US Economy thread

[The Sultan]

at least he had the character to acknowledge and apologize.  most of your "experts" just ignore and move on to their next buffoonery

Huh.

[Uncle Rico]

at least he had the character to acknowledge and apologize.  most of your "experts" just ignore and move on to their next buffoonery

Huh

[MU82]

Here's a couple of economies that really suck: West Virginia and Mississippi.

Only Mississippi has a lower life expectancy at birth than West Virginia, and only Mississippi has a lower rate of participation in the labor force than West Virginia. WV has had the nation's lowest population growth since 1950 and is the only state that lost population from 2000 to 2022. It is tied for last with Mississippi in the share of adults with a bachelor's degree or more.

And then there's this: West Virginia is by far the U.S. leader in age-adjusted death rate from drug overdoses. In 2021, its rate of 90.9 per 100,000 people was 60% higher than Tennessee's, the next highest, and nearly three times the national average, according to the National Center for Health Statistics.

[rocket surgeon]

at least he had the character to acknowledge and apologize.  most of your "experts" just ignore and move on to their next buffoonery

huh

[Skatastrophy]

huh

i lol'd

[MU82]

From the AP:

Wages rose unexpectedly fast in January, too. Average hourly pay climbed a sharp 0.6% from December, the fastest monthly gain in nearly two years, and 4.5% from January 2023.

[SoCalEagle]

Rising wages, inflation falling, anybody who wants a job can have one. 

Yeah, if I was Powell I wouldn't lower the Fed Funds Rate in March either. 

[Dr. Blackheart]

Rising wages, inflation falling, anybody who wants a job can have one. 

Yeah, if I was Powell I wouldn't lower the Fed Funds Rate in March either.

And tax cuts coming

[jesmu84]

And tax cuts coming

Tax cuts?

[Dr. Blackheart]

Tax cuts?

https://www.pbs.org/newshour/amp/politics/house-passes-bipartisan-bill-to-enhance-child-tax-credit-revive-key-tax-breaks-for-businesses

[TSmith34, Inc.]

Consumer Confidence Hits Highest Level in 25 Months
https://finance.yahoo.com/news/consumer-confidence-hits-highest-level-130900736.html

"U.S. consumer confidence in the economy and its future outlook jumped in January. On Jan 30, the Conference Board reported that the index of the U.S. consumer confidence for January came in at 114.8, marginally below the consensus estimate of 115. However, the metric was well above the upwardly revised 108 for December.

The index for January was the highest since December 2021, marking the third straight monthly increase."

[TSmith34, Inc.]

"Mea culpa," Fox Business host Larry Kudlow said on the air Thursday. "I was wrong about the slowdown and the recession, so was the entire forecasting fraternity."

"Kudlow on Fox Business: "We had a blowout jobs report ... I know many of my conservative friends are trying to drill holes in this report. But you know what, folks? It is what it is. It's a very strong report. Not every economic stat should be viewed through a political lens."

[The Sultan]

"Kudlow on Fox Business: "We had a blowout jobs report ... I know many of my conservative friends are trying to drill holes in this report. But you know what, folks? It is what it is. It's a very strong report. Not every economic stat should be viewed through a political lens."

WHAT????

[MU82]

From Yahoo Finance:

Neil Dutta, head of economic research at Renaissance Macro, noted that this "popular bearish talking point" of a US consumer on its last legs is simply not borne out in the data.

"[Consumers] have drawn down all their excess savings, and, as a result, they no longer have a cushion of savings from which to spend," Dutta wrote, summarizing the skeptical case against US consumers.

"I don't buy it. The excess saving story is one that has officially outlived its usefulness."

"Consumption is being supported by ongoing gains in real incomes," Dutta added. "With consumer price inflation slowing, and the labor markets solid, real incomes are rising. Since May, real incomes net of [excluding] transfers, a key recession determinant, are up roughly 3% at an annual rate."

And though these figures come from a different data set, Friday's jobs report showed wage gains continued to impress, rising 0.6% over the prior month in January and 4.5% over last year. And this while inflation continues to moderate.

No wonder consumer sentiment has been so good — and, this week, looking even better.

[SoCalEagle]

The market is performing well AND there is still a lot of money sitting on the sidelines:

Washington, DC; February 1, 2024—Total money market fund assets increased by $41.68 billion to $6.00 trillion for the week ended Wednesday, January 31, the Investment Company Institute reported today.

This is a record for MM fund assets.  When will it make its way into stocks?  Maybe when people who are missing the economic expansion finally realize it and develop FOMO?  Maybe when interest rates start falling and stocks are a better deal than a MM fund that yields very little? I don't know have the answers, but I can tell you there is a lot of investable assets out there ready to push this market higher.  When / how / if that happens?  Your guess is as good as mine. 

