Weekly Economic Report
There was a raucous cacophony of policy and data this week, in our view, illustrating the lack of coordination within and between countries – which makes it virtually impossible to generate the optimism needed to spark a significant improvement in global growth. However, not generating better growth does not mean recession, either in the US or globally. Rather, it suggests that everyone’s potential growth rate is a bit slower and the risk of recession is a bit higher. That leaves us in a world of persistently low interest rates – due to both low real rates and low inflation. Low rates, in turn, generate higher valuations for assets that are producing returns – and for those firms that can convince the market they will in the future. Low interest rates and high P/Es, by definition, result in greater volatility for asset values when the veracity of those earning steams is challenged. Meanwhile, low unemployment rates in the US are leading to more strike activity than in a generation as labor demands a larger share of the earnings pie. Corporate leaders find themselves squeezed between shareholders demanding both return and stability, workers who want higher pay, and consumers and politicians advocating for social returns as well. Recent surveys show the C-suites are not as happy as they have been in the past, which in our view argues for slower growth and more cautious investment.