Friday5: Goldman Sachs is more bullish on the US economy than the consensus, Americans get restless as labor market tightens & more...
Plus, Netflix crushed earnings estimates, the restaurant industry is showing signs of hope. And, as the reign of boomers in the housing market comes to an end, GenZ's may be there to steal the crown.
««Friday5- At a Glance»»
📈Goldman Sachs is more bullish on the US economy than the consensus. With the health of the commercial real estate in question, Goldman Sachs believe that the office real estate market is too small to have a big impact on the broader economy. Meanwhile, bank credit levels have fallen for three quarters in a row.
🥢Finally a heartbeat in the restaurant industry? Nearly 53,800 restaurants opened their doors last year, up 10% from 2022, with Washington D.C. having the highest number of restaurants per 100,000 residents. However, results from poll indicate that profitability from restaurants are still below pre-pandemic levels.
🏡Baby boomers dominate the US housing market. What happens when their reign comes to an end? For now, it looks like Gen Zers will be coming for the crown.
👩🏻💼American workers are getting restless in their jobs just as the labor market is making it much tougher for them to jump to something new. Meanwhile, there is a rising number of M.B.A graduates who are struggling to find work after completing their business degree.
🎞️Netflix is riding high while other streamers struggle to catch up and its Q4 earnings report is evidence of its lead. Plus, it is crushing its competitors when it comes to “churn”. Its Q4 blockbusters included "Squid Game: The Challenge" and "The Crown" finale.
📈Goldman Sachs is more bullish on the US economy than the consensus. Here’s why.
Wall Street is increasingly concerned about a slowdown in economic growth and a potential recession in 2024, but not Goldman Sachs.
In a note published last week, a Goldman economics team led by Jan Hatzius said it sees US GDP expanding on an annualized basis by 2% in Q4 of this year, compared with a consensus of about 0.9% in a Bloomberg poll of economists. Turns out, the US economy grew even faster than what Goldman Sachs had estimated, with GDP rising a blistering 3.3% in Q4 and 2.5% annualized for 2023.
Goldman also sees a less than 20% probability of a US recession in the next 12 months, while the Bloomberg consensus is at about 50%.
These are the top risks Goldman highlighted, and why they aren't too concerned about them in 2024.
1. A consumer slowdown
While some expect consumers to slow their spending habits due to a decline in excess savings, Goldman said that real income increases and strong household balance sheets bode well for continued consumer strength.
“While spending by low-income households whose incomes were boosted most by pandemic stimulus initially rose above trend, it normalized a while ago,” says Goldman.
The bank said the recent uptick in consumer delinquency and default rates "mostly reflect normalization" from the very low levels seen in the aftermath of the pandemic.
2. A slowdown in the jobs market
Job openings are still high, and the layoff rate is still very low, so the labor market should see continued resilience throughout 2024, according to Goldman.
"While a few recent data points have been weaker, more statistically reliable signals such as trend payroll growth and our composite job growth tracker remain strong," Goldman said.
3. The commercial real estate market
The health of the commercial real estate market rang alarm bells in 2023 as interest rates soared while occupancy rates were still well below pre-pandemic levels. But Goldman said that the office real estate market is too small to have a big impact on the broader economy.
“As a result, banks should be able to manage the headwind from lower office values. Indeed, the Fed’s 2023 stress test found that the banks subject to these tests would have enough capital to weather even an extreme scenario where commercial real estate prices declined 40% and the unemployment rate rose to 10%,” Goldman says.
However: bank credit levels have now fallen for three quarters in a row, according to the Board of Governors of the Federal Reserve System – the first sustained contraction since 2010.
A credit contraction means that companies are borrowing less, with higher interest rates making it more expensive to take out loans. When it's harder to raise debt, businesses are less likely to press ahead with spending projects, which can further drag on economic growth.
This is only the second such decline in more than half a century. The last one was during the Great Recession, brought about by the global financial crisis of 2008-2009.
