In what might be a harbinger for the housing boom in the American West, Arizona is limiting approvals for new developments within the Phoenix area. A study found that around 4% of the area’s demand for groundwater, close to 4.9M acre-feet, cannot be met over the next century, threatening to dampen the explosive development that has made the city one of the fastest-growing metropolitan regions in the country. Besides the groundwater crisis, Arizona has also faced significant shortages of its surface water allocation, with a recent deal cutting usage from the drought-stricken Colorado River. Investing Group Leader Ian Bezek covers the situation in Global Water Resources: Why I’m Not Worried About The Phoenix Housing Downturn.

 

Jobs Numbers

 

May payrolls exploded higher, far exceeding estimates and the prior two months were revised higher, too. Yet the unemployment rate also rose. Peter Boockvar considers what these mixed signals mean.

Key Points:

  • A discrepancy between employer and household data combined with a rise in the labor force to push the headline unemployment rate to 3.7% from 3.4%.
  • Fewer “job leavers” as a percent of the unemployed and a drop in hours worked were cautionary signs.
  • Earnings growth has clearly plateaued with no monthly change in average weekly earnings.
  • “Prime age” (25-54) participation ticked up again and is above its pre-COVID level.
  • Service sector hiring was strong while manufacturing shed a few jobs.

Strong hiring plus low GDP growth means falling per-worker productivity. This fits an environment in which employers are reluctant to shed workers for fear they won’t be able to find replacements. Nonetheless, Boockvar still expects the Fed will stop tightening soon.

 

US Economy

 

  • Consumer spending topped expectations, suggesting that economic activity remains robust.

 

 

  • Real consumer spending level:

 

 

  • Personal savings declined last month.

 

 

  • Robust consumption and sticky inflation boosted the probability of additional Fed rate hikes.
  • The Conference Board’s consumer confidence index declined in May but still topped expectations.

 

 

  • The divergence between the two key sentiment indicators persists.

 

 

  • The Dallas Fed’s manufacturing index showed further deterioration in the region’s factory activity.

 

 

  • Next, we have some updates on the housing market.
    • Home prices jumped in March.

 

 

 

  • Here are the changes by metro area (year-over-year).

 

 

  • The gap between home prices and wages widened further.

 

 

  • US home prices are holding up well relative to other advanced economies.

 

 

  • Air travel has fully recovered.
  • But restaurant activity is slowing.

 

 

  • With the debt ceiling resolution on the horizon, some Fed officials are gunning for more rate hikes.

 

Source: @financialtimes   Read full article

 

  • US job openings unexpectedly increased in April, climbing above ten million.

 

 

  • Logistics and healthcare were the key drivers of the increase. Business services, hotels/restaurants, and manufacturing saw declines.
  • The ADP private payrolls report surprised to the upside (again).

 

 

Market Data

 

  • Technicals suggest that the Nasdaq 100 is overbought.

 

 

  • The market is ignoring recession warning signs.

 

Source: Simon White, Bloomberg Markets Live Blog

 

  • BofA’s private clients have been selling stocks.

 

 

  • Equity implied vol (VIX) is at multi-year lows relative to rates vol (MOVE).

 

 

  • The AI fever drove all of the S&P 500 year-to-date gains.

 

 

  • Flows into tech funds have been surging (2 charts).

 

Source: BofA Global Research

 

 

Quote of the Week

 

“Peace. It does not mean to be in a place where there is no noise, trouble or hard work. It means to be in the midst of those things and still be calm in your heart.”

-Unknown

 

Picture of the Week

 

Entrance to Grand Canyon

 

 

 

All content is the opinion of Brian J. Decker