A Downer Podcast

Episode Summary

Executive Summary: The panel assessed a softening U.S. economy after a wave of delayed data releases: housing remains weak but stable, PPI was a bit hot, ADP suggested labor market deterioration, and retail sales and consumer confidence pointed to a cautious consumer. The discussion emphasized a K-shaped economy, with high-income households holding up better than lower- and middle-income consumers, and warned holiday spending will likely be modest in real terms.

Main Topics: Housing remains weak but not collapsing (Priority: 5/5): Housing data showed low but stable activity: house prices slowed, pending sales and starts/permits were mostly flat, and mortgage rates remained elevated. The group characterized housing as stuck near the bottom rather than in a deeper decline. Inflation and PPI trends are modestly hotter (Priority: 5/5): September PPI rose 0.3% month over month and 2.7% year over year, led by food and energy. The panel noted that while the print was not alarming, it added to a mild stagflation vibe and could reflect tariffs or labor-related pressures. Labor market is softening (Priority: 5/5): ADP's weekly estimate implied a recent pace of job losses, and the panel expected weak or negative official payroll prints once government shutdown distortions clear. They described the labor market as softer and getting softer. Consumer spending and confidence are weakening (Priority: 5/5): Retail sales for September were weak and consumer confidence fell sharply in November. The speakers linked this to rising financial stress, weaker job prospects, elevated rates, and inflation eroding purchasing power. Holiday sales likely okay nominally, weak in real terms (Priority: 4/5): Scott Hoyt said holiday sales should be roughly flat to slightly weaker than last year in nominal terms, with real growth likely minimal. He also argued that year-over-year comparisons will get tougher because late-2024 spending was strong. K-shaped economy and debt burden debate (Priority: 5/5): The panel debated whether aggregate debt burdens are truly low when lower- and middle-income households face higher debt stress, tighter credit, and weaker spending capacity, while high-income households remain insulated by asset wealth. Wealth inequality and policy responses (Priority: 4/5): A listener question prompted discussion of how policy might reduce wealth inequality through housing supply, education, childcare, healthcare, and food assistance, while warning that a market crash would reduce wealth inequality only through harmful economic damage.

Key Arguments: Housing is not in free fall, but it is stuck in a weak, low-growth pattern with mortgage rates still too high to reaccelerate demand. PPI was hotter than desired, with food and energy driving the increase and year-over-year inflation ticking up, though import-sensitive goods did not show broad acceleration. The labor market appears to be losing momentum, and delayed data plus upcoming government-related job losses point to a weak November and potentially negative October payrolls. Retail sales were positive but barely so, implying spending is still growing yet losing momentum after several stronger months. Consumer confidence has deteriorated sharply, reflecting fear about jobs, personal finances, and the broader economy; this is especially concerning for future spending. Debt burdens in aggregate may look manageable, but the burden is unevenly distributed; low- and middle-income households are more exposed and more likely to pull back. Holiday spending may not collapse, but real growth is likely to be weak because nominal gains will be offset by inflation, weak hiring, and tougher year-over-year comparisons. Structural policy solutions to inequality should focus on housing affordability, education, childcare, elder care, and preserving/targeting safety-net supports.

Data Points: Retail sales, September: 0.2% month over month - Top-line retail sales growth was described as weak relative to prior months. Core retail sales, September: 0.1% month over month - Excluding vehicles and gasoline, sales were even weaker. Retail sales, year over year: 4.3% - Year-over-year growth for top-line retail sales in September. Conference Board consumer confidence, November: 88.7 - Preliminary November reading, down from 95.5 in October. Conference Board consumer confidence, October: 95.5 - Prior-month comparison for the November confidence drop. PPI final demand, September: 0.3% month over month - Headline producer prices rose after a small August decline. PPI final demand, year over year: 2.7% - Up from 2.6% in August. PPI excluding food and energy: 0.2% month over month - Underlying producer prices rose modestly. PPI food prices: 1.1% month over month - Wholesale food prices were a major driver of the PPI increase. PPI energy prices: 3.5% month over month - Energy drove part of the September PPI increase, with the panel noting it has since come down. PPI service prices: 0.0% month over month - Services were unchanged from August. ADP weekly employment estimate: -13,500 jobs (average weekly over last four weeks) - Suggested recent labor market deterioration. House price appreciation (FHFA and Case-Shiller): 1.4% and 1.7% year over year - Prices remained positive but much slower than before. Mortgage rates: 6.3%–6.4% - Still elevated and not enough to materially revive housing demand. Pending home sales: around 4.0–4.1 million annualized - A small bump off a low base. Housing starts estimate: less than 1.4 million units - Dodge estimate cited as evidence housing is weak. Conference Board jobs differential: -11.9 - The jobs plentiful minus jobs hard to get measure fell, implying worse labor market conditions. Share expecting higher income in six months: 15.3% (down from 18.2%) - A confidence subcomponent showing weaker income expectations. Holiday sales outlook (NRF): 3.7%–4.2% - Chris cited NRF's holiday sales estimate, roughly around 4%. Holiday sales total: $1 trillion - Chris noted NRF's holiday estimate crossed the trillion-dollar mark for the first time. Processed turkey prices: 55% year over year - Marissa's stat from the PPI report; used as a striking example of food inflation.

Pivotal Quotes: "housing is in the dumper" — Mark Sandy: Used to characterize the sector as weak and stuck near the bottom rather than recovering strongly. "Everything's moving in the wrong direction." — Marissa: Summarized the consumer and macro backdrop as broadly deteriorating, though not catastrophic. "This is a bad situation for consumers right now overall." — Scott Hoyt: His assessment of the consumer environment after reviewing retail sales, confidence, jobs, and debt stress.

Implications: Expect muted holiday spending in real terms, continued consumer caution, and a weaker labor backdrop. The economy looks stable but fragile, with inflation, weak housing, and uneven wealth/debt burdens likely to keep growth subdued.