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NY Fed Survey Finds Household Income Expectations Plunge Most On Record As Inflation Seen Extending Drift Lower

NY Fed Survey Finds Household Income Expectations Plunge Most On Record As Inflation Seen Extending Drift Lower

With long-term inflation expectations…

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NY Fed Survey Finds Household Income Expectations Plunge Most On Record As Inflation Seen Extending Drift Lower

With long-term inflation expectations (those 3-Years ahead or more) peaking more than a year ago, and even shorter inflation expectations - at least according to the NY Fed Survey of consumers - now sliding after hitting a record high 6.8% in June, we have seen a marked bounce in 2Y breakevens in recent weeks, which after recently hitting the lowest level in 2 years, have risen from 2% to 2.75% largely on the back of expectations for a bounce in commodity prices...

...which is why ahead of tomorrow's CPI print - which many expect will come in hotter than expected - many were curious to see whether the latest, just released NY Fed survey, would show a continued drop in inflation expectations, or whether January would prove to be an inflection point. The answer: while median one-, and three-year-ahead inflation expectations both decreased - from 4.99% to 4.95%, and from 2.99% to 2.71% (the lowest since Oct 2020) respectively, it was 5-year inflation expectations, which the NY Fed tracks and updates only periodically, that posted a modest increase for the second month in a row, rising from 2.32% in November to 2.42% in December and then again to 2.45% in January.

As usual, the numbers were notable enough to get flagged by Fed whisperer Nick Timiraos.

Median inflation uncertainty—or the uncertainty expressed regarding future inflation outcomes—remained unchanged at the one-year horizon but increased slightly at the three- and five-year horizons.

The median home price growth expectations declined by 0.2% to 1.1% in January - the second lowest reading since May 2020 - after a modest bounce in December following a plunge since early 2022 amid surging interest rates. The decrease was more pronounced among respondents who are older than 60 and respondents who live in the Northeast. That said, expectations for any price increase appear laughable when 30Y mortgages are sticky about 6% and suggests most households expect Fed tightening to reverse in the near future (as the alternative is a housing market collapse).

At the same time, job finding expectations have remained very strong (apparently no tech workers were surveyed)...

... which was bizarre because after increasing each month since September of last year, the median expected growth in household income dropped by 1.3 percentage point to 3.3% which was the largest one-month drop in the nearly ten-year history of the series.

That said, the January reading, is only slightly below its 12-month trailing average of 3.5%, and the series remains well above its pre-pandemic levels. January’s decrease was more pronounced among respondents with no more than a high school education, respondents older than 60, and those with annual household incomes below $50k.

Adding to the gloomy household finance picture, along the drop in household income we also saw continued declines in the median household spending growth expectations, which decreased to 5.7% in January from 5.9% in December. This is the third consecutive decline in the series.

And just to make sure you are very confused, the latest survey also found that perceptions about households’ current financial situations improved in January compared to December, with more respondents reporting they are better off than a year ago; this despite a bear market in stocks, vastly higher prices and wages that have decline in real terms every single month. Yes, it's that easy to fool Americans. In contrast, year-ahead expectations about households’ financial situations deteriorated slightly, with more respondents expecting to be worse off a year from now.

Going back to the labor market, consumer optimism rebounded with the mean perceived probability of losing one’s job in the next 12 months decreased by 0.6 percentage point to 12.0%. Similarly, the mean probability of leaving one's job voluntarily in the next 12 months decreased by 0.2 percentage point to 19.1%.

Remarkably, despite the worst bear market in a generation, 35.7% of respondents, up from 34.9% last month, expect stocks to rise in the next 12 months. Then again, 38.5% expected higher stock prices one year ago: they were brutally wrong.

Looking at a broad universe of polled prices, over the next year consumers expect gasoline prices to rise 5.15% (from 4.1%); food prices to rise 9.02% (from 7.6%); medical costs to rise 9.73% (from 9.7%); the price of a college education to rise 9.29% (from 9.2%); and rent prices to rise 9.62% (from 9.6%).

So are US consumers finally coming to grips with the reality that no more stimmies are coming and that the continued price increases coupled with a decline in real wages, means less disposable income and, eventually, a recession? Alas, there is no definitive answer yet. Instead, here are the other key findings from the report:

Inflation

  • Median home price growth expectations declined by 0.2 percentage point to 1.1% in January, the second lowest reading since May 2020. The decrease was more pronounced among respondents who are older than 60 and respondents who live in the Northeast.
  • Median year-ahead expected price changes increased by 1.0 percentage point for gas (to 5.1%), 1.4 percentage point for food (to 9.0%), and 0.1 percentage point for the cost of college education (to 9.3%). The median expected change in the cost of rent and medical care remained unchanged at 9.6% and 9.7%, respectively.

