As we bid farewell to the first half of 2024, it’s hard to shake the feeling that the economy is like a toddler after a sugar crash—wobbly, cranky, and in desperate need of a nap. The unemployment rate has nudged up by 0.43 percentage points, hinting at what seems to be darker clouds on the horizon. Bankruptcies have hit a 13-year high, making it a banner year for financial disasters. And let’s not forget the manufacturing sector, which has spent 19 of the past 20 months languishing below the 50% mark on the ISM index.
It’s a telltale sign that we might be teetering on the edge of a slowdown, rather than gliding into a soft landing. Is this it? Is this the end of our economical glory? Is it time to build an ark and save ourselves from the flood of an economic disaster?
No, we don’t think it will happen anytime soon. Because like we said, the economy only needs a nap, and just like the way it has always been since before, it will certainly get back up again.
Here’s why we think so.
KEYPOINTS:
- The S&P 500 earnings growth is on an upward trajectory, indicating that companies are set to generate even higher profits in the near future.
- Sure, a lot of tell tale signs and economic indicators are pointing towards an inevitable economic downturn, but is it permanent? We don’t think so.
- Unemployment is on the rise, directly impacting consumer confidence. But with Fed rate cuts, economy will be stimulated again.
- The elections will play a role in how the next half of 2024 will play out. We’ll just have to wait and see.
No Reason to Panic, S&P Earning Growth Doing Great
Really, there’s no need to stock up your bunker, because who knew, despite all the panic raised by analysts, look, companies are actually making money! The S&P 500 earnings growth for Q2 2024 shows some companies aren’t just doing good, they’re doing great. Firms with over 50% of their revenue coming from international markets boasted a jaw-dropping 20.6% year-over-year growth. Yes, you read that right. Even the domestically inclined companies saw a respectable 3.9% growth. Looks like the world still loves us, and our companies too.
And it gets even better. The revenue growth numbers are equally heartening. Companies with global reach reported a 5.3% year-over-year increase, while those sticking closer to home saw a 4.6% rise. Overall, the S&P 500 revenue growth stood at 4.8%. So, despite inflation, supply chain hiccups, and whatever else the universe throws our way, businesses are still raking it in.
With estimations only going up, and things are looking great for the next year. These figures indicate that despite inflation and other macroeconomic concerns, businesses are still expanding their top lines. Does this look like a sign to worry? Nope, we firmly think things are going to be good.
Sure, there are tell tale signs of an economic slowdown, but that’s just what it is. Signs of a slowdown. Not the end of the world. We’re not telling you to stock up on toilet paper and canned beans, because really, there’s no reason for you to do so.
Manufacturing is often considered a leading indicator of economic health because it responds quickly to changes in demand. When manufacturers cut back, it can signal upcoming slowdowns in other sectors.
Yes, indeed the manufacturing sector is facing challenges right now, and the ISM index’s prolonged dip below 50% is concerning, but the economy is multifaceted and this is not the only thing that will make or break the market. So calm down, analysts, let’s not cause unnecessary drama.
💡 It's easy to get caught up in the moment and alarmist headlines, but let's take a step back and look at the facts. Despite the noise, companies are thriving with impressive earnings and revenue growth. Firms aren't just surviving, they're thriving. Looking ahead, the market is set for continued growth. The forward EPS trends and stock price movements over the last decade indicate a solid and upward trajectory. With potential Fed rate cuts and a favorable election outcome, we have reasons to be optimistic. The data clearly suggests that the economy is not in as much trouble as some might think. So, let's not hit the panic button just yet – the future looks brighter than the headlines would have you believe.
The Job Market: A Mixed Bag
Now, if we move on to the unemployment card, it has risen by 0.43 percentage points, and we are inching closer to triggering the Sahm Rule recession signal. This uptick in unemployment suggests that the job market might be heading towards a downturn despite some positive signs in sectors like government, healthcare and construction employment. Mainly speaking, sectors that cannot be replaced by robots and AI. Other job openings beware: because the robots are coming for you.
