10 Comments
Feb 23, 2023Liked by Florian Kronawitter

Florian,

normally, given how sensitive housing is to interest rate, at this point of the housing cycle, we should see construction employment at least plateauing if not not dropping, why is it still going up?

also, is it possible that this time around, in-person service sector cycle is lagging manufacturing so much that recession could be delayed longer than we thought due to the pandemic? Note that hospitality and leisure employment level is still below pre-pandemic, and much lower below trend, indicating still huge labor shortage in that sector. Also, the most recent NFIB report shows many businesses are finding it hard to find quality labor. Another industry that's finding all time high labor shortage is the car repair sector. These are contradictory signals to "close to recession" bet.

You can call it lagging effect of the policy, but I say FED this time is very transparent about their policy projection. It doesn't make sense for the construction industry to keep hiring (JOLT opening still healthy for construction too) at this point in cycle when housing starts is clearly going down. Any good reason they are still doing so?

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Florian, even if your recession outlook is correct, why do you think automatically inflation will also come down?

rate raise in the late 1980s early 1990s didn't do much to core inflation at all (stays at 4.5 ~ 5% throughout the whole period). Basically, you had the worst of both worlds (inflation plus recession). Any good reason why we cannot have something similar this time around? Most people are either in the inflation/soft landing camp or deflationary recession. I haven't seen any view point suggesting stagflation.

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On the construction front, non-residential contrsuction remains very strong, seems like it might be resistent to a fall this time around due to a mix of things but primarily government stiumlus induced boom on construction of things like semicunductor facilites. Earnings calls for firms like STLD that have high exposure via fabrication segment to non-resi construction and WIRE suggested management teams see robust non-resi construction for some time. I wonder how much of the construction employement gap you highlight is attributable to the strong non-resi construction market, any thoughts?

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Just found out your substack via the link provided by "Credit from Macro to Micro". I just want to say I really enjoy your content. I generally look for different views but your outlook on the market is identical to mine in the short-term, especially for the month of March. Probably I am way less contrarian of what I thought. Good reality check. Hope you keep on posting more of this content in future! All the best!

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really appreciate the work you do here, Mr. Kronawitter.

great data driven opinion. thank you for sharing

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