Magic Markets #293: The Cost of Living - When Data Doesn't Match the Mood

So let's first start off with the US, because if you look at the US, it's this very strange combination.

The economy there increasingly looks as though it may not land at all, and I'll unpack what that really means.

But on the ground, consumers feeling as though it's already landed.

They're feeling quite squeezed.

And so to define that landing concept very quickly, a hard landing when you're speaking about the economy generally means a recession.

A soft landing means growth will slow enough to bring inflation down without causing a recession.

But a no-landing economy is one where growth simply refuses to slow.

It remains above trend, employment trends holding up, but then inflation stays sticky, and that means interest rates remain high.

And that seems to be some of the backdrop that we're sitting with right now in the US.

So I'm gonna jump into a couple of key headline data points and then try and bring that back to the consumer story.

At the top, if you look at something like the US Composite PMI or Purchasing Managers Index, that's a nice lead indicator in terms of how economic growth momentum is going.

And the composite bit means that it includes manufacturing as well as services.

Now, in the US, that composite indicator has risen from 56 index points to 58.4 index points most recently, and that's the strongest reading since 2021.

For context, 50 is the line that separates expansion from contraction, and so the current reading is showing you that you're strongly in expansion territory.

This means that annualized growth is likely to track around 4% in the third quarter in the US.

We've got final Q2 numbers coming out, but Q3, if you look at some of the higher frequency prints, it's indicating as though it will be significantly stronger.

And so if you look at that and you compare that to what's happening in the jobs market, businesses also hiring at the fastest pace in more than four years.

The official data showing you 162,000 jobs added in August, unemployment holding at around 4.1%.

Those are multi-decade lows in terms of unemployment in the US.

And then if you look at retail sales, those were up 1.2% in August.

But on a year ago, that's up 6%.

And I know that's a nominal number, but it's still pretty strong if you're looking at that retail sales print.

And so that's showing you that at a headline level, the growth story in the US economy continues to chuck along at a fairly decent pace.

But then the flip side of the coin is that inflation is also refusing to disappear.

Now, I know a lot of that is related to energy prices and what you're seeing come through there.