Not-so-fast food and a lesson in economics

Yesterday, stocks closed mixed on a bumpy day which left even the most seasoned Wall Street vets grasping for solid answers. The US economy grew faster than economists predicted, which SHOULD be a good thing… for everyone.

The important things. I did it. It was not my first experience, but it was the first at that location. Admittedly, I have had my share of Shake Shack ShackBurgers in Madison Square Park in NYC. Recently however, one opened up in my NY suburb. My town is renowned for having more Italian and Chinese restaurants per capita than, quite possibly, even Italy or China. I am, of course, exaggerating so don’t fact check me, but the reality is that we have very little choice for takeout when we are not staying in the city. That said, the local establishment has been mobbed with long lines visible from the strip-mall lined US highway that cuts through my town. That means, for me at least, that visiting is a non-starter; I hate long lines 😰. There is quite possibly only one thing that could get me there… my mother-in-law. I have a bit of a soft spot for her, and she has been talking about it a lot lately, so when my wife nervously suggested bringing her there last night… well, it was an immediate “yes.”

While we were finishing up our delicious meal, one of the more senior workers came over to our table and started chatting with us. It turns out that he was a retired economics professor. YOU OBVIOUSLY KNOW WHAT HAPPENED NEXT. Despite my wife’s warning him that I too was an economist of sorts, he jumped straight into a mini lecture about the state of the US economy. For the first time in a long time, I was not the guy doing the talking on the matter, so I decided to listen… I’ve earned it 😉. This is kind of what he said.

He said that depending what “news organization” you listen to, you would get a different read on how the US economy is fairing at the moment. Thankfully, he didn’t get political as his rapid-fire pace took him straight to inflation. He said that inflation wasn’t bad depending on how you look at it. OK, I will go with that. He moved on, blah, blah, blah, blah, supply, demand, housing, marginal propensity to purchase, IS/LM curves, indifference curves… blah, blah, blah. It was getting tough, but my family is respectful and just listened, nodded, while giving me the side-eye. I was ready to jump into the ring, but he was a pro, and he jumped right into his outro, and this is what he said. “Look at any chart that describes performance in the US economy, and they are all going up and near all-time highs.” He went on, “the US economy has never been this healthy.” Thankfully, his shift was ending, and he bade us goodnight, took a bow and made some election prediction, which I deleted from my memory instantly (remember my rule, policy not politics). My daughter looked over at me and said, “I know you are going to write about this tomorrow.” I thought, “no way,” but I couldn’t get his second to last statement out of my head.

So here I am at some ungodly hour the morning after, and I am plying through yesterday’s Gross Domestic Product release. The Bureau of Economic Analysis released its advanced Q2 estimate yesterday, and it came in higher than economists were expecting. Let’s take a step back. Other than the Presidential election, what do think the first thing on every trader’s mind is? That’s right, interest rates and inflation. We have become utterly obsessed with it. I get it because, in reality, inflation sucks, but it also spurred an epic Fed monetary tightening campaign that trounced the markets in 2022 and has overshadowed them since. So obsessed have traders become, that good economic data is largely perceived as being bad for markets, fearing that the Fed will keep credit tight in order to prevent the economy from heating up. I am looking at the Q2 number and see that Personal Consumption Expenditures grew by a respectable +1.57%. Services accounted for +1.02% of that with the balance going to Goods, AKA stuff. Fixed Investment, which is largely attributable to corporate spending also put in a solid quarter, and the Government did its fair share of spending as well. Another contributor to the larger-than-expected GDP print was Change in Private Inventories. This is a tricky one, because it represents inventory that was produced but not consumed, so it is, in essence, a buildup in inventory. If you view that through a positive lens, you might say that businesses are confident and overproducing to meet future, expected demand. The negative lens would show that consumers are not purchasing as much as firms expected them to. Regardless, yesterday’s GDP print would in any other time be considered a positive development.

Was the retired professor on to something? GDP continues to grow. Consumers continue to consume. Stock markets, despite recent pullbacks, are still near all-time highs. Industrial Production has recovered and just a hair below its all-time high. Personal Income is at an all-time high. To be fair, not EVERYTHING is at an all-time high. Consumer Confidence is not at an all-time high and not where it was prior to the pandemic. That may portend weak consumption in the future. Personal Savings have been picking up a bit but still below pre-pandemic levels. I will say “not too bad” on these last two items, but a “wow” on the ones that preceded.

Inflation has come down a lot, and it seems like it is on a good path to normal levels. We will get an important read on that with this morning’s PCE Deflator release. But all that said, indeed, things don’t look… er, terrible. I am not sure I would agree with the professor that the economy is booming, but I will say that he certainly wasn’t wrong. Despite inflation, elections, interest rates, or whatever, economic growth (GDP) is the principal ingredient for ALL success. You can’t have success without GDP growth, and GDP is… well, growing, for now. Bear in mind that I had that discussion while scarfing down $88.75 worth of fast-food hamburgers 🤔. I certainly contributed to this quarter’s consumption numbers, but it was worth it… my mother-in-law loved it AND I LOVE HER.

YESTERDAY’S MARKETS

NEXT UP

• Personal Income (June) is expected to have risen by +0.4% after climbing by +0.05% in the prior period.
• Personal Spending (June) probably grew by +0.3%, a slight uptick from May’s +0.2% increase.
• PCE Price Index (June) may have decreased to +2.4% from +2.6%, getting closer to the Fed’s +2% target.
• University of Michigan Sentiment (July) is expected to come in at 66.4 a slight revision from the earlier 66.0 estimated.
• Next week: MORE EARNINGS along with more housing numbers, Consumer Confidence, PMIs, the monthly employment situation, and an FOMC meeting. That should be enough to keep us busy, so check back in on Monday for calendars and details.
• This morning Colgate-Palmolive, Bristol-Myers Squibb, Charter Communications, and 3M all beat on EPS and Revenues, while Newell and T Rowe Price missed the mark.