We are going through some major economic updates while we focus on the best real estate information and the best real estate topics. We wanted to jump into some hot button items for the American economy and where things are at because that very clearly impacts the real estate sector. So, let's jump in.
First things first: good news. The American personal income, according to the commerce department, actually went up by 0.3%. Any increase is a good increase in this category. Not only that, but that puts the percentage of disposable income at 7.9% nationwide and also personal consumption expenditures declined over half a percent. So all in all, what does that mean? We're still getting hammered by the inflationary factors in the economy, but overall, what that means is we are also increasing our income as a population and decreasing expenses. So that is on the right track going the right direction, although not perfect. When you include the inflationary forces that the Fed released at about 7%, which most people estimate is quite a bit higher, let's say as high as 10, 12, 14%. So, the 0.3% increase in personal income nationwide doesn't look as great in light of that. The labor department's CPI, (consumer price index) increase for the 12 month period ending in January had an increase of 7.5%. Speaking of inflation, that is the biggest increase since 1982. These are pretty staggering numbers, again, not to overemphasize this point, but these are probably on the low side, right? We've seen the CPI and the labor department and even the white house pull numbers out of that calculation in order to adjust that to more favorable numbers. So that means the more favorable number is 7.5%. So, that's scary.
Again, many estimates are much higher, but that gives you some context when they're giving bad news. Also worth mentioning and remembering is that the Fed told us not too long ago back in 2020, that inflation was transitory, meaning coming and going very quickly. What's the fed gonna do? Inflation's going through the roof. What tools do they have in their toolbox to make this better? Well, raising rates is pretty much all they have left. So where are we at today with rates? Freddy Mac is reporting that mortgage rates have jumped for the 30 year fixed rate mortgage to this week at an average of 3.6, 9% last week alone, it was at 3.5, 5%. So a 14 basis point jump in just a week that's worth discussing and making note of. More importantly than the 14 basis point jump is that a year ago the rate was at 2.73. That's nearly 100 basis points over a year. Now we've had pretty record low rates for quite a long time, probably since about the 2008 era. We've been bouncing on the bottom and setting records for how low our rates have been for an extended period of time. A hundred basis points in a year is very substantial. It will put downward pressure on home sales, property values et cetera because property owners and property buyers now need to balance a higher rate into their returns for their property values. So it messes up market dynamics that we've been used to in a low rate environment. Definitely something I'm keeping an eye on as far as buying and selling property and real estate, especially us on the commercial side, the backbone of the country, small businesses, I love small businesses as I find them extremely important.
When news comes out about small businesses, it's something that you as a consumer, as an American citizen need to understand, cause it affects 100% of markets, right? It affects the US economy massively. Now 98% of small business owners say that difficulty hiring is affecting revenue. We've heard a lot about the “Great Resignation'' and a lot of hiring issues throughout the country. Here's the statistic, small businesses are getting hit by a 98% factor of how much they're struggling with the hiring issue as it is today. With the work from home environment that the country has shifted to, which personally I think is great) the risk to American workers in the midst of this is if you switch from a work from home environment, they're not necessarily a work from home employee. As many people see them, they are now as many people seeing them as virtual employees, right? It's a term that probably suits that category a little bit better. Here's the risk, if American employees are working from home and businesses are already used to that virtual environment of their employees, what happens to overseas or out of country labor? I don't know, but that's something I'm keeping a very keen eye on because at the end of the day, if somebody's already working from home out of a different state and you are not going to see them in the office, I think I'm concerned that a lot of employers might start looking other places for those employees, maybe out of country, maybe out of continent and send that money overseas so I 100% suggest keeping an eye on that as well.
Additionally, 81% of small businesses are citing inflation as an issue. Imagine trying to manage your inventory. If you paid this dollar amount for the inventory and now it's worth this, it's worth less and you have to raise prices, but how high do you raise prices? Is it just seven and a half? Or is it more because you're having issues with inefficiencies of your hiring or supply chain, et cetera. There's a lot of issues that small businesses are having to deal with right now that are reshaping the American economy in big ways. In addition to that, 77% of small businesses cite supply chain issues as a major issue for their business as well. We've seen that across the board. Imagine running a business on the backbone of that, it's something worth tracking because it does affect many businesses. Speaking of supply chain, the Institute for supply chain management had some interesting numbers that just came out. While the non-manufacturing index did decline 2.4 % from the prior month, there's still 20 straight months of growth for the services sector, which is a good indicator of the economy going up in some areas.
Last but not least, the “Tinder Swindler'. Views of this show on Netflix are at an all-time high. Here's some data behind that. Romance scams are actually on the rise with consumers losing $547 million to romance scams in 2021 alone.That is mind blowing and sad at the same time. That number's 80% from 2020 and this is published by the federal trade commission. So, it's just about as reputable of sources you can get. Romance scams and the “Tinder Swindler” is literally perfect timing because this is happening at a ridiculous amount with an 80% increase.
That’s a wrap on our economic update. I just wanted to share some of these items with you because they're so pertinent. They majorly affect real estate, but they also affect the entire economy and everybody in it. Maybe you agree, maybe you don't, or maybe you have some different insight or background of something that you are involved in. Please leave us comments. We really want to hear what you guys think about what we just went through and if you have some unique perspectives on it. So cheers!
A master in Investment, Marketing, and Capital Raising.
Nic has honed his focus on the Real Estate and debt markets with Saint Investment Group and pursues large-scale Distressed Asset purchases with his partners and syndications.