MAXX Conference Coverage: ‘Don’t Watch Fed, Watch Rents’

A reposted Article from CU Today

BOISE, Idaho­ – The third quarter economic data may “suck,” but credit unions shouldn’t worry—the economy is healthy and getting healthier, according to one economist, who added that while many are watching the Fed, what they should really be doing is “watching rents like a hawk” while keeping the other eye on used car loans.

Speaking to the Northwest Credit Union Association’s MAXX Conference, Dr. Elliot Eisenberg, chief economist with Graphs and Laughs, LLC and a popular presenter to credit union meetings, touched on everything from inflation to home prices to why it’s so hard to find employees.

The economy, he said, is “OK,” and while current data may show a slowdown, it’s due almost entirely to the Delta variant of the coronavirus and the real result is an economy that’s moved from a A grade to a A- grade. But the grade is going to improve, he told the meeting.

Spending Their Brains Out

“Household consumption is 69% of GDP. It’s fine. Household consumption is good; it’s surprisingly good,” Eisenberg said. “People are spending their brains out buying all kinds of stuff. Corporations aren’t buying plants but they’re buying lots of equipment. Government spending was massively stimulative for a long time and now suddenly we’re entering a period of a year and a half of quite contractionary fiscal policy. So, this is a bit of a threat but we’ll get through it.”

An issue close to credit union lenders, Eisenberg said it isn’t that there isn’t demand for automobiles, it’s just that due to supply chain issues, especially related to microchips, “We can’t get any damn cars.”

It’s not the only shortage.

“You can’t get workers, you can’t get ships, you can’t get ship captains, you can’t get engineers for training, you can’t get drivers for trucks, you can’t get parts, you can’t get raw materials,” said Eisenberg, before joking, “If you want a Big Mac, it’s on back order; you’ll get a half a Big Mac in a week.”

All of those stresses, he said, will work out, although perhaps not as quickly as many are hoping, especially the Fed. “In a good sign we’re reverting to some semblance of a normal growth and normal spending patterns,” he added.

The Issues

Among the issues touched on by Eisenberg:

The COVID Pandemic

“COVID is still running our lives to some extent. We thought on the 4th of July when the COVID numbers were really low that this was going to be the beginning of the end of COVID,” he said. “It’s taken a bit longer, but I think now is the beginning of the end of the COVID.  I really do. Fifty-six percent of the U.S. is vaccinated. By the end of the year we could be in the low 70s. We’re beginning to think about something like herd immunity.”

Consumer Confidence

Eisenberg described some of the consumer confidence survey findings he has seen as “crappy,” saying surveys showing negative sentiment are out of touch with the reality of consumers, whom he said are much more confident than they were a year ago.

“Raise your hands if you are more unhappy now than you were 18 months ago when you were locked in your home,” Eisenberg asked his audience. No hands were raised.

Home Prices & Housing

“Housing prices right now are crazy. Inventories are nonexistent. I mean this is stupid. For a whole bunch of reasons you would never say, ‘Oh, yes, this is a glorious time to buy a house.

“The problem with housing is there are no friggin’ houses. And the reason is builders spent 10 years forgetting to build homes. Inventory of homes has steadily declined over the past 10 years. Existing  inventory is so low, which is why home prices are rising so fast. This is not a housing bubble. There are strong demographics, low interest rates, and low supply.

“I don’t think the price increases can continue, as people are running out of money. Wages are not keeping up.

“Builders don’t build entry level homes anymore. Can’t get land and stuff is more expensive. No new homes that are cheap.

“The median home price is $400,000. We need two million new homes for 10 years. That’s not happening.”

Refinancing Volume

Eisenberg predicted refinancing activity will weaken, although it’s been “surprisingly strong. I think it’s going to fall by half, but maybe we’ll be surprised.”

Economic Direction

“In July, we thought our economy was going to go straight up and instead it went essentially straight down. Not a lot but we could say that was the high point and now we’re going to come back and challenge that high point in Q4 now that COVID is kind of on its backside. Households have plenty of money. They saved up a couple-trillion bucks. Most didn’t lose their job and got (stimulus) checks and now they’re spending their brains out.

