THE GALLELLI GAZETTE Retail Roundup QUOTE OF THE WEEK:

be much more certain—and much more negative. But it’s not—which means the near-term outlook is nowhere near as certain, though it could be far more positive.

Last week we got another jobs report that stumped economist; over 339,000 new jobs were added in May. Meanwhile, the Labor Department’s JOLTS (Job Openings and Labor Turnover) report, that came out just a few days earlier showed another shocker; job openings in April (this report lags the unemployment report by one month) rose unexpectedly. The number of available jobs climbed for the first time since December to 10.1 million, up from 9.8 million.

We are now solidly fourteen months into the will we or won’t we saga on a potential recession ahead. For most economists, the big alarm bells were first set off when the yield curve inverted in March of last year. Normally when you invest in short-term bonds (a 3-month treasury bill) they will provide you with significantly lower yields than the returns you could expect to earn with a longer-term bond (like a 20-year treasury bill). But when those long-term yields suddenly fall below the short-term ones is when you have an inverted or negative yield curve. It is a big deal because in eleven of the past 12 times that the yield curve has inverted, a recession has followed anywhere within six to 18 months following.

By March of this year, the inversion had reached its deepest point since 1981, when it preceded one of the deeper recessions in our history—in the wake of aggressive interest hikes looking to stem double digit inflation (it had peaked above 14% in late 1980). Of course, there was another major challenge at the time, which was that unemployment was already elevated—by 1982 unemployment would reach 10.8% which was, at the time, the highest rate that the US had experienced since the Great Depression.

The Fed moves, as painful as they were, did tame inflation (it was in the 3% range by the end of the 1980s) and helped usher in an economic boom that began to take off by 1983. Unemployment would continue to fall from 1983 onward, reaching the low 5% range by 1989.

There are many who look to the early 1980s economic situation as being a good predictor of what we are facing ahead. But unemployment was in the high 8% range when the Federal Reserve began to aggressively raise interest rates in 1981. That situation, where both unemployment and inflation are high, is the classic “stagflation” economy and, frankly, is a dismal situation. The good news is that our current situation is nowhere near that—if it were, the near-term outlook would

1 They Said We Were Getting a Recession, Instead We’re Getting a Bull Market CNN 06.04

2 What to Expect from June’s CPI Report Forbes 6.4

The irony of the past year is that economic news that usually we would welcome, suddenly has become likely bad news, because it means that the Federal Reserve’s attempt to cool the economy (at least if you’re looking at rising unemployment) aren’t fully working. It means more interest rate hikes. The new inflation report for May will be out in a few days, and though the US saw inflation drop below the 5% range (it was 4.9%) for the first time in two years last month this is still a way off from the Fed’s stated target goal of 2%.

There is hope that the Fed will pause their rate hikes despite the continued strong jobs data at their next meeting on June 13th. Clearly the inflation report coming out later this week will be the primary factor in whether they will or won’t. Frankly, it should be, as opposed to job numbers right now simply because we are in the midst of what Business Insider recently declared, “The Forever Labor Shortage.” Between declining birth and legal immigration rates and the massive baby boomer generation retirement trend, I don’t think that looking at the labor market through traditional lenses makes a lot of sense currently. There have been no economic precedents for much of what has occurred since the pandemic.

It’s possible (if not likely) that the Fed will continue to see a strong job market as evidence for further rate hikes, despite the stress it has already created in key sectors, and the fact that with each hike the certainty of recession increases. I suspect we may already be there, and that we may be living through a rare occurrence… a recession (negative GDP growth) where job creation continues to occur. But if we are, a downturn is likely to be brief and shallow because of that job market resilience. This is not a repeat of the early 1980s.

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3 Economy Added 339,000 Jobs in May; Better Than Expected New York Times 6.2

4 Bidders Reportedly Interested in BuyBuyBaby Chain Store Age 6/2

5 Top Retail Trends of 2023 Chain Store Age 5/31

6 Job Openings Increased in April to 10.1 million Yahoo! Finance 5/31

7 ICSC Las Vegas Report: It’s a Landlord’s Market Chain Store Age 5/31

8 Consumers to Spend Record Amount for Father’s Day NRF 6/1

9 H.E.B. to Remove Pandemic Era Plexiglass From its Stores Supermarket News 5/31

H. Brown Gallelli Real Estate gbrown@gallellire.com

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