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Mint Julep

The Federal Reserve met this week and kept the federal funds rate intact to the surprise of no one.  Fed Chair Jerome Powell indicated that recent data suggests the Fed will hold off on cutting interest rates; however, there was also the implication that the Fed has no plans to raise rates any further assuaging the fear of some.  Jobs data was also released this week by the Labor Department and U.S. employers added 175,000 new jobs in the month of April.  Economists were targeting a number closer to 240,000 new jobs for the month.  The unemployment rate was up slightly from 3.8% to 3.9%.  Average hourly earnings were up 0.2% month over month versus an expected increase of 0.3%.  The reduced level of hiring and lower-than-expected wage growth made investors ebullient resulting in the Dow Jones Industrial Average, S&P 500, and Nasdaq posting big gains on Friday.  Investors took these numbers as a sign that the Fed may be willing to ease interest rates later this year.

A slew of companies reported earnings this week including Apple, which beat analysts' expectations in terms of earnings and income.  The company reported revenue of $90.75 billion for the quarter and a profit of $23.6 billion.  Additionally, Apple provided upward guidance in terms of revenue growth for the current quarter and announced a stock buyback to the tune of $110 billion, which would be the largest buyback ever.  As a result, the stock was up significantly on Friday.

This past March marked the 20th consecutive month that new home sales exceeded existing home sales.  New home sales were up 8.3% year over year while existing home sales were down 3.7% over that same period.  According to a survey from Bankrate, 78% of those surveyed regard home ownership as the most important factor in achieving the American dream.  The same number, 78%, also indicated that affordability is the biggest obstacle in purchasing a home due to multiple factors including inadequate income, the increased cost of housing, and the inability to save for a down payment.

Consumer spending has remained strong but to the detriment of consumer saving.  During the COVID-19 shutdown, consumers accumulated a surplus of savings partially due to pandemic-related fiscal support along with a limitation of places to spend.  During the period from March 2020 to August 2021, the personal savings level soared to more than $2.1 trillion in excess savings as compared to the monthly savings amount prior to the pandemic.  As a byproduct of the economy reopening, consumption increased and conversely, the savings rate has fallen.  This past March was the first month in which the $2 trillion of excess funds was finally absorbed by this trend of reduced savings according to First Trust Advisors.  In essence, the excess accumulated savings that occurred during the pandemic is now gone for many.

One area where consumers are becoming more frugal is vehicle ownership.  In addition to maintenance and repair costs rising significantly, as well as lower inventory, the average price of a new vehicle according to Edmunds was $46,660 in March.  To counteract this, more vehicle owners are hanging on to their cars for a much longer period of time.  S&P Global Mobility reports that for the sixth consecutive year, the average age of vehicles on the road has increased.  In 2023, the average age of a vehicle on U.S. roads was 12.5 years old, a record high.  The Federal Highway Administration has indicated that the average age of vehicles has risen considerably since the 1970s.  The percentage of vehicles that are over 10 years old and still on the road has jumped to 44.2% in 2022 from 16.9% in 1977.  I think back to the first vehicle I ever owned and the handful I have had since then and the engineering, quality, etc., is eons better.  I don’t relish the days of using a staple gun to keep the carpeted ceiling from hanging down and obstructing my view.

Finally, this weekend marks the 150th anniversary of the Kentucky Derby.  In addition to the spectacle of the race itself and the crowd-watching, the event features its signature drink, the mint julep.  It is estimated that Woodford Reserve will use 10,000 bottles of its mint julep mix, approximately 60,000 pounds of ice, and a half-ton of mint at the race this year.  I don’t know how many mint garnishes it takes to equate to 1,000 pounds but I bet it’s a lot.

Matt Savoti, MBA