Economic Signals, Election Matters, and Rate Cut Speculations, The RenMac Recap
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02/02/2024 Edition: Economic Signals, Michigan Matters, and Rate Cut Speculations
🎙️ Podcast Highlight: “A Flukey Month”
This week on RenMac Off-Script , we unpack a series of pivotal economic and political topics, including the peculiarities of the latest payroll report and its implications for Fed policy adjustments. We delve into January's weather impact on employment figures, explore how rising productivity could enhance corporate earnings, and consider the role of employment in reflecting economic health. The discussion also covers the evolving perceptions of Biden's economic policies among voters and economists, the potential electoral influence of the Jan. 6th trial, the significance of Michigan in the political landscape, and the prospects for market consolidation.
Key Takeaways:
🎧 For the full deep-dive, tune into this weeks episode, “A Flukey Month” Now On Youtube! Make sure to subscribe to our channel.
💡 Weekly Insights
Weather Impact on Employment: January saw a significant number of workers, approximately 588,000, reported as 'employed but not at work' due to adverse weather conditions. This is the highest count for January since 2011, surpassing the recent peak of 544,000 in 2018.
Retail Workweek and Productivity Surge: The service industry, particularly retail trade, has seen a substantial rise in productivity, alongside a decrease in the workweek. This trend raises questions on sustainability given the robust growth in recent retail sales figures.
Evolving Layoff Landscape: January saw a rise in layoff announcements with a notable shift; companies are now citing 'restructuring' rather than 'economic conditions' as the cause. This change hints at a labor market where job shifts may be more about company evolution than broader economic woes.
Labor Market Rebalance Evident in Q4 ECI: The fourth quarter Employment Cost Index (ECI) reflected a significant rebalancing within the labor markets, showcasing a total compensation growth of 3.5% on a seasonally adjusted annual rate (SAAR) across all civilian workers. Coupled with an uptick in labor productivity, this development aligns well with the Federal Reserve's long-term inflation targets, suggesting a stabilizing economic environment conducive to meeting these objectives.
REITs Defying Pessimism: There has been an uptrend in the relative strength of R1000 Office REITs, a component of $VNQ, challenging the prevalent negative outlook. This trend suggests either that the situation for REITs may not be as dire as the consensus believes, or it questions the market's judgment.
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📋 Policy Pulse
Election Outlook Amidst Trump Trial: A new battleground poll revealing Trump's lead over Biden, with growing voter interest in immigration and diminishing economic concerns among Democrats. The polls indicate a potential significant shift in election prospects if Trump faces conviction in the January 6th trial.
Voter vs. Economist Perspectives: Polling data underscores a persistent divide between voter sentiment and economic expert opinion regarding the economy's performance under the Biden administration.
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Taiwan Tensions and Strategic Timing: With the upcoming May inauguration of Taiwan's new president, tensions could escalate. However, strategic considerations might lead Xi Jinping to delay any forceful action towards Taiwan until 2028, evaluating broader geopolitical implications.
Biden's Climate Strategy and LNG Exports: In an effort to appeal to younger climate activists, President Biden has strategically paused LNG export approvals. This move introduces uncertainty into the sector, potentially discouraging future investment in LNG infrastructure.
👥 Behind The Charts
Neil Dutta of Renaissance Macro Research has been active this week on CNBC
On January 26th, Neil shared an optimistic view of the economy, suggesting that the Federal Reserve might start cutting rates soon due to a steady path towards 2% inflation. This perspective underscores that positive economic signals do not necessarily warrant a hawkish stance from the Fed.
On January 29th, Neil projected that the Federal On January Reserve is set to introduce 3 or 4 rate cuts this year, citing the U.S. economy's solid foundation. He expressed confidence in the economic outlook, dismissing concerns about a potential recession in the near term.
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