🥢Finally a heartbeat in the restaurant industry?
The restaurant industry is showing signs of life after a brutal stretch brought on by the pandemic, per new Yelp data. Nearly 53,800 restaurants opened their doors last year, up 10% from 2022, based on new Yelp listings. Another way of looking at that figure: It's up 2% from 2019, meaning there's been a slight increase in openings compared to pre-pandemic times.
Some of the fastest-growing restaurant categories include dessert shops (up 66% in 2023 compared to 2022), creperies (+63%) and hot pot joints (+53%). African restaurants are up 65% when compared with 2019 levels, while Peruvian restaurants increased 28%.
There was a particularly notable upswing in openings out west last year, with 25.5 new restaurants for every 100,000 people in Oregon, 23.9 in Nevada and 22.3 in California. Meanwhile, New York (22.1) and Florida (21) also made strong showings. But Hawaii takes top honors among states, with 35.4 new restaurants for every 100,000 residents which is likely a reflection of a tourism bounce-back. Finally, Washington, D.C., topped the list overall, with 42.0 restaurants for every 100,000 residents.
"The restaurant industry has proven to be resilient throughout the pandemic, with the industry seeing higher restaurant openings in 2023 than pre-pandemic levels for the first time," says Clifford Cate, vice president and general manager, restaurants at Yelp.
Yes, but: In a poll conducted last fall by Washington, D.C.'s restaurant association, 75% of the nearly 300 establishments surveyed reported being less profitable than pre-pandemic, down by an average of 34%. Nearly all raised prices, but they said inflation and labor costs are outpacing them. Meanwhile, in a National Restaurant Association survey of over 940 D.C. area residents, more than half reported dining out less often due to increased prices.
🏡Baby boomers dominate the US housing market. What happens when their reign comes to an end?
Baby boomers dominate America's housing market. Members of the "Me" generation own nearly $19T worth of US real estate — more than double the amount held by millennials and about $5T more than Gen Xers.
But as the generation ages, its vast real-estate portfolio poses a question: What happens when boomers die?
Some economists have predicted that a "silver tsunami" of aging Americans will leave millions of homes up for grabs, lowering prices and unlocking opportunities for younger generations. Others have likened the phenomenon to a glacial shift — slow, predictable, and unlikely to sway home prices as much as one might hope.
Regardless of the degree to which boomers' exit shakes up the market, the changing of the guard will leave one generation in the driver's seat: Gen Z.
Most Gen Zers will be in their prime homebuying years at this crescendo — perfect timing to take advantage of the increase in supply. Millennials will benefit somewhat, but they'll be well past the typical age for first-time buyers.
"I don't know that millennials will be that generation who benefits from boomers' departure. With the oldest millennials in their 40s, the bulk of the generation will have already purchased their first homes, stretching their budgets in the process when boomers' houses finally become available,” Jessica Lautz, the deputy chief economist and vice president of research at the National Association of Realtors said.
Meanwhile, Gen Zers have already gotten off to a stronger start on their home buying journeys than previous generations did: An analysis from Redfin found that 30% of 25-year-olds owned their home in 2022, compared with a 27% rate for Gen Xers at the same point in their lives. The oldest Gen Zers will be in their 30s in 2030, within the prime years for first-time buyers.
Shifting gears to the latest housing data, Homebuilder sentiment improved in January, jumping 7 points to 44 on the National Association of Home Builders monthly index. The increase coincides with a big drop in mortgage interest rates from around 8% in mid-October to the 6% range in December.
“Lower interest rates improved housing affordability conditions this past month, bringing some buyers back into the market after being sidelined in the fall by higher borrowing costs. Single-family starts are expected to grow in 2024, adding much needed inventory to the market. However, builders will face growing challenges with building material cost and availability, as well as lot supply,” said Alicia Huey, NAHB chairman.
👩🏻💼American workers are getting restless in their jobs just as the labor market is making it much tougher for them to jump to something new.
