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Déjà Vu: SBOI and Flipping - May 14, 2019

“Labor Supply is a Headwind to Growth”

 While the NFIB’s Small Business Optimism Index has yet to reach the lofty heights of late last year, some of the input data from today’s report gave us a strong sense of déjà vu. The headline index improved MoM to 103.5, but it was the labor market readings that showed nearly-superlative signs of strength:  

Twenty-four percent of owners cited difficulty of finding qualified workers as their Single Most Important Business Problem, 1 point below the record high.”

“Thirty-eight percent of all owners reported job openings they could not fill in the current period, down 1 point from the record high.”

All while, “reports of compensation gains are at historically high levels.”

If that weren’t enough to trigger reminders of past reports, the NFIB reported, “sixty-nine percent [of respondents] in transportation reported few or no qualified applicants, 92 percent of those hiring or trying to hire[emphasis our own].

However, the NFIB’s results showed “inflation pressures remain subdued” and “labor compensation is steadily growing around a 3 percent rate, while prices are increasing much more slowly”. This will be especially welcome news for the Fed. First, the good compensation reading will help alleviate the worries of Kashkari, Clarida, and others who have concerns about labor’s share, as discussed in Matthew Boesler’s article for Bloomberg. Second, though the survey was taken before the latest round of tariffs, it may help soothe the worries of those, who like Rosengren, are concerned about changes in pricing. In any case, all Fed members, dove and hawk alike, should be pleased with the SBOI’s diagnosis that “there is no recession in sight this year”.

 Flipping Headlines

 Finally, in brief, our déjà vu resurfaced with a few recent articles on flipping houses. In addition to “Young Real Estate Flippers” taking losses, as real estate markets cool off, publicly-listed Zillow is taking some heat. Highlighted in a recent Wolfstreet article, Zillow’s entry into house flipping lead to a loss in the first quarter that amounted to “a stunning 15% of revenues”. But perhaps, for now, there’s no need to worry. CoreLogic reports that the median annualized return on flipping was “just over 40 percent in the fourth quarter of 2018”.