Sounds scary, right? But really, look. Artificial intelligence is taking over the world. Well, not like it is “I, Robot” anytime soon, but they are taking some of your jobs.
The AI surge, epitomized by tools like ChatGPT, are displacing a significant number of job scopes, particularly in data entry and other repetitive tasks. Fewer job openings are available for certain tech positions, so a lot of white collars are threatened by this. In simpler, more straightforward terms, if Chatgpt can do the job, you’re screwed.
But on the bright side, AI-driven advancements might boost productivity and efficiency, creating new opportunities and industries that didn’t even exist before. This shift could lead to the emergence of new job roles that focus on overseeing, managing, and improving the AI systems itself. Companies might also expand, leveraging AI’s capabilities to innovate and explore new markets, ultimately leading to economic growth and potentially higher wages. So, while some job types may decline, the overall impact of AI could be a net positive for the economy.
Now, when talking about consumer confidence, typically, this rise in unemployment will most likely dampen consumer spirits. Hypothesis is simple, higher unemployment correlates with lower consumer confidence, as people worry about job security and future income. This anxiety typically leads to reduced spending, exacerbating economic slowdowns. So, that’s why we’re seeing a slowdown in travel, dining out, and basically any leisure expenditures in these last few months.
If the Federal Reserve decides to cut interest rates in September, it could provide a much-needed boost to the job market. Lower borrowing costs will start to encourage businesses to invest and hire, eventually stabilizing employment figures.
And, on a more optimistic note, the emphasis on onshoring and keeping jobs domestic could be a significant game-changer. Bringing manufacturing and other jobs back to the U.S. will create a pool of new employment opportunities. This move not only addresses the current unemployment rates but also strengthens the economy by ensuring that more jobs are available within the country, reducing dependence on foreign labor markets. By prioritizing domestic job growth, we can expect a boost in consumer spending and overall economic stability.
💡 While the rise in unemployment and the disruptive potential of AI paint a challenging picture for the job market, it’s essential to look at the broader perspective. Yes, AI is transforming the landscape, potentially displacing certain job roles, but it’s also paving the way for innovation and new opportunities, which only means that companies are going to get more productive, and chances of expansions are higher. The job market is evolving, and with that comes the need for adaptability and continuous learning. Then, what’s next? These companies will need to hire bigger brains, right? Because AI can only do so much. Employment will be better. Wages will be better. The economy? Better!
Consumer Spending, is the Party Over?
Though confidence might be a bit scarced right now, it does not mean that consumers are out of the club. We’re just thinking that a new party is about to start. So no, the party it definitely not over yet. Despite all the current economic challenges, there is hope that the upcoming changes could revitalize consumer confidence and spending.
Of course, with rising unemployment, credit card debt delinquencies are on the rise, it is definite to set a further dent in consumer confidence. However, there’s a silver lining: consumers took on debt expecting to pay it off, suggesting some level of underlying confidence in the first place. But with prices soaring, especially for essentials, we do have a slight fear that this optimism might be short-lived.
Our current economic situation echoes past downturns in 1970, 1980, and 2001. Each period faced its own unique challenges, and the outcomes were far from rosy, but did it bounce back up? Yes, it most certainly did. Right now, analysts are placing bets, and the smart money’s on a downturn. (or in their words, whisper: recession!)
But even so, we’re thinking it’s not really the apocalypse, it’s just that prices are currently really high, with the crazy sticky inflation, consumers are only making ends meet, and with the crazy prices for food at home? Of course consumer confidence is on the rocks.
The cost of food has been skyrocketing, straining household budgets and leading to a decrease in discretionary spending. As families allocate more of their income to necessities, they have less to spend on non-essential services like dining out and travel. This shift in spending is reflected in the declining revenues for restaurants and hotels.
The situation is particularly dire for lower-income households, as for these consumers, the rising costs of essentials are not just an inconvenience but a crisis. Their financial sentiment is firmly in recession territory, driven by the harsh reality of making ends meet in an inflationary environment. The pressure on these households is immense, as they face difficult choices between paying for food, housing, and other critical expenses.
