Positives

The US economy is strong, broad and accelerating. Relative to the rest of the world, the US is the “best house on the block,” reflecting the long term impact of monetary stimulus (Federal Reserve policies designed to support economic growth) and fiscal stimulus (government spending and tax policies designed to support growth), along with US excellence and leadership in technology.

Beyond the surface, numerous indicators depict a much-improved outlook for jobs. The monthly jobs report, Nonfarm Payrolls (the government’s monthly estimate of jobs added or lost), is volatile and subject to large revisions, so we analyze multiple indicators to provide a more complete picture.

Weekly Unemployment Claims (new applications for unemployment benefits) are low and falling because corporate revenues are high and rising, a precursor to improving compensation.

The strong capex cycle (business spending on long-term investments such as factories, equipment, technology, and data centers) is creating goods-producing jobs, broadening the base of our service-dominated economy.

The NFIB US Small Business Optimism Index (a survey measuring small-business owners’ confidence and expectations), a useful proxy for middle-income consumers, is at its highest level in over a year, with hiring plans surging.

Finally, the ISM PMI (a survey of business activity often used as a proxy for earnings and jobs), surged into economic expansion early in the year following 2.5 years in contraction territory.

Our economy is complex, but a broad approach to analysis shows an improving landscape for job growth despite the looming threat from AI.

Our banking system is sound and stable. Bank loan growth, already up to 7.3% in the past year, is likely to grow even faster with easier lending standards following decades of red tape induced by the Great Financial Crisis. Easier lending means banks are more willing to extend credit to qualified borrowers. This is another positive indicator for hiring among small and medium-sized businesses, which are major contributors to US employment.

The exceptional earnings growth and profitability of US public companies have led to healthy stock returns and produced a wealth effect (the tendency for consumers to spend more as their investments and other assets rises) that continues to support consumer spending.

Negatives

New Fed leadership is re-evaluating the committee’s approach to both policy and communication, creating short-term market volatility. Still, decades-old policy should be examined periodically to validate its effectiveness and, in the long run, changes could prove positive for the economy.

Plenty of liquidity (money and credit available to spend, invest, or lend) has kept inflation sticky, namely too many dollars chasing too few goods. Many factors have contributed, including a too accomadative Fed, meaning interest rates may be too low, less stringent bank lending standards, accelerating federal outlays (government spending), and tax relief under OBBB.

Examples range from consumers struggling with the overall higher price level of groceries to Apple Inc. having to raise laptop prices because of semiconductor shortages. Trying to balance economic growth against inflation highlights the complexity of the Fed’s difficult job.

There is a lack of proactive legislation around AI’s global and societal risks. As the US battles China for AI superiority, the potential benefits and potential negative consequences must be balanced with appropriate guardrails.

There is also a lack of political will to address the growing US federal deficit, which continues to put upward pressure on long-term bond yields (the interest rates investors demand to lend money to the government for longer periods).

Mortgage affordability worsens as bond yields rise because mortgage rates generally move in the same direction. This dampens the broader economic activity created when people buy homes and subsequently spend on construction, renovations, furniture, appliances, and related services, which has largely been absent since the Fed rapidly increased interest rates in 2022.