Location Strategy Chartbook 09.27.2025

There is a growing divergence between how equity investors and fixed-income investors are viewing the US economy, according to Shawn Tuteja, who oversees exchange-traded fund and custom baskets volatility trading in Goldman Sachs Global Banking & Markets.

Following last week’s interest rate cut, both equity and fixed income investors expect to see several more cuts from the Federal Reserve, Tuteja says. But while fixed income investors think these cuts will be in response to a worsening job picture, equity investors expect that the Fed will cut amid a relatively solid economic backdrop.

“Equity investors think we’re going to thread the needle—that the Federal Reserve is going to continue to cut interest rates into an economy that not only is stronger than recent jobs data might suggest, but [that] might actually reaccelerate into 2026 due to fiscal stimulus from the government,” Tuteja says. “The fixed-income market is far more worried about a potential collapse in the employment data.”

The headline S&P Global US PMI Composite Output Index fell from 54.6 in August to 53.6 in September, according to the 'flash' reading (based on about 85% of usual survey responses). However, although signaling a weakened rate of growth for a second successive month, the still-elevated PMI reading indicates that the third quarter a whole has seen the strongest average monthly expansion since the end quarter of 2024. Output has now grown continually for 32 months.

While growth was again seen across both manufacturing and service sectors, both categories reported weakened expansions, leading to slower hiring in both cases. Tariffs were meanwhile again widely cited as the main cause of sharply higher costs, but weaker demand and stiff competition reportedly limited the scope to raise selling prices, which rose on average at the slowest rate since April.

Slower than expected sales reportedly also contributed to the largest rise in factory inventory levels of unsold stock in the history of the survey.

More encouragingly, business confidence in the outlook improved, partly reflecting hopes that lower interest rates will help offset some of the anticipated impacts from tariffs and broader policy uncertainty.

With backlogs of work falling, manufacturers cut back on their input buying in September for the first time since April. More supply chain delays were also reported, inhibiting purchasing, often linked to tariffs and imports. September’s lengthening of delivery times was the second-largest recorded for nearly three years, exceeded only by that recorded in May after April’s tariff announcements had disrupted shipments. Stocks of purchases consequently rose less than in August.

Tariffs were again overwhelmingly cited as the principal cause of further cost increases in September, most evidently in the manufacturing sector. Manufacturing input price inflation remained elevated at one of the highest rates since the pandemic, albeit dipping slightly since August. Service sector inflation meanwhile hit the second-highest recorded over the past 27 months (surpassed only by May 2025).

Although overall input cost inflation consequently accelerated to its highest since May and therefore the second highest level for just over two-and-a-half years, average prices charged for goods and services rose at the slowest rate since April.

Firms across both manufacturing and services often reported difficulties passing higher costs on to customers due to weak demand and growing competition. Goods price inflation cooled especially sharply, down to its lowest since January whilst selling prices in the service sector rose at the weakest rate since April.

Bloomberg: Roughly a third of federal student loan borrowers are behind on their payments, resulting in massive hits to their credit scores.

About 29% of borrowers — or 5.4 million people — were delinquent on their loans in June, meaning they haven’t made a payment in 90 days or more.

Those who haven’t made a payment for at least 270 days will be placed in default status, and will be subject to involuntary collections from the federal government, including wage garnishment or withholding of tax refunds.

WSJ: Power prices have been rising faster than inflation for the past few years. Electricity prices in August were 31% higher than four years earlier, compared with about 19% for prices overall, according to data from the Labor Department.

Could AI Serve as a 'Shock Absorber' for the Power Grid? Artificial intelligence could prove an efficiency boon—not a burden—for power grids, according to Goldman Sachs Global Institute’s Frank Long and George Lee.

Developing and running AI requires access to considerable power supply, raising concerns that surging demand could create a power bottleneck. The AI industry is projected to need an additional 100 gigawatts (GW) of power by 2030.

A shift in the way data centers operate could offer a solution. Unlike most non-AI applications that run in data centers, AI training and inference (using a model to analyze new data) can be paused and resumed (or “curtailed”).

As tech companies race to roll out new models, the ability to scale AI infrastructure is now crucial—even if that means compromising on the reliability of power supply to data centers. “Competitive advantage in AI comes from deploying the largest models fastest, not from achieving 99.995% versus 99.671% uptime (the gap between the most reliable datacenters and the simplest),” Long and Lee write.

This opens the door to a form of smart demand management, where data centers pause workloads or reroute them to areas with greater supply when their local grid is under stress.

This capability could also allow tech companies to use existing spare capacity on the grid (which operates at roughly 53% capacity on average) without overwhelming the system, reducing the per-unit cost of existing energy for all power users.

“The answer to getting 100 GW of power by 2030 may be hiding in plain sight: using existing slack capacity,” Long and Lee write.

Mirroring the national trend, job growth has slowed across Houston. Local business analysts note that this likely reflects heightened uncertainty in the business outlook, which is causing businesses to delay hiring and expansion decisions.

According to the latest preliminary data released by the U.S. Bureau of Labor Statistics, the Bayou City lost 25,500 jobs over the first eight months of the year. For context, the Houston market historically added an average of 2,490 new jobs each year during this same period.

The pullback in industrial hiring could also be a temporary condition, as Houston has landed several impressive leases in recent months.

In August, Pepsi leased 1.1 million square feet at the I-10 West Trade Center in Brookshire. And in July, Panelmatic leased almost 730,000 square feet at WestPoint 45 in Houston.