When we look at it from a bird’s eye point of view, yeah, the implications are worrying. Let’s face it, as consumer confidence falls, so does consumer spending, which is a critical driver of economic growth. Reduced spending means businesses generate less revenue, which can lead to further layoffs and a vicious cycle of economic contraction.
💡 The Fed rate cut is the hope we need to break this cycle. Lower interest rates would reduce borrowing costs for both consumers and businesses, encouraging spending and investment. This influx of economic activity could help stabilize the job market, increase consumer confidence, and ultimately spur growth. While challenges remain, the rate cut could provide the necessary boost to turn the tide and set the stage for a more resilient economy.
Making America Great Again
The upcoming presidential election adds another layer of uncertainty, but if the past has taught us anything, is that unemployment, poverty rates, energy prices, consumer confidence, and Fed interest rates have been key predictors of election outcomes.
With four of these five indicators signaling trouble, the Democratic party might be in for a rough ride. Election years typically exacerbate economic uncertainty, and rising unemployment rarely bodes well for those in power, and well, well, well, look at us now.
Donald Trump is shaking things up with his 2024 economic game plan. If he wins, he’s looking to snip the corporate tax rate down from 21% to 20%. It’s a part of his grand strategy to make the U.S. even more competitive and jumpstart economic growth. But that’s just the beginning. Let’s see what else the Republican party is promising for a better nation, in terms of economy.
- Cut the corporate tax rate down from 21% to 20%
- He’s aiming to make those individual tax cuts from the 2017 Tax Cuts and Jobs Act stick around for good.
- Axing income taxes on tips and possibly swapping personal income taxes with higher tariffs. More money in our pockets!
- He plans to make America the world’s energy kingpin to light up the job market.
- The vision of turning us into a manufacturing powerhouse promises to bring back jobs, and with the current rate of unemployment, the promise of onshoring seems the best way to win.
- Throw in massive infrastructure investments and a vow to slash red tape, and you’ve got a recipe for a much more solid economy.
- Also, let’s not forget his bold pledge to end inflation, which is a bit like promising snow in Miami if we’re being completely honest, but hey, one can dream.
Given Trump’s track record and these ambitious economic policies, the chances of him winning appear strong. This could lead to substantial changes that many believe will invigorate the economy. The proposed tax cuts are expected to boost business investment and consumer spending, painting an optimistic picture for the U.S. economy if these measures are implemented.
Love him or hate him, with Trump’s high chances of winning, the future might just be looking great for the economy.
💡 We're not here to talk politics, but the odds are pointing to a Republican victory. Changes in leadership can impact consumer and business confidence, which then influences spending and investment. Right now, the ball is in Trump’s court. With Fed rate cuts, tax exemptions, and job onshoring expected to happen, it looks like Trump will indeed make an attempt to make America great again.
Recession Rumors? Debunked!
While an economic slowdown seems highly likely, it’s not all doom and gloom. The economy is still chugging along. Yeah, sure, a temporary slowdown is expected, just as it has happened in previous years before, but the combination of election-year dynamics and potential Fed rate cuts will stimulate the economy again, and stabilise the what seems to be rocky situation. It might take some time, but we’re not heading for the apocalypse just yet.
The financial analysts have once again turned on false alarms and we’re telling you to turn it off. Sure, inflation continues to affect consumer confidence in some way or another, so financial planning is crucial. You might want to avoid taking on new loans until the rate cut actually happens.
With that being said, the next half of the year will be an interesting watch, and it will be crucial to stay vigilant and adaptable. Balancing cautious optimism with strategic financial planning will be key to navigating the economic challenges ahead. In the meantime, let’s keep our fingers crossed, our wallets safe in our pockets, and hope that the economic storm blows over sooner rather than later. Just remember, the economy has weathered similar turbulences in the past and emerged stronger. The economy is not dying yet, and brighter days are ahead!
