February 14, 2022
👋 Good morning, Markets friends! We're still recovering from the onslaught of crypto ads and GenX / millennial nostalgia on display in the Super Bowl last night. (E*trade baby anyone?)
💌 But, we come with love this morning — and lots of talk about inflation. Let's go!
Today's Smart Brevity: 1,038 words, 4 minutes.
1 big thing: Let's nerd out about rising rents
"Oh my yes!" That's what real estate consultant John Affleck told me when I asked him if rent increases like the ones in the chart above were unusual, Emily writes.
- From 2015–2019, the average annual rent growth across major markets was 3.5% — but in 2021 it was 13%, said Affleck, senior vice president of research at John Burns Real Estate Consulting.
- And in some Florida cities it was as high as 30% or more.
Meanwhile, a measure of rent prices in the Consumer Price Index, released last week, showed rents up 3.8% in 2021. That's higher than the historical average but certainly nowhere near those other numbers.
Why it matters: Rising rents are part of the story on inflation and the housing crunch. They're particularly painful for Americans already devoting a large part of their income to housing.
- But rent data is difficult to parse and the numbers can be confusing.
Let's dig in! Affleck's numbers show asking rents at institutional properties — mostly large 50-unit plus buildings. That's in line with the eye-popping numbers you see coming from other private sources like real estate company Redfin.
- The numbers don't include renewal rent rates. When you just renew your lease, rent increases tend to be lower. Plus, mom-and-pop properties aren't included in Affleck's numbers and are more difficult to track.
- As for the CPI data, the Labor Department surveys a sample of renters and landlords at all kinds of buildings — and does include renewals. That's one reason you get a much lower number.
The big picture: Rents are going up for a bunch of reasons, all tied to changes in demand relative to the limited housing supply, which Matt wrote about earlier this month.
- In this pandemic world, people are at home a lot more, said Daryl Fairweather, chief economist at Redfin. They want to live in nicer homes, if possible.
- Workers are also migrating out of bigger, more expensive cities and into lower-cost places in Florida, Austin and Phoenix, taking advantage of the remote working world.
- Plus, with housing supply so low, there are even more renters looking for places to live who'd otherwise buy a home.
Flashback: The highest rent growth ever recorded? Affleck said it was a 45% increase in San Jose in 2000, followed by the largest decline on record of 25% in 2001, after the dot com bust.
2. Catch up quick
3. 🏭 Steel prices hit lowest level in a year
After hitting record highs last year, U.S. steel prices are now rolling over fast, a possible sign of light at the end of the inflation tunnel, Matt writes.
Why it matters: Prices for commodities — which are key contributors to the current inflationary surge — typically filter into consumer prices over time.
- The decline in steel prices is a good signal that lower car prices could be in the cards later this year, since much of the hot-rolled steel coils produced in the U.S. are stamped into auto bodies.
- That could have huge implications for inflation (and offset some of those higher rents Emily wrote about). New and used vehicle prices were the second-largest contributor to January's 7.5% annual surge in the Consumer Price Index.
By the numbers: Benchmark futures prices for U.S. hot-rolled coils of steel hit $1,135 on Friday, the lowest level in a year. They're down more than 40% from their peak of nearly $2,000 in August.
Go deeper: Inflation hits fresh 40-year high
4. Why Americans feel unhappy
We produce and we consume. That is the central fact of what an economy is. Both are essential to well-being — having a job with good pay in return for producing, and having access to the things we wish to buy at reasonable prices, Axios' Neil Irwin writes.
- Right now, though, it is Americans' identity as consumers, not as producers, that is driving their unhappiness with economic conditions.
Why it matters: Policymakers have taken for granted that if they can get the job market roaring, people will feel good about the economy. But now, discomfort over inflation and product shortages is overwhelming good job vibes.
By the numbers: The University of Michigan consumer sentiment survey fell in preliminary February numbers to its lowest level since October 2011. That month, the unemployment rate was 8.8%. Now: 4%.
- Historically, consumer sentiment has had a stronger correlation with unemployment than with inflation. If you wanted to guess public opinion about the economy, you'd rather know the jobs situation. Not anymore.
- Meanwhile, 72% of adults agreed with the idea that this is a good time to find a quality job, according to a January Gallup poll. A 74% reading on the same question in October was the highest recorded in data going back to 2001.
In the Michigan survey, the decline in sentiment was driven by families making over $100,000 a year, suggesting volatile markets may have factored into the discontent.
- Yes, but: If the Biden administration and the Federal Reserve had failed to deliver the improvement in the job market that has happened in last year, it is entirely possible that public opinion on the economy would be even worse.
The bottom line: The vibes are bad, and the usual solution — creating more jobs — isn't the answer as long as Americans' identity crisis tilts toward their role as consumers.
5. What we're watching: 🏷 Retail! Retail! Retail!
Here at Axios Markets, the educated consumer is our best customer! So ...
What's next: The Census Bureau reports January retail sales Wednesday, Matt writes.
- Economists expect a rebound from the 1.9% drop that caught them off-guard in December. They foresee a 1.9% increase in January.
- Retail bellwether Walmart also reports Q4 results Thursday.
State of play: December slump aside, holiday sales were good.
- Mastercard's SpendingPulse survey of holiday spending (between Nov. 1 and Dec. 24) showed an 8.5% jump compared to the same stretch of the previous year — the biggest jump in 17 years, per AP.
The intrigue: Did low December sales merely mean shoppers — wary of shortages — bought more in November? Or did high gas prices, Omicron and the foul national mood that Neil described prompt people to cut back? We'll see.