April 26, 2024 | Read Online

Byron Gilliam

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"Four dollars??? You know what four dollars buys today? It don't even buy three dollars!"

- Frank Manero, Saturday Night Fever

Friday Stayin' Alive Charts

Markets need a new narrative and for a brief moment this week it felt like a retro narrative of "stagflation" was coming back into style.

Yesterday, Treasury yields rose to year-to-date highs after economic growth (Q1 US GDP) came in lower than expected and inflation (Q1 PCE) came in higher than expected.

The unusual combination of rising bond yields and falling growth estimates had a distinctly worst-of-both-worlds feel reminiscent of the 1970s: In the first quarter of 1975, US prices rose 11% while real GDP fell 2.3%.

But this is not the Tony Manero 1970s when four dollars didn't even buy three dollars.

Yes, mortgage rates are back up to 7.5%, car loans are back up to 8% and the Fed is likely to keep the fed fund rate higher for longer than anyone had expected.

But that is mostly because things are good, not bad.

For a reminder of how bad things were in the '70s, rewatch Saturday Night Fever this weekend — you've probably forgotten (or never even noticed) how soul-crushingly bleak it is.

For a reminder of how good things are now, listen to what companies are saying (and doing).

This week, Microsoft, Alphabet and Meta all announced both booming profits and — even better — booming investment plans. Microsoft and Alphabet reported capex up 66 and 91%, respectively, and Meta, as aggressively as they've already invested, said they'll be investing "significantly more over the coming years."

Business for Big Tech is so good, in fact, that Alphabet announced a $70 billion buyback — in 2015, Alphabet did $75 billion of revenue.

2015 was nine years ago!

In total, US corporations are expected to buy back about $1 trillion of stock this year — so things can't be too bad.

It's not just Big Tech that's both earning and spending, either.

General Motors raised guidance on better-than-expected demand for (very expensive) trucks and SUVs, Lockheed Martin said demand for new missiles, air-defense systems, and space hardware is (unfortunately) booming, and Nucor said it would be building new steel mills in West Virginia and North Carolina to meet rising domestic demand.

Consumers appear to be feeling flush, too: This morning's PCE data showed personal spending growth near a two-year high.

So, demand is better than this week's GDP report suggests — and supply might be better than the inflation data suggests, too.

Yesterday, Walmart's US CEO said that they "are now seeing prices that are in line with where they were 12 months ago."

And Costco noted recently that prices of many staples are falling, even.

There was good news for non-Walmart and Costco shoppers this week, too: Crypto might finally be ready to undercut credit card fees, robots will undercut personal chefs and AI is making large-scale sculpture affordable.

Ok, fine — none of those things are likely to lower your monthly expenses any time soon.

But after this week's data, the debate is now whether inflation settles at 2% or 3%, and that is hardly the existential threat that inflation posed in the 1970s when people were mostly concerned with — wait for it — staying alive.

So what should we be concerned with in 2024?

Let's check the charts.

Taking the stag out of stagflation:

Q1 GDP was dragged down by volatile trade and inventories data, but the underlying trend (private demand up 3.1%) was solid, suggesting a quick bounce back in the current quarter. The Atlanta Fed's first cut estimate for Q2 GDP is a robust 3.9%.

Best in the world?

The WSJ noted this week that, "This year, the US will account for 26.3% of the global gross domestic product, the highest in almost two decades."

Jobs are going where they're most needed:

Employment growth has been fastest in the areas of the US with the lowest average incomes.

It's not just a tech bubble:

Tesla shares are down 32% YTD vs. Ford up 5% and GM up 28%.

We'll soon be begging robots to take the jobs:

The US fertility rate is down to 1.62 births per woman, the lowest rate since the government began tracking it in the 1930s.

Back on the radar:

We might have to start paying attention to the Cleveland Fed's InflationNow model again — they see Core CPI at an uncomfortably elevated 3.65% for April.

But wages still > prices:

Inflation may be plateauing at a higher level than we had expected, but wage growth is, too. Should we be annoyed that inflation is stuck at 3.5% when wage growth is stuck at nearly 6%?

Spending inferno:

Even adjusted for inflation, our personal spending continues to trend relentlessly higher.

Yes, prices are rising faster than we'd like, but that's more likely to lead to an "inflationary boom" reminiscent of the 1920s than a stagflation reminiscent of the 1970s.

That may not make you feel like dancing, but you have to admit that we're doing far better than just stayin' alive.

Have a great weekend, disco dancers.

― Byron Gilliam

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