Tuesday, June 7, 2022 01:08 PM
By Isabelle Lee
- For Dutta, it’s labor supply; Kolanovic cites China’s recovery
- Tinsley uses consumer spending, Markowska tracks foot traffic
(Bloomberg) —
As corporate leaders increase their grim pronouncements about the future, there are still market economists who see stocks heading higher in the second half of this year and who say the US could sidestep a recession. Like all good statisticians, they have numbers to prove this.
Longtime bull Neil Dutta, head of economics at Renaissance Macro Research, for example, pointed to factors that are still returning to normal after the pandemic lockdowns, including labor participation rates and demand for durable goods, which drove prices higher. As life continues to settle down, he said, the Federal Reserve may find it easier to battle inflation.
“It’s a bit of a rebalancing. So you should see a little bit less inflation, a little bit more real growth. That should all be risk positive,” Dutta said by phone. “As it’s happening, it will feel really good because inflation won’t be as strong as the Fed currently anticipates.”
Whether the restrictive Fed will cause a recession has dominated the calculus of market handicappers for months, with the prevailing sentiment often determining any given day’s direction. Traders had little new to digest Tuesday, outside of a warning from Target Corp. that compressed margins could erode profits. Fed officials are mum ahead of their meeting next week and the data calendar is light until Friday’s inflation report. Stocks rose in another choppy session, as 10-year Treasury yields slipped back below 3%.
Here are the latest arguments from macro bulls on why risk assets could rebound in the second half:
Labor Market
While the US labor market remains tight, signs of normalization can already be seen, Dutta said. He cited data from the National Federation of Independent Business, which showed plans of increasing worker compensation hitting a high at the end of last year.
“When unemployment is low, jobs growth tends to moderate. The trend in employment has clearly been slowing,” Dutta said. Labor supply, on the other hand, seem to be recovering quickly.
“Those aged 55 to 64 have participation rates higher than February 2020 while teenagers are back to pre-pandemic levels,” Dutta said, adding that “there is still room for participation rates to pick up.”
Durable Goods
There is no question that prices of consumer durable goods soared during the pandemic, as stuck-at-home consumers bought new dishwashers and furniture at rates that exceeded the supply. There are signs this is changing.
The rate of industrial production in April saw the fastest four-month growth rate since October 2020. Renaissance Macro Research’s delivery times tracker slid to its lowest level since December 2020.
“An easing up of supply chains implies less inflationary pressures as factories can get goods out the door quicker,” Dutta said. At the same time, consumer behavior is changing, with goods consumption slipping 1.3% as services consumption gains 1.2%. Less demand and improved production “ought to result in a drop in prices,” he added.
China’s Recovery
JPMorgan Chase & Co’s Marko Kolanovic said the past year’s deep selloff in Chinese equities could finally be on the cusp of a turnaround. The nation is loosening its restrictions as virus cases in major cities continue to fall.
Five Signals That Are Giving Economists Hope About 2022
For Dutta, it’s labor supply; Kolanovic cites China’s recovery
Tinsley uses consumer spending, Markowska tracks foot traffic
(Bloomberg) — As corporate leaders increase their grim pronouncements about the future, there are still market economists who see stocks heading higher in the second half of this year and who say the US could sidestep a recession. Like all good statisticians, they have numbers to prove this.
Longtime bull Neil Dutta, head of economics at Renaissance Macro Research, for example, pointed to factors that are still returning to normal after the pandemic lockdowns, including labor participation
rates and demand for durable goods, which drove prices higher. As life continues to settle down, he said, the Federal Reserve may find it easier to battle inflation.
“It’s a bit of a rebalancing. So you should see a little bit less inflation, a little bit more real growth. That should all be risk positive,” Dutta said by phone. “As it’s happening, it will feel really good because inflation won’t be as strong as the Fed currently anticipates.”
Whether the restrictive Fed will cause a recession has dominated the calculus of market handicappers for months, with the prevailing sentiment often determining any given day’s direction. Traders had little new to digest Tuesday, outside of a warning from Target Corp. that compressed margins could erode profits. Fed officials are mum ahead of their meeting next week and the data calendar is light until Friday’s inflation report. Stocks rose in another choppy session, as 10-year Treasury yields slipped back below 3%.
Here are the latest arguments from macro bulls on why risk assets could rebound in the second half:
Labor Market
While the US labor market remains tight, signs of normalization can already be seen, Dutta said. He cited data from the National Federation of Independent Business, which showed plans of increasing worker compensation hitting a high at the end of last year.
“When unemployment is low, jobs growth tends to moderate. The trend in employment has clearly been slowing,” Dutta said. Labor supply, on the other hand, seem to be recovering quickly.
“Those aged 55 to 64 have participation rates higher than February 2020 while teenagers are back to pre-pandemic levels,” Dutta said, adding that “there is still room for participation rates to pick up.”
Durable Goods
There is no question that prices of consumer durable goods soared during the pandemic, as stuck-at-home consumers bought new dishwashers and furniture at rates that exceeded the supply. There are signs this is changing.
The rate of industrial production in April saw the fastest four-month growth rate since October 2020. Renaissance Macro Research’s delivery times tracker slid to its lowest level since December 2020.
“An easing up of supply chains implies less inflationary pressures as factories can get goods out the door quicker,” Dutta said. At the same time, consumer behavior is changing, with goods consumption slipping 1.3% as services consumption gains 1.2%. Less demand and improved production “ought to result in a drop in prices,” he added.
Source: Haver Analytics, Renaissance Macro Research
China’s Recovery
JPMorgan Chase & Co’s Marko Kolanovic said the past year’s deep selloff in Chinese equities could finally be on the cusp of a turnaround. The nation is loosening its restrictions as virus cases in major cities continue to fall.