Millions of workers switched jobs during the past couple of years, enticed by abundant openings and big pay raises from companies desperate to hire. The market for salaried, white-collar jobs has since cooled, but workers’ itchiness to find new work hasn’t.
Roughly 85% of 1,000 US professionals polled in a new LinkedIn survey say they are thinking about changing jobs this year, up from 67% a year earlier.
Companies are offering new hires less-generous pay and flexibility than they did a year or two ago, data from job boards suggest. They are also holding the line in negotiations over perks such as additional vacation time, applicants say.
People who switched jobs in August 2022 were rewarded with an average 8.4% pay bump for making the move, around 3 percentage points more than those who stayed in their jobs, according to wage-tracking data from the Federal Reserve Bank of Atlanta. By last month, the average raise that came with switching jobs was 5.7%, compared with 4.9% for workers who stayed put.
While the market for hourly jobs remains robust, the number of listings for finance, marketing, software development and other white-collar fields has fallen below pre pandemic levels, according to data from the jobs site Indeed. On LinkedIn, one job opening is available for every two applicants. A year ago, jobs outnumbered applicants two to one.
“The pendulum has swung back, and the power is in the hands of the hiring managers,” says Catherine Fisher, a LinkedIn vice president who tracks job trends.
Economists surveyed this month by The Wall Street Journal forecast hiring to average 64,000 a month this year, less than a third of the average in 2023. They expected the professional-services and the high-tech information sectors to be among the slowest growing fields. At the same time, some executives and analysts predict that companies will continue to scrutinize corporate roles as artificial intelligence transforms and takes over some knowledge workers’ tasks.
Meanwhile, there is a rising number of M.B.A graduates who are struggling to find work after completing their business degree. These M.B.A.s entered the job market just as three sectors that heavily recruit them—consulting, tech and finance— put the brakes on hiring. Some graduates with consulting jobs have had their start dates pushed to later this year.
Even at some top business schools, the number of recently minted M.B.A.s without jobs has roughly doubled from a couple of years ago, when US companies were rushing to hire as many workers as they could, according to data from the schools.
🎞️Netflix is riding high while other streamers struggle to catch up and its Q4 earnings report is evidence of its lead.
The dominant streamer just had its best Q4, adding 13.1M global subscribers for a total of more than 260M.
This growth widens its lead over competitors like Disney+, its closest streaming rival, which trails far behind with 150M global subscribers.
Its dominance also shows up in video viewing share. Nielsen data shared by Netflix showed the streamer had 8% share in the US in December, versus 5% for Disney+/Hulu and 3% for Amazon's Prime Video.
It's done it by churning out hit after hit, diverse titles that appeal to nearly every taste out there. Its Q4 blockbusters included "Squid Game: The Challenge" and "The Crown" finale. Meanwhile, Netflix also has benefited hugely from licensing shows from competitors that have thrown in the towel on keeping their content exclusively for their own services.
And while not every title is a hit, Netflix has enough that it's reached utility status with subscribers. For proof, look at Netflix's churn rate, which is by far the lowest of all the streamers. That means people are far less likely to cancel Netflix than other services.
At the same time, Netflix needs fresh content to keep people coming back, which doesn't come cheap. It's planning to spend $17B on new shows and movies in 2024 and just inked a $5B deal to stream WWE Raw. The streamer is also moving aggressively to build gaming and advertising sales businesses.
That’s all for today, folks.
Are you as bullish on the US economy as Goldman Sachs?
Are you seeing new restaurants pop up where you live? Are you spending more or less in restaurants than say a year ago?
Are you in the market looking for a job? What has your experience been like?
What’s your favorite show you are watching on Netflix or other streaming service this year?
of course bailed-out banker bastids will be upbeat about the economy because whenever it tanks, they get bailed out again . . . and again . . . and again
I don’t understand how one cannot be bullish given all the data points. It honestly baffles me.