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“When experts and markets disagree, it’s usually the experts who are wrong.”

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Friday Booming Charts

Fun fact: US equities finished the week at all-time highs.

It doesn’t feel all that fun, though, does it?

Unexpectedly buoyant stock prices seem to be at odds with a pervasive sense of global worry, economic pessimism and general malaise.

Case in point: This morning’s University of Michigan survey showed consumer sentiment only slightly above what it was at the nadir of the Great Financial Crisis.

Maybe that’s because economists have been relentlessly warning us that inflation can’t end without recession, and market pundits have been warning us that stocks are in an unsustainable AI bubble.

Recent evidence suggests we should be ignoring those experts and celebrating disinflation and technology instead.

Economic data this week showed that the US economy continues to grow while inflation continues to fall (the “immaculate disinflation” that experts dismissed as impossible).

And in tech this week, Apple launched the “spacial computer” Vision Pro headset, Tesla demonstrated a shirt-folding humanoid robot and Meta announced its intention to purchase a mind-boggling 350,000 high-end Nvidia GPUs.

But it’s not just Silicon Valley that’s thriving.

Manufacturing, construction and oil production are all booming in the US, for a multitude of seemingly sustainable reasons (reshoring, green investments, federal subsidies).

Better yet, corporate tax receipts are booming, too, which may mean that the economic expansion is far broader than even the very good stock market would indicate.

When sentiment and the stock market diverge, people usually assume that stock prices are being artificially and temporarily inflated.

But we can’t blame the Fed this time — they’re still holding interest rates at restrictively high levels and depressing bond prices with quantitative tightening.

So maybe stocks are good simply because things are good, too?

Let’s check the charts to find out.

Watch what we do, not what we say:

US consumers may say things are bad, but they’re shopping like things are great — retail sales rose an extraordinary 4.8% in December. I’ve added an unscientific trend line to the long-term chart above to illustrate the degree to which spending has surged in the current expansion. 

We may be spending our way out of recession risk:

US GDP (out next week) is expected to come in at 2.4% for Q4. In nominal terms, the US economy will have grown by over 5% in 2023 — faster than China! We’re off to a good start in 2024, too, with recent data suggesting the economy is probably accelerating in Q1.

Finding an apartment is easier:

The Bureau of Labor Statistics’ experimental “New Tenant Rent Index” suggests that the cost of renting a new place is almost 5% less than a year earlier.

Keeping a job is still easy:

Jobless claims fell to just 187,000, the second lowest level since the 1960s. (Lowest was 182,000 in September 2022.)

Finding employees is a little easier, too:

A surge in immigration has helped employers find people to employ. This may be an underappreciated factor as to why growth has been surprisingly high (and maybe also why inflation has been surprisingly low). The falling black line above suggests we will need a lot more new arrivals to keep it going.

Old-school boom:

US manufacturing is surging, thanks to a confluence of reshoring, green investments, and federal subsidies.

It can’t hurt to ask:

The number of people who think they’d get a raise if they asked for one has risen sharply as the job market has remained tighter than expected for longer than expected. (Now we just need a chart explaining why the number of people who think they would get a raise if they asked is greater than the number of people who have asked.)

And yet…

This morning’s University of Michigan survey on consumer sentiment is off its lows, but, in stark contrast to stock prices, still a long, long way below the all-time highs.

Sounds like it’s time for some retail therapy.

Have a great weekend, expert readers.

― Byron Gilliam

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