

TAKEAWAYS

1. In the NFIB’s April survey, the share of small businesses raising worker compensation rose off their Q1 level to a 1.6 z-score; with the share citing Labor Costs as their Biggest Problem also rising to a 2.8 z-score, Main Street wage pressures are raising a red flag for supercore
2. The CPI’s two rental components remain within reach of last year’s peaks; however, QI’s Residential Real Estate Services proxy, which averages PPI for real estate agents, appraisers, lawyers, and self-storage facilities, suggests a return of 2% reads within 12 months
3. On a z-score basis, NFIB Inventory Sentiment continues to flag overstocked conditions, a sign of further core goods deflation to come; meanwhile, NFIB Higher Sales have been at or below -1 for four straight quarters, which will only compound existing deflationary pressures

QUICK QUILL — Welcome to inflation week. The New York Fed’s Survey of Consumer Expectations (SCE) household inflation expectations and NFIB’s small business price plans suggest lagging essentials inflation remains a pain point. That said, the SCE noted a sharp loosening in prime-age worker job prospects alongside a rapid cooling in wage pressures for this cohort. Disinflation risks are rising in the housing market with home buying conditions hitting a record low in stark contrast to delusional home seller expectations with respect to their pricing power. Credit concerns have surfaced in the service-heavy Northeast, which should also manifest as disinflation.

TAKEAWAYS

1. Per the NY Fed, median year-ahead inflation expectations rose to a five-month high of 3.26% in April; meanwhile, NFIB Small Business Price Plans, at a net 33%, align with household views that there is still a way to go until we see sub-2% CPI prints
2. For those aged 40-60, the Mean Probability of Finding a Job in the Next 3 Months fell to 49.7% in the NY Fed’s April data, a three-year low; similarly, year-ahead expected wage inflation for this group fell for a third month to 2.0%, a record 0.8-pt three-month decline
3. Debt delinquency expectations continued to rise in April, with the aggregate z-score for all households in the NY Fed’s data rising to 0.50, the worst non-COVID print in six years; the high-COL, services-intensive Northeast is in particularly dire straits with a z-score of 3.2

QUICK QUILL — The abruptness and magnitude of the increase in expectations for the unemployment rate to rise flag ‘value’ in recession probability being at a two-year low. The biggest tell in Friday’s preliminary May read on consumer sentiment via the University of Michigan was income expectations collapsing to the lowest since May 2020, when the unemployment rate was 13.2%. Look at backups in yields as buying opportunities.

TAKEAWAYS

1. In UMich’s preliminary May data, Higher Unemployment Expectations rose 8 points to 40%, double the norm; despite auto/home/large durable buying conditions also falling to their lowest level since January 2023, Bloomberg recession probability sits at a two-year low
2. Demand remains challenged in China, as seen by PPI inflation continuing to decline YoY; though this has historically flagged downside for U.S. CPI, 16% of households saw inflation north of 10% in the next 5-10 years in UMich’s May data, the highest since the mid-90s
3. UMich 5-10 year inflation expectations are naturally volatile but have been appreciably higher since 2020; meanwhile, the highest levels of political polarization in the postwar era have left Republicans far more dour than Democrats, a flip-flop from the Trump presidency

QUICK QUILL — Beneath the “good news” in rising New York jobless claims were several other states signaling turns in their job markets that WARN notices indicate will not be one-week wonders. Celebrating the decline in yields should be expressed by taking advantage of the buying opportunity in rates and equity volatility.

TAKEAWAYS

1. Three of the five states with the biggest YoY rises in non-seasonally adjusted initial claims are manufacturing juggernauts Indiana, California, and Texas; also in the top 5 is Illinois, whose WARN notices spiked in April, a red flag for the path of initial claims in the coming weeks
2. Per BofA, spending on Airlines, Lodging & Entertainment has fallen from 9.0% YoY last March to -6.0% YoY; meanwhile, spending on Groceries & Gas was down -3% YoY a year ago but is now up 1.0% YoY as tightened budgets force consumers to focus on essentials
3. On a z-score basis, Conference Board CEO Own-Industry Current Conditions have historically tracked the path of the S&P 500; however, the current disconnect with equities continuing to fly high in the face of CEO pessimism suggests something is amiss

QUICK QUILL — Macro metrics via the transportation & warehousing sectors and wholesaling flag disinflationary forces that have yet to be fully felt. The warehouse boom to bust in 2023 also implies the 2024 outlook for inventory accumulation has turned pessimistic. Moreover, turning points in the supply chain’s labor cycle suggest the freight recession has legs.

TAKEAWAYS

1. In April’s LMI, the trend of Transportation Prices rising towards falling Capacity, seen from Q2 2023 through Q1, took a sharp turn; the reversal suggests the Cass Freight Rate Index will remain in contraction, even after 7 straight QoQ declines going back to Q2 2022
2. Real Wholesales Sales were down -2.8% on a 6MA basis in March and were the weakest performer of NBER’s key recession indicators; with sector job openings, hires, and quits all moving downwards, wholesale unemployment looks to keep rising off last year’s cycle lows
3. After the post-COVID e-commerce boom, warehouse completions took a nosedive in the second half of last year; the decline is a red flag both for the inventory accumulation outlook as well as for nonresidential construction payrolls that have continued to defy gravity