The employment sectors leading job gains in Houston were leisure and hospitality, up 12,600 jobs, and private education and health services, 11,900 jobs. Healthcare is Houston's second-largest industry by total employment, trailing only the government sector.

Since 2022, Houston has added 520,000 new residents, one of the largest increases in the country. Rapid population growth has increased the need for healthcare providers. From a geographic perspective, medical office development has largely followed fast-growing, affluent, exurban suburbs where land is more available.

Food and beverage and quick-service restaurant tenants have been among the most active tenant sectors, driving retail demand and hiring. The sector continues to benefit from an increase in dining out after the pandemic and the adoption of food delivery and click-and-collect services.

Only a handful of US logistics markets manage to outperform pre-pandemic conditions Many areas suffer rent declines as available logistics space surges across 75% of nation's markets

This elevated availability has translated to weaker rent gains. When available space was limited in 2022, less than 10% of U.S. logistics markets posted slowing annual rent increases. This has now surged, with almost 50% of the markets seeing weakening rent gains, and most of those seeing rent contractions.

So far, this rent growth weakness has been concentrated in larger lease sizes. In contrast, asking rents have performed better for smaller lease sizes in recent months.

That said, availability rates are now increasing across all property size ranges, pointing to even softer rent gains ahead across all logistics segments.

Supply-side challenges are receding in Houston’s Neartown-River Oaks market, having been a construction hotspot in recent years. Since 2020, roughly 10,000 net new units have opened, ranking the area third among all of Houston's markets, behind only Bear Creek-Copperfield and Northwest Houston, for most new units added during this period.

As a result of the challenging financing market, nothing has broken ground all year, the first time this has occurred since 2009. There are now just 340 units underway, the bulk of which is in one project, the mixed-use project RO, which stands for River Oaks. The RO is being built on the site of Exxon Mobil's former research campus for its upstream operations at the intersection of Buffalo Speedway and West Alabama Street. In addition to the 37-story residential tower at the RO, the master plan includes an office tower, retail and a hotel-condominium tower.

The market's overall vacancy rate, 10.0%, is more than 100 basis points below the Houston average and is anticipated to fall below 8% by the end of next year, as new supply grinds to a halt and demand remains healthy.

Demand remains strongest in high-end buildings, which now account for more than 80% of the market's total market-rate inventory. Among stabilized four- and five-star properties, once the apartment reaches 90% occupancy following completion or is older than 18 months, vacancies are flattening at 7%, reinforcing the recovery in this segment.

The average rent for U.S. apartments declined in August, with the national average falling to $1,713 per month, a 0.23% decrease from July’s revised $1,719. That came as trends diverged within U.S. regions.

On a national basis, August marks the second consecutive month of flat or negative monthly rent change and the first time since January that the average rent declined more than 20 basis points. Average annual rent growth slowed further to 1.0%, down from 1.1% in July and 1.5% at the start of the year.

The West and South again show the most dramatic splits. In the West, average apartment rents in San Francisco and San Jose are surging, while Phoenix and Denver are experiencing rent declines. The South features both strong outperformers in Norfolk and Richmond, Virginia, and steep underperformers in Austin and San Antonio, Texas. In contrast, the Midwest and Northeast remain more stable, with even the outliers remaining close to their regional rent averages. In the West and South, where new apartment construction has been especially active, the gap between outperforming and underperforming metropolitan areas is wider. Regions with steadier supply pipelines, such as those in the Midwest and Northeast, show more consistent results across cities.

This shows the surge in the percent of loans under 3% starting in early 2020 as mortgage rates declined sharply during the pandemic.

Note that a fairly large percentage of mortgage loans were under 4% prior to the pandemic!

The percent of outstanding loans under 4% peaked in Q1 2022 at 65.1% (now at 52.5%), and the percent under 5% peaked at 85.6% (now at 70.4%). These low existing mortgage rates made it difficult for homeowners to sell their homes and buy a new home since their monthly payments would increase sharply.

This was a key reason existing home inventory levels were so low. However, time is eroding this lock-in effect.

The percent of loans over 6% bottomed in Q2 2022 at 7.3% and

As affordability issues persist, Fannie Mae's latest forecast revises projections for total home sales in 2025 down to 4.72 million, compared to 4.74 million previously. The new projection would be slightly below the 2024 total.

Fannie's home sales projection for 2026 is now 5.16 million, down from 5.23 million previously.

In its midyear forecast, the Realtor.com economic research team projected that sales of existing homes (excluding new construction) would total 4 million this year, which would mark the lowest annual transaction pace since 1995.

New-home sales have remained sluggish this year, although new data on Wednesday showed an unexpected surge in sales of new single-family homes in August.

Signed contracts for new single-family homes were at a seasonally adjusted annual rate of 800,000 last month, up 21% from July and 15% higher than a year ago, the U.S. Census Bureau and Department of Housing and Urban Development reported on Thursday.

The August figure was far above what economists had expected and the highest since January 2022, potentially signaling a resurgence for homebuilders, who have struggled in the face of weak demand and elevated interest rates.

For the housing market to return to the average affordability levels found from 2016 to 2019, it would take one of three things, or a combination of them, according to Fannie Mae.

Either the median price of a single-family home would need to plunge more than 39% to $257,000; the median household income would have to rise more than 60% to $134,500; or mortgage rates would need to fall to 2.35%.