Recession?! What Recession?
It is an election year here in the US (which seem to happen with exhausting frequency) and so it is probably not too surprising that the strength of the US economy is front and center in the political discourse.
As we have stated before, that whole debate is banal and boring and somewhat besides the point. In classic modern political fashion, both sides are wrong and underline just how foolish they are by adhering to their pretty irrelevant talking points.
Let us clean it up once and for all:
For the Democrats: Yes, the US economy is, by many metrics, very strong but it is also witnessing an equally unprecedented number of disruptions while also experiencing the highest inflation in two generations. The latter, in particular, isn't purely a result of "Putin's price hike" and is eroding people's living standards and making life and work unviable for many. Pretending everything is great is disingenuous at best and deeply embarrassing and elitist at worst. Smarten up.
For the Republicans: The US economy may, perhaps, have met the technical definition of a recession but your focus on that when employment and other indices are still very strong misdiagnoses the problem and is unhelpful at best and irresponsible and immature at worst. There are real issues that confront your citizens daily and many (most) of your party's elite are busy either re-litigating an election you lost or hyperventilating about issues that are either off the mark and will do little to improve the lives of average Americans. Grow up.
There. Now don't we all feel better?!
Here is the good news and a fact that you should keep front of mind while the political class and most the media elites make a mockery of themselves:
Economic growth continues.
In that vein, we had some important US economic data that came out this week and was very strong. The details:
US industrial production for July came in at 0.6% versus the prior month.
This comfortable beat expectations (which were at 0.3%) and
US Manufacturing production also came above expectations and very strong. 0.7% versus 0.3% from the prior month.
This is great and is also important for two reasons:
The US economy has (serious) issues and there are also risks on the horizon but it is beyond dumb to try and claim we are in an economic downturn when employment is full and industrial production and manufacturing are also at records.
This strong economic data should continue to give the Federal Reserve voters the confidence to continue raising interest rates in the months ahead.
Of the two, the second point has seemed to be pretty lost on a lot of investors and market commentators.
Until recently there was an expectation in markets that the hiking cycle would end in later 2022 and at some point in 2023, the central bank would begin cutting interest rates.
As data like the above continues to roll in, that is simply unlikely to happen now.
If unemployment is low and the likes of industrial production are at these levels then the central bank will feel confident to continue to tighten monetary policy.
For every negative data point out there - and it is true there are some - there is an off setting and often more important data point like the above.
More positively, the above data as well as the other reports we have written about recently underline that, almost despite their political class, the US economy continues to strengthen and slowly clear the many disruptions that arose during the pandemic.
One important and additional on this front: one of the strongest sectors in manufacturing data was the auto sector. The industry showed unprecedented automobile production.
It has been hard to get a car in the US over the last 2 years. That looks like it is finally easing. Expect used car prices to also fall as more new cars arrive on the lot and new EVs begin to roll off the assembly lines.
Things may be humming in many sectors of US industry but in other areas of the US economy the outlook (and the stock performance) is far more gloomy. This includes some pretty surprising sectors, industries and, most especially companies......
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