[Herman Cain]

We are a decent size company with 2500 employees.  We operate in a business to business environment. I am seeing lots of owners of smaller companies looking to sell, as it is just too tough for them to make the investments necessary to compete.  We on the other hand love making operating investments. So more consolidation ahead.

We are paternalistic and don't believe in layoffs etc to make numbers. That is a personal philosophy of mine.  We are also understaffed so every time we make a deal , there is opportunity for those in the acquired company. 

We are still seeing the impact of inflation in every aspect of our business. I think it will take a number of years to work it's way out of the system. We can afford to hang on while the process takes place, while others won't. Generally speaking, we don't see this as a robust economy , however we are not seeing a recession any time soon either.

The Federal Reserve has generally done a good job with the tools it has to moderate the excesses in economy. It is never perfect of course. Will be interesting to see when they start cutting rates. Not thinking that will be any time soon.

We are in an election year, so appropriated funds typically tend to get released and spent. There is a tremendous labor shortage in this country , that will not be solved any time soon. 

Stock Market is always looking ahead. So the runup in equities pretty much predicted a soft landing scenario which is what is happening. I had a lunch a while back with one of the leading bank CEO's who was explaining his lobbying efforts with the Feds in terms of no further rate increases. Seems like those efforts paid off.

Too many companies have been bought by Private Equity , Private Equity tends to make a lot of short term decisions that are not in the best interest of the business long term.  They usually flip before the ramifications of those decisions are made. I see this Private Equity ownership is an unseen weak spot in the economy, but that weakness likely won't manifest itself, until such time as there is a credit crunch and some of these businesses go bankrupt.   .

So my corporate strategy is to keep acquiring and keep investing in operations .

My Personal Investment strategy is to hold the quality dividend paying stocks I have collected. There are sectors of the market that didn't rally so there may be some opportunities to find some dividend payers at  reasonable value.

[4everwarriors]

Could ya use a forward thinkin' dentist, hey?

[Goose]

Herman,

I always like your take on the economy and appreciate your thoughts. That said, on the last post you made on the economy (I think the last) you noted that you felt the economy was in a very good place based off your company, customers, competitors, etc., and I am wondering what has changed since your last post?

Is the big change the cost of doing business, the lack of cheap financing or something bigger? Taking your company out of the equation a bit, are you seeing smaller companies that want to sell not making money or just tired and ready to move on?

For the first time our company is looking to build a small sales rep team for outbound sales and the number of qualified applicants that we have received has blown me away. We are not a big firm and not building a rep team to put us in position to raise crazy money and virtually every applicant has welcomed the sound of that concept. We have skilled people willing to work part-time (20+ hours a week) for commission only. With our sales cycle it likely would be 60+ before they can land a deal and they are signing up for the program. Granted, our value proposition has no capital outlay and instant ROI for our clients which makes our service an easier sell.

For the past 3+ years I have felt cheap money and crazy VC investments created a perfect storm and not a good one, imo. Those two drivers drove the economy but not based on what I believe are the principals of building a strong economy, mainly a company needs to be profit driven and not just revenue growth and getting VC money.

Again, I am interested in what you seen, if beyond what you noted, that has muted your take on the economy a bit. Ironically, while we had a rough 1.5 years our company is off to an excellent start to 2024, mainly based off it looks like SME's are trying extremely hard to shed costs. I am trying hard to learn from the last 1.5 years and your comments would be appreciated.

[TSmith34, Inc.]

The market is performing well AND there is still a lot of money sitting on the sidelines:

Washington, DC; February 1, 2024—Total money market fund assets increased by $41.68 billion to $6.00 trillion for the week ended Wednesday, January 31, the Investment Company Institute reported today.

This is a record for MM fund assets.  When will it make its way into stocks?  Maybe when people who are missing the economic expansion finally realize it and develop FOMO?  Maybe when interest rates start falling and stocks are a better deal than a MM fund that yields very little? I don't know have the answers, but I can tell you there is a lot of investable assets out there ready to push this market higher.  When / how / if that happens?  Your guess is as good as mine.

MM's are yielding close to 5.25% virtually risk free, by far the most they've paid in years. For cash that you know that you are going to need in the next 6 months, that is a pretty good place to park the money.

[Jay Bee]

MM's are yielding close to 5.25% virtually risk free, by far the most they've paid in years. For cash that you know that you are going to need in the next 6 months, that is a pretty good place to park the money.

I did a lot of this last year. Feel like a geek buying CDs, but actually did put a couple hundred in em for a year.

[SoCalEagle]

MM's are yielding close to 5.25% virtually risk free, by far the most they've paid in years. For cash that you know that you are going to need in the next 6 months, that is a pretty good place to park the money.