Labor Market

  • Median one-year-ahead expected earnings growth remained unchanged at 3.0% in January. The series has been moving between a narrow range of 2.8% to 3.0% since September 2021.
  • Mean unemployment expectations—or the mean probability that the U.S. unemployment rate will be higher one year from now—increased by 0.4 percentage point to 41.2%. The increase was most pronounced for respondents with a college education and those with annual household incomes above $100k.
  • The mean perceived probability of losing one’s job in the next 12 months decreased by 0.6 percentage point to 12.0%. Similarly, the mean probability of leaving one's job voluntarily in the next 12 months decreased by 0.2 percentage point to 19.1%.
  • The mean perceived probability of finding a job (if one’s current job was lost) increased by 0.1 percentage point to 57.6% in January.

Household Finance

  • Median household spending growth expectations decreased to 5.7% in January from 5.9% in December. This is the third consecutive decline in the series.
  • Perceptions of credit access compared to a year ago improved in January, with the share of households reporting it is easier to obtain credit than one year ago increasing. Similarly, respondents were more optimistic about future credit availability, with the share of households expecting it will be easier to obtain credit a year from now also increasing.
  • The average perceived probability of missing a minimum debt payment over the next three months increased to 12.1% in January from 11.4% in December.
  • The median expectation regarding a year-ahead change in taxes (at current income level) increased by 0.3 percentage point to 4.4%.
  • Median year-ahead expected growth in government debt increased by 0.1 percentage point to 10.2%.
  • The mean perceived probability that the average interest rate on saving accounts will be higher in 12 months increased by 0.2 percentage point to 32.1%.
  • Perceptions about households’ current financial situations improved in January compared to December, with more respondents reporting they are better off than a year ago. In contrast, year-ahead expectations about households’ financial situations deteriorated slightly, with more respondents expecting to be worse off a year from now.
  • The mean perceived probability that U.S. stock prices will be higher 12 months from now increased by 0.8 percentage point to 35.7%.

More in the full NY Fed survey which can be found here.

Tyler Durden Mon, 02/13/2023 - 12:30

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One city held a mass passport-getting event

A New Orleans congressman organized a way for people to apply for their passports en masse.

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While the number of Americans who do not have a passport has dropped steadily from more than 80% in 1990 to just over 50% now, a lack of knowledge around passport requirements still keeps a significant portion of the population away from international travel.

Over the four years that passed since the start of covid-19, passport offices have also been dealing with significant backlog due to the high numbers of people who were looking to get a passport post-pandemic. 

Related: Here is why it is (still) taking forever to get a passport

To deal with these concurrent issues, the U.S. State Department recently held a mass passport-getting event in the city of New Orleans. Called the "Passport Acceptance Event," the gathering was held at a local auditorium and invited residents of Louisiana’s 2nd Congressional District to complete a passport application on-site with the help of staff and government workers.

A passport case shows the seal featured on American passports.

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'Come apply for your passport, no appointment is required'

"Hey #LA02," Rep. Troy A. Carter Sr. (D-LA), whose office co-hosted the event alongside the city of New Orleans, wrote to his followers on Instagram  (META) . "My office is providing passport services at our #PassportAcceptance event. Come apply for your passport, no appointment is required."

More Travel:

The event was held on March 14 from 10 a.m. to 1 p.m. While it was designed for those who are already eligible for U.S. citizenship rather than as a way to help non-citizens with immigration questions, it helped those completing the application for the first time fill out forms and make sure they have the photographs and identity documents they need. The passport offices in New Orleans where one would normally have to bring already-completed forms have also been dealing with lines and would require one to book spots weeks in advance.

These are the countries with the highest-ranking passports in 2024

According to Carter Sr.'s communications team, those who submitted their passport application at the event also received expedited processing of two to three weeks (according to the State Department's website, times for regular processing are currently six to eight weeks).

While Carter Sr.'s office has not released the numbers of people who applied for a passport on March 14, photos from the event show that many took advantage of the opportunity to apply for a passport in a group setting and get expedited processing.

Every couple of months, a new ranking agency puts together a list of the most and least powerful passports in the world based on factors such as visa-free travel and opportunities for cross-border business.

In January, global citizenship and financial advisory firm Arton Capital identified United Arab Emirates as having the most powerful passport in 2024. While the United States topped the list of one such ranking in 2014, worsening relations with a number of countries as well as stricter immigration rules even as other countries have taken strides to create opportunities for investors and digital nomads caused the American passport to slip in recent years.

A UAE passport grants holders visa-free or visa-on-arrival access to 180 of the world’s 198 countries (this calculation includes disputed territories such as Kosovo and Western Sahara) while Americans currently have the same access to 151 countries.

