“US – The Best House on an Ugly Street”
A Look at the Current Economic Landscape
Recently, during a conversation with a business associate from London, we shared a laugh when he referred to “the US as the best house on an ugly street”. As we delved deeper into the statement, we realized there may be some truth to it.
While the world grapples with various challenges, the US has managed to weather the storm and stand strong. The global post-pandemic recovery was abruptly interrupted by the Ukraine war, causing energy prices to soar and contributing to the rising inflationary pressures felt worldwide.
Germany slipped into recession, the UK battles political instability and record inflation, China struggled to restart after a prolonged shutdown, and Europe as a whole continues to bear the burden of high energy costs. Amidst this uncertainty, countries like the US, Mexico, Japan, and India emerge as bright spots.
US Resilience Shines Through
Turning our focus back to the US, we acknowledge that challenges exist, but our vital signs remain positive.
Despite predictions of doom and gloom surrounding the Federal Reserve’s rate hikes, the US economy has successfully evaded recession. This is evident in the robust labor market, strong retail sales, and the JOLTS report, which highlights an impressive 10 million job openings.
While the single-family housing market experiences a correction due to high mortgage rates, it is far from the feared crash. Low inventory of pre-owned homes persists as sellers cling to their record-low-rate mortgages.
The commercial real estate (CRE) sector, on the other hand, has shown resilience, with most of the pain felt in the office space segment. Multifamily delinquencies have remained lower than pre-pandemic levels.
Additionally, the stock market has performed admirably, with both the S&P and Nasdaq in positive territory. Despite repeated cuts in oil production by OPEC, the oil supply remains consistent, and prices have stabilized around $70 per barrel.
Inflation and the Federal Reserve’s Stance
Inflation, a topic of concern, has seen a decline to 4% by the end of May 2023, from its peak of 9.1% last year. However, core inflation (excluding food and energy) has remained consistently above 5% since early 2022, prompting the Federal Reserve to maintain its hawkish stance.
While it is difficult to witness the Fed’s rate hikes over the past 15 months, it is essential to acknowledge the potential consequences of uncontrolled inflation. Such a scenario could permanently impact people’s psyche and spiral out of control.
As we enter the election year of 2024, a time for incumbents to showcase their achievements and seek a second chance from voters, it remains to be seen if they will enter the election with interest rates at such high levels.
Let us remain hopeful for a potential Fed pivot, allowing the CRE sector to resume its forward momentum after a much-needed pause.
In conclusion, despite the challenges faced by the world, the US economy stands as a beacon of hope. While taking a breather and consolidating gains, the US has proven its ability to navigate troubled waters with grace.
As we anticipate the year ahead, let us remain optimistic about the potential for a Fed pivot and the resumption of the CRE sector’s progress.
With a strong foundation and a resilient spirit, the US is well-positioned to overcome these trials and continue its path towards prosperity.