I totally agree and I am currently taking advantage of higher rates just like many of us are, but when rates start falling, as they are expected to later this year, where is that money gonna go?  When that 5.25% drops to 2% (or lower) will you keep all of that cash in a MM?  I doubt it. 

[MU82]

I totally agree and I am currently taking advantage of higher rates just like many of us are, but when rates start falling, as they are expected to later this year, where is that money gonna go?  When that 5.25% drops to 2% (or lower) will you keep all of that cash in a MM?  I doubt it.

It depends on what one's needs are, what the state of the stock market and economy are, etc.

For example, if somebody has a few million dollars and needs $100K in annual income for wants and needs, that person doesn't need to take market risk and might prefer inflation risk.

Or maybe the market is inviting - or at least some high-quality stock investments are inviting - and one is comfortable putting a good chunk of one's money into the market.

[dgies9156]

We are a decent size company with 2500 employees.  We operate in a business to business environment. I am seeing lots of owners of smaller companies looking to sell, as it is just too tough for them to make the investments necessary to compete.  We on the other hand love making operating investments. So more consolidation ahead.

We are paternalistic and don't believe in layoffs etc to make numbers. That is a personal philosophy of mine.  We are also understaffed so every time we make a deal , there is opportunity for those in the acquired company. 

We are still seeing the impact of inflation in every aspect of our business. I think it will take a number of years to work it's way out of the system. We can afford to hang on while the process takes place, while others won't. Generally speaking, we don't see this as a robust economy , however we are not seeing a recession any time soon either.

The Federal Reserve has generally done a good job with the tools it has to moderate the excesses in economy. It is never perfect of course. Will be interesting to see when they start cutting rates. Not thinking that will be any time soon.

We are in an election year, so appropriated funds typically tend to get released and spent. There is a tremendous labor shortage in this country , that will not be solved any time soon. 

Stock Market is always looking ahead. So the runup in equities pretty much predicted a soft landing scenario which is what is happening. I had a lunch a while back with one of the leading bank CEO's who was explaining his lobbying efforts with the Feds in terms of no further rate increases. Seems like those efforts paid off.

Too many companies have been bought by Private Equity , Private Equity tends to make a lot of short term decisions that are not in the best interest of the business long term.  They usually flip before the ramifications of those decisions are made. I see this Private Equity ownership is an unseen weak spot in the economy, but that weakness likely won't manifest itself, until such time as there is a credit crunch and some of these businesses go bankrupt.   .

So my corporate strategy is to keep acquiring and keep investing in operations .

My Personal Investment strategy is to hold the quality dividend paying stocks I have collected. There are sectors of the market that didn't rally so there may be some opportunities to find some dividend payers at  reasonable value.

Brother Herm:

Excellent post. Like Brother Goose, I appreciate your perspectives. They're usually really good.

My firm is owned by private equity. We're in the ninth year of a seven year hold and while we're doing pretty well, the notion of a "liquidity event" for our equity sponsor has overhung everything we have done for the past six months. It can be disrupting at times and is hampering our growth because leadership is so focused on cost containment (to increase EBITDA), we're not thinking about long-term investment.

Private equity has its pros and cons. It brings investment to many companies that otherwise would be unable to grow. It's an alternative to public markets, which often can be unstable and may not be accessible at certain times of the economic cycle. But, as you note, it can be difficult at times to be owned by PE. Ask any journalist about Alden Global Capital, which owns the Chicago Tribune, Denver Post and St. Paul Pioneer Press, among other publications. Journalists hate Alden in no small measure because Alden is viciously cost-cutting.

While I admire your commitment to the companies and people you acquire, I'd quickly tell you that avoiding layoffs is an exception rather than a rule. Its company specific and predicated on how well the acquires business has been run in the years up to an acquisition.

[Skatastrophy]

Yeah, PE that focuses on turnarounds of distressed businesses operate very differently than PE companies that are upleveling a company with growth capital. People remember/focus on the horrors of PE turnarounds instead of growth stories, but I think that's human nature.

[MUBurrow]

Yeah, PE that focuses on turnarounds of distressed businesses operate very differently than PE companies that are upleveling a company with growth capital. People remember/focus on the horrors of PE turnarounds instead of growth stories, but I think that's human nature.

Anecdotally, I also think the turnaround variety has been too large a proportion of PE activity over the past couple decades because money has been historically cheap.  When you can go out and find loans for 1-2%, there just isn't much reason for healthy privately-held companies to hand their baby over to a PE firm.  Add to that juiced valuations due to the hunger for alternative investments in a low interest rate environment, and you've got a recipe for PE firms overbidding on companies that don't have obvious high margin off ramps.  Or they are bidding on companies that don't really belong in a PE environment when there is no "there" there (e.g. all the PE activity in journalism - they can be good little businesses, but not if you're looking for PE returns).  Its another example of the downstream toxicity of too low interest rates.