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Conclusions on JUNE Economic Outlook

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This is an excerpt from our most recent Economic Outlook report. To access the full PDF, please click here.

We score two points for the equity market Bulls this month, and two points for the Bears.

(1) Bull Point #1: The U.S. labor market remains tight. May 2024 payroll employment (+272K vs. a +185 consensus) increased well above the monthly average of +232K per month seen over the prior 12 months.

Over the past 12 months, average U.S. hourly earnings rose +4.1%. This is above a core CPI rising +3.6% thru APR, displaying real wage improvement.

The rise in the U.S. household Unemployment Rate to 4.0% is mostly coming from more workers getting off the sidelines, and entering the U.S. labor market.

The May BLS data showed the Labor Force Participation rate fell to 62.5% in May 2024 from 62.7% in April, reversing 2024's progress.

  • This was driven by fewer workers in the 20 to 24 age range
  • But labor force participation by the prime-age population, defined as those aged between 25 and 54, rose to its highest level in 22 years

(2) Bull Point #2: 8M U.S. job openings are still available, with 12M at the peak in March 2022, 28 months ago. So, do the math. The monthly U.S. job opening attrition rate is 142K a month.

Pre-COVID? ~7M job openings. At this attrition rate, the U.S. labor market gets there in 7 months (JAN 2025). 2016 shows 6M. The U.S. gets there in 14 months (SEP 2025).

The FOMC must cut their policy rate, roughly 12 months in advance of that 2016 moment.

(3) Bear Point #1: Commercial real estate lending (where prices are currently down -7.5% y/y) is another key FOMC concern, particularly on lending to “remote-worker” empty office buildings.

(4) Bear Point #2: The large cap U.S. equity market is being driven by a euphoric valuation lift-off, largely from hoped-for “AI” benefits.

However, the professional economist forecasts, attempting to assess those “AI” productivity gains, are not breathtaking — to say the least.

“There have been several attempts to estimate the effects of generative AI on annual productivity growth, with pretty varied results:

  • “Last year, Goldman Sachs estimated that in rich countries it could contribute around +1.5% over a decade. Soon after that, McKinsey predicted that it could deliver between +0.1 and +0.6% between 2023 and 2040.
  • And most recently, Daron Acemoglu of MIT calculated a boost over the next decade of at most +0.2%.

“Finally, Goldman Sachs thinks ‘Most of the boost to global GDP will come after 2030.’”

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