In our last two newsletters, we’ve reported a “cautiously-optimistic” stance, and while we are not out of the woods yet, there do seem to be signs that the Economy is on much stabler footing than previously expected. As it relates to the Equipment Ecosystem, the Federal Reserve's recent rate cut can be viewed as a strong tailwind to close out 2024.
I’ll first point out recent data that paints a mostly positive picture, then I’ll point out areas of concern that we must continue to track and monitor.
US Economic Key Stats to Date in 2024
GDP Growth: 2024 GDP Growth came in at 3.0% (seasonally adjusted annual rate (saar) quarter over quarter). Consumer spending rose by 2.8% and strong nonresidential fixed investment and inventory investment supported impressive business spending growth of 8.3% saar. Growth has slowed from 2H23 (3.8% Pace) but remains solid at 2.3% 1H24.
Inflation: Inflation in the United States continued to decelerate in August. Consumer prices were up 2.5% from a year earlier, the lowest rate of inflation since Feb 2021. This marks the fifth consecutive month that inflation receded from the previous month.
Unemployment Rate: The unemployment rate ticked down slightly to 4.2%, providing some relief after recent increases. With that said, the August jobs report showed fewer than expected job gains of 142k. Additionally, July’s figure was revised down to 89k jobs added indicating a softening of the labor market.
Consumer Confidence: Consumer Confidence has continued to decline throughout the year, with the largest one month decline since August 2021. Confidence in September fell to 98.7, down from 105.6 in August. The biggest drop in consumer confidence came from those aged 35-54 earning less than $50,000.
Federal Reserve Policy: At the September 2024 Federal Open Market Committee meeting (FOMC), the Federal Reserve lowered interest rates by 50 bps, the first drop in four years. This lowers the interest rate target to a range of 4.75%-5%.
Stock Market Performance: The Federal Reserve’s large interest rate cut and signs of resilience in the US Economy have lifted confidence with the S&P 500 closing September at an all-time high. YTD the S&P 500 is up 20.25%, the Dow Jones Industrial Average is up 12.31%, and the NASDAQ Compositive Index is up 21.27%.
Areas of Concern
10 Year T Bills – The yield on 10-year T Bills has been decreasing this year, with the current yield at 3.76%, reflecting expectations that inflation will be lower in the future, but also that economic growth will be weaker.
Softening Labor Market: The July Figure was revised down significantly; the August figure was lower than expected (and could yet be revised down) demonstrating that the labor market has cooled. Private sector employment growth has slowed considerably, with a large amount of job growth coming from health care and government. Additionally, a large share of the jobs created have been part-time rather than full time.
Interest Rates: The recent decision to slash rates by 50 bps has led to a sigh of relief from borrowers, but a rate cut of this magnitude could signal a lack of confidence in the economy.
Additional Risks:
Geopolitical Tensions and the volatility of the upcoming Presidential Elections
A slower-growing economy is more vulnerable to exogenous shocks.
Moderating economic growth could spell trouble for equities in which valuations may be slightly stretched.
Conclusion
There is a lot of information being presented to us about the economy. I pointed out in the last newsletter that “statistics” and “data” can be misleading. It does not always reflect our lived experience. We’ve had the first interest rate cut in 4 years and true signs that inflation is cooling (Gasoline Prices are down 10.3% from a year earlier); however, we’ve seen the largest decrease in consumer confidence in 3 years. This is a troubling disconnect, and one that we will continue to monitor. We must all prepare for volatility over the coming months ( remember the 2 Day Stock Market Crash about a month ago?) due in large part to a contentious election…But, we must take solace in the fact that many of the fundamentals show an economy demonstrating resiliency.