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Fast-food chain closes restaurants after Chapter 11 bankruptcy

Several major fast-food chains recently have struggled to keep restaurants open.

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Competition in the fast-food space has been brutal as operators deal with inflation, consumers who are worried about the economy and their jobs and, in recent months, the falling cost of eating at home. 

Add in that many fast-food chains took on more debt during the covid pandemic and that labor costs are rising, and you have a perfect storm of problems. 

It's a situation where Restaurant Brands International (QSR) has suffered as much as any company.  

Related: Wendy's menu drops a fan favorite item, adds something new

Three major Burger King franchise operators filed for bankruptcy in 2023, and the chain saw hundreds of stores close. It also saw multiple Popeyes franchisees move into bankruptcy, with dozens of locations closing.

RBI also stepped in and purchased one of its key franchisees.

"Carrols is the largest Burger King franchisee in the United States today, operating 1,022 Burger King restaurants in 23 states that generated approximately $1.8 billion of system sales during the 12 months ended Sept. 30, 2023," RBI said in a news release. Carrols also owns and operates 60 Popeyes restaurants in six states." 

The multichain company made the move after two of its large franchisees, Premier Kings and Meridian, saw multiple locations not purchased when they reached auction after Chapter 11 bankruptcy filings. In that case, RBI bought select locations but allowed others to close.

Burger King lost hundreds of restaurants in 2023.

Image source: Chen Jianli/Xinhua via Getty

Another fast-food chain faces bankruptcy problems

Bojangles may not be as big a name as Burger King or Popeye's, but it's a popular chain with more than 800 restaurants in eight states.

"Bojangles is a Carolina-born restaurant chain specializing in craveable Southern chicken, biscuits and tea made fresh daily from real recipes, and with a friendly smile," the chain says on its website. "Founded in 1977 as a single location in Charlotte, our beloved brand continues to grow nationwide."

Like RBI, Bojangles uses a franchise model, which makes it dependent on the financial health of its operators. The company ultimately saw all its Maryland locations close due to the financial situation of one of its franchisees.

Unlike. RBI, Bojangles is not public — it was taken private by Durational Capital Management LP and Jordan Co. in 2018 — which means the company does not disclose its financial information to the public. 

That makes it hard to know whether overall softness for the brand contributed to the chain seeing its five Maryland locations after a Chapter 11 bankruptcy filing.

Bojangles has a messy bankruptcy situation

Even though the locations still appear on the Bojangles website, they have been shuttered since late 2023. The locations were operated by Salim Kakakhail and Yavir Akbar Durranni. The partners operated under a variety of LLCs, including ABS Network, according to local news channel WUSA9

The station reported that the owners face a state investigation over complaints of wage theft and fraudulent W2s. In November Durranni and ABS Network filed for bankruptcy in New Jersey, WUSA9 reported.

"Not only do former employees say these men owe them money, WUSA9 learned the former owners owe the state, too, and have over $69,000 in back property taxes."

Former employees also say that the restaurant would regularly purchase fried chicken from Popeyes and Safeway when it ran out in their stores, the station reported. 

Bojangles sent the station a comment on the situation.

"The franchisee is no longer in the Bojangles system," the company said. "However, it is important to note in your coverage that franchisees are independent business owners who are licensed to operate a brand but have autonomy over many aspects of their business, including hiring employees and payroll responsibilities."

Kakakhail and Durranni did not respond to multiple requests for comment from WUSA9.

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Industrial Production Increased 0.1% in February

From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 p…

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From the Fed: Industrial Production and Capacity Utilization
Industrial production edged up 0.1 percent in February after declining 0.5 percent in January. In February, the output of manufacturing rose 0.8 percent and the index for mining climbed 2.2 percent. Both gains partly reflected recoveries from weather-related declines in January. The index for utilities fell 7.5 percent in February because of warmer-than-typical temperatures. At 102.3 percent of its 2017 average, total industrial production in February was 0.2 percent below its year-earlier level. Capacity utilization for the industrial sector remained at 78.3 percent in February, a rate that is 1.3 percentage points below its long-run (1972–2023) average.
emphasis added
Click on graph for larger image.

This graph shows Capacity Utilization. This series is up from the record low set in April 2020, and above the level in February 2020 (pre-pandemic).

Capacity utilization at 78.3% is 1.3% below the average from 1972 to 2022.  This was below consensus expectations.

Note: y-axis doesn't start at zero to better show the change.


Industrial Production The second graph shows industrial production since 1967.

Industrial production increased to 102.3. This is above the pre-pandemic level.

Industrial production was above consensus expectations.

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