Fed Continues Rate Hikes – Fixed Income Overview

Continuing inflation concerns have led the Fed to raise rates as the bond market grapples with the increases. Short-term bond yields have risen relative to long-term bond yields due to expectations that interest rates will be lower in the future. The yield on the 2-year Treasury ended June at 4.87%, while the 10-year Treasury yield was 3.81% at the end of the month.

Elevated yields tend to hamper the housing market with higher rates on mortgages and consumer loans. Expectations of easing economic growth and lessening inflation have kept longer-term bond yields lower.(Sources: Treasury, Bloomberg, Federal Reserve)

Equity Volatility Increases – Domestic Stocks Overview

Many analysts view the recent rise in equities as a momentum rally, with only a few companies leading the overall rise in the market. Earnings are critical as companies struggle to maintain higher prices with weakening consumer demand.

A concentration of companies in select sectors has thus far led the market this year, with technology and consumer discretionary stocks providing the largest contribution. The utilities and energy sectors lagged, as rising rates and decreasing commodity prices hindered those sectors. (Sources: S&P, Bloomberg, Dow Jones)

Wages Lag Behind Inflation In Most U.S. Cities – Employment Update

Real wages, or workers’ pay adjusted for inflation, have decreased for 26 consecutive months. Even when nominal wage growth has been significant, inflation has generally surpassed it and diminished workers’ purchasing power for over two years.

Most major American cities saw declines in post-inflation wages as of May 2023, other than small increases in Dallas, San Francisco, and Houston. The worst metropolitan wage decrease was in Miami, whose workers saw a 10% drop in post-inflation pay due to 9% inflation and nominal wage contractions. Workers in Tampa Bay, San Diego, Phoenix, and Chicago saw their inflation-adjusted wages fall by over 3% due to high inflation, despite all of these cities exhibiting nominal wage growth.

Stubborn inflation is weighing on workers, who are now reportedly exhibiting historically high uncertainty in their year-ahead wages according to the New York Federal Reserve. Workers’ uncertainty regarding future wages reflects their assessment of the strength of the job market. With wages consistently losing purchasing power and prices increasing for many consumers, this uncertainty may have a substantial impact on spending habits and personal financial decisions.

Sources: Bureau of Labor Statistics, Federal Reserve Bank of New York, Federal Reserve Bank of Atlanta

America Is Getting Older – Demographics

The median age in the U.S. increased to a historic high in 2022, rising 0.2 years between 2021 and 2022 to reach 38.9 years old. The median age has been steadily rising toward 40 years old, primarily due to declining birth rates coupled with increased life expectancy.

Americans’ median age reached 30 years old in 1980 and rose to 35 years old by 2000. In the past 22 years, the average age has risen by 3.6 years. America has been steadily aging over the past 50 years, with the median age rising 10.8 years since 1970.

In 2022, 17 states had a median age of above 40, while no state experienced a decrease from their 2021 median age. Maine had the highest median age at 44.8, while Utah was the youngest state at 31.9 years. Florida had two of the nation’s six oldest counties, including the oldest county with a median age of 68.1 years old.

Other key populations across Europe and Asia have seen similar trends and steady increases in age. The oldest median ages in nations across the world include Japan at 48.6, Monaco at 55.4, and Germany at 47.8 years. On the flip side, the youngest median ages include Niger at 14.8, Uganda at 15.7, and Angola at 15.9 years. The United States is the 61st oldest nation globally world, with a similar median age to China and Thailand. (Sources: U.S. Census Bureau, CIA World Factbook)

People Are Eating In Instead of Going Out – Restaurant Trends

The restaurant industry continues to experience turbulence that originated with the breakout of the COVID-19 pandemic and the ensuing lockdowns. In 2020, restaurant financial performance hit abysmal lows as consumers largely stopped patronizing restaurants due to financial constraints and fear of contagious disease. This trend reversed sharply in 2021, as people flocked to restaurants at historically high rates after lockdowns ended.

However, the restaurant industry has seen demand recede from these 2021 highs, with restaurant performance entering a period of contraction for the first time since January 2021. In May, restaurant revenue fell 1.3% from its level in April, ending 28 months of expansion in the restaurant industry. Customer traffic in restaurants turned negative, reaching levels not seen since February 2021.

Spending on food services is exhibiting a sharp decline, reaching 26-month lows as the surge in demand brought about by the end of COVID-19 lockdowns has subsided. The peaks of 2021 spending growth, which reached as high as 88% year-over-year increases, have now mellowed to just 1% annual growth. This has led to many restaurants halting hiring, with job openings in food services falling 16% from last year.

Sources: U.S. Bureau of Economic Analysis, U.S. Bureau of Labor Statistics, National Restaurant Association