“The biggest problem we face across the board everywhere and in everything is this crazy lack of inventory,” said Eisenberg, noting how he wanted to buy a new dishwasher and couldn’t get one. “You can’t get friggin’ anything and this is driving inflation. It is causing weird employment problems. No one here lost their jobs. Low-income people lost their jobs.”

“The stock market is doing well. This is a frigging everything rally. Repossessing cars is now a for-profit business. Buying a car is now an investment.”


“The inventory problem is big. I thought like a few months ago (the chip shortage) would go away. In fact, it hasn’t gone away. It actually has some staying power and this is continuing to plague us with inflation problems. The supply problem has gone from ‘just in time’ to ‘just in case.’ You want to buy and put something in a storage unit, but you can’t get a storage unit.”

Energy Challenges

“The globe faces a potential problem over a lack of energy.  If we have a cold winter, watch out. It could whack global GDP growth.”

U.S. Households

“Look at household balance sheets; they’re spectacular. Of course that’s because every single thing I own is worth more money. Public finances maybe not so great, but personal household personal balance sheets are spectacular. Who’s defaulting on their loans? Nobody.”
The low loan defaults are due to the various forbearance programs put in place on mortgages, student loans, rent and more, said Eisenberg. As a result, many consumers used the extra funds to pay credit cards and other debt.

The Weirdness

“The bad news is there is this weirdness about this,” said Eisenberg. “We’re delaying and kicking the can down the road to solve the problem. We’ve kicked the can for 18 months. Maybe it’s a permanent solution. People get a job. They pay their debts. There’s lots of fiscal stimulus. They ameliorated the problem. I don’t think there’s going to be a huge increase in bankruptcies in the rest of 2021 and 2022. There are almost no homes left in forbearance right now. If you wait long enough the problem goes away. Overall, this is a good thing.”

Caution On Used Cars

“Be careful in making loans against used cars,” said Eisenberg. “When that car gets repo’d in three years, that premium today is going to go away. In three years those cars won’t have the value they have now. The problem in getting new cars will go away. So, be careful in used cars what your criteria are.”

The Wall Street ‘Geniuses’

“Don’t look to Wall Street thinking they geniuses–they’re idiots. The markets are almost always wrong when it comes to Fed rate hike expectations,” said Eisenberg. “The markets have a long history of prematurely anticipating Fed rate hikes. These are highly overpaid monkeys.”

Washington & New Spending

“If (President) Biden is able to pass these  bills, in the short time it would be a good thing,” Eisenberg said. “We desperately need to pass the infrastructure bill. Either we get both of these bills or we get neither of these bills. The problem is they can’t figure out what’s going to be in the Build Back Better bill. If they can’t get both, the other won’t pass. This is not all that inflationary, so cool your jets. We have already had several trillion-dollar bills come through, several signed by Trump and now one by Biden. The $3 trillion  is over a decade (during which) the economy is going to grow by $300 trillion.

The Labor Force

“The labor force is nuts. It’s crazy. Labor markets are getting tight again. What’s going on? We have a return to demand as normal. It’s supply that is taking its leisurely time to get there. Both normally work together. People are saying the jobs aren’t coming back fast enough with 22 million jobs lost in 2020. It’s recovering much faster than under normal conditions. In 18 months we’ve brought back 75% of jobs. The problem isn’t supply; it’s demand. You’re willing to take crappy employees right now.

“The problem with supply is the labor force has shrunk. Two-million people have just checked out,” Eisenberg continued. “Half the people in leisure and hospitality realized their jobs sucked.  They didn’t know this before. Marriott let them go and they realized, ‘I was being treated like an animal. This other job is better.’”

Inflation & The Fed

“I think inflation has peaked. That’s the good news. Food and energy are going up very rapidly, but so is everything else. Food and energy go up, but they come down. Wage inflation only goes up,” Eisenberg said. “If our inflation is dictated by this weird supply chain bottleneck out there, what can the Fed do about it? Not much. The Fed is caught between a rock and a hard place. They don’t think inflation is going to persist, but it’s lasting longer than they had predicted. If the Fed raises interest rates it may not affect inflation. It’s not going to resolve supply chain problems globally.

“The big fear I have is rents. Thirty percent of CPI is rent. If rents start to go up, and I think rents will, the Fed’s got a problem on their hands. So watch rents like a hawk.”

Posted in NWCUA in the News.