Daily Commentary

MarketMinder’s View: This interesting piece dusts off a 1980 book of essays in which economists make predictions about long-term transitions and “problems” confronting the American economy. Here is the upshot: None were really close to accurate in describing the evolution of the next 10, much less, 44 years. They are dotted with fear of higher inflation, capital outflows and energy shortages—all largely a product of their times. And, as the author notes, none envisioned things like the internet developing over this span or fracking sending America to record-high oil output. We highlight this not to disparage any of the economists published in that old book. Rather, our interest is in what it says about the practice of long-term forecasting, which exists undaunted to this day, despite a litany of failures. One, most forecasts about the long-range future fail because they extrapolate present trends and underrate human creativity. Friends, the economy is adaptive and ever-changing. Current trends are highly unlikely to persist eons from now, and even if they do, the impact likely isn’t what many think today. (See falling birth rates with questions.) Two, investors should discount any forecast that extends past a few short years for this very reason. And, three, as the article concludes, there is no need to forecast the far-flung future—the economy does just fine without such clairvoyance to guide it.

MarketMinder’s View: Yes, the Institute for Supply Management’s (ISM) headline service sector purchasing managers’ index (PMI) ticked down from 51.4 to 49.4 last month, undercutting expectations for a rise to 52.0. Readings under 50 indicate more businesses reported contracting activity than expanding. This is the first such read since December 2022, though, so don’t overthink a single out-of-trend data point. At a more granular level, while both production and new orders ticked down, both remained above 50—indicating expansion in these two key areas of current and future activity. Per ISM, employment, supplier deliveries and new export orders were the only subindexes below 50 in the report, and the second of these—supplier deliveries—is an inverted index. Readings below 50 mean faster deliveries, which generally is a plus. So this report is likely better in most ways than the headline reading implies. Yes, as the title of this piece notes, the prices paid gauge rose 5.8 points to 59.2, indicating a majority of firms saw rising prices. But the magnitude isn’t clear from this report. It could be many saw very small increases or increases isolated to one or a few commodities. We need other reports, like PPI and CPI, to add color to this.

MarketMinder’s View: This piece centers on one of the biggest false boogeymen we have seen in financial news lately: aging demographics. “The 693,000 babies born in Germany last year marked the lowest level since 2013, and was a decline of 6.2 per cent from the previous year, according to figures published on Thursday by Destatis, the federal statistical office. Falling birth rates, ageing societies and shrinking workforces are one of the biggest problems for policymakers across Europe, as they add to the strain on stretched public finances and weaken already tepid growth rates.” It isn’t just Germany: the US, UK and China have all seen falling birthrates for years (outside of a pandemic-era baby boomlet). We understand the concern—logically, fewer people in the future seems like it would hinder growth—but reality is a tad more complex. One, human capital is just one factor impacting economic development—gains in financial capital, technological advancement and productivity can boost economic growth even if the population gets older or shrinks. Two, today’s trends aren’t concrete. Rising living standards improve life expectancy, and political factors like immigration can impact a society’s population. Three, and most important for investors, such trends take years—even decades—to materialize (if they do at all). Demographic trends’ slow-moving nature decreases their ability to materially affect the economic and political variables impacting corporate profits over the next 3 – 30 months—the timeframe stocks care about most. From an investment standpoint, we wouldn’t sweat aging populations—in Germany or elsewhere. For more, see yesterday’s commentary, “No Need to Cry Over Falling Birthrates.”