Hot Off the Press – The US Economy
Our Host Andrew Baxter recently travelled from Australia to the US on business. Aside from his reasons for being there, he made some observations he wants to share from his first hand experience in the US. Join us this week to gain some valuable insight into how the US economy appears to be fairing:
Is the US Headed for Recession?
Over the last few weeks we have seen an inversion of the yield curve in the US. Without getting too technical, this is when short-term yields are greater than long-term yields, suggesting there is greater risk and volatility in the short-term than the long-term. The United States has a capitalistic system. The key takeaway here is that this is a common sign of an approaching recession. Host Andrew Baxter notes that when you consider the inversion along with some other observations from his time in the US, you get a pretty sinister recipe. Unemployment is a highly-debated issue. Although at 3%, Andrew points out the countless homeless he encountered while walking through the streets. With small wage growth and a surging cost of living, the economy could be in for a shake-up.
The Wealth Gap
Without doubt, there has always been a large gap between the rich and poor in the US. The last couple of years have created an opportunity for this gap to extend as those who have been able to invest have seen great returns on their investments as the market has continued to bounce back from the pandemic-lows of 2019. A rising cost of living for the little guy translates to less extra money to invest. So while those with plenty of money have an opportunity to capitalise on a bullish market, those with little are stuck scrambling just to survive their day-to-day spending.
What we see as a result, as Host Andrew Baxter explains, is greater desperation in a broad sense, commonly reflected in an increase in crime rate in particularly harshly impacted areas. A very weak financial safety net for those that are struggling in the US is a very scary prospect for us here in Australia, but a harsh reality for those struggling in the States which is not likely to change any time soon.
The Delayed Fuse in Market Reactions
There’s always a lag between what we see in the real world until it is reflected by figures and statistics. Big statistical shifts often take time before they become noticeable in the real world. Host Andrew Baxter explains that on our trading screens we can see a spike in the oil price, but it is usually a couple of months down the road until we see car sales figures drop off. When we look at the recent move from the US to release 1 million barrels of oil per day to bring the price down, we do not see an immediate impact. For months and months the cost of filling up the car for an average American will remain high but over time prices will steadily come down. Financial markets everywhere are reflecting this trend. And for the trained eye can be a good way of getting in early.
On his visits to LA, Host Andrew Baxter tends to head to one specific shopping centre for his shopping fix on his trips. Much to his disappointment, Andrew found that a lot of brick and mortar shops had in fact closed in the midst of the pandemic and had not yet re-opened. With earnings reports looming for American companies over the next few weeks, we can likely expect to see the brick and mortar retail space struggle and on the back of that see their stock prices struggle. Many had tipped the retail sector to bounce back strongly after the pandemic as they hadn’t been getting their fix of shopping over the lockdown and restriction era. What we have now seen is in fact that more and more people discovered online shopping, and have decided that this is the best way to shop, leaving in-person shopfronts in the pre-pandemic past.