Daily Commentary

MarketMinder’s View: As data nerds, we enjoy a thorough discussion about new economic measures and information collection strategies as much as the next market commentary website. This article focuses on various AI-related metrics in development, and as relayed here, the experts are having a tough go at it. “Researchers can’t even agree on basic questions like how many companies are using A.I. or which workers are most vulnerable to the disruptions it could cause. The conflicting signals partly reflect the challenge of detecting economic shifts in real time. Government statistics are inherently backward looking, and they are better at measuring broad trends than developments in specific sectors or regions.” As one outfit highlighted here notes, both government and private data are muddy—a firm may have an AI chat subscription, but how does that translate into company-wide productivity gains (if it does at all)? That doesn’t mean it isn’t worth trying to measure AI’s effects, but as the concluding paragraphs here note, AI is just one component of the economy to consider—other variables, from monetary policy to other industry trends, matter, too. For more, see Elisabeth Dellinger’s 2023 commentary, “The Long-Term Perspective Lacking in the Recent AI Craze.”

MarketMinder’s View: Under new Fed head Kevin Warsh, many analysts worry a Fed that talks less means more market volatility since investors won’t have official monetary policy clues. The central misperception in this is that the Fed’s “forward guidance” actually reduced uncertainty and volatility. It didn’t, folks. Former Fed head Ben Bernanke adopted the approach first, yet the guidance about tapering the Fed’s quantitative easing program in 2013 caused a selloff—and the Fed reversed course. His successor, Janet Yellen, guided for hikes when unemployment fell below 6.5% “or that kind of thing” yet eschewed them long after that mark was met, triggering needless questions and uncertainty. Warsh’s predecessor, Jerome Powell, downplayed rate hikes in 2021 and early 2022 before steep hikes in mid-2022, which also surprised markets. The underlying fallacy here, in our view, is that the Fed or any other central bank has special insight into the economy. But central bankers’ forecasting prowess is vastly overrated (so the “dot plot” of Fed folks’ target rate forecasts also often proves wrong), and their actions usually follow the market. Now, we won’t predict whether the Warsh Fed will be stingier with its word count than its predecessors for long—central bankers’ actions are unpredictable—but less prose to pore over and fewer Fed forecasts to forget sounds like a benefit to us. For more on the Fed, see yesterday’s commentary, “Declaring Fed Independence Fears False.”

MarketMinder’s View: The US labor market added 57,000 nonfarm payrolls in June—far short of expectations of 115,000—as the unemployment rate ticked down from May’s 4.3% to 4.2%. Notably, leisure and hospitality jobs fell by -61,000 due to weaker-than-usual seasonal hiring, disappointing those who anticipated a hiring bump due to summer vacation and the FIFA World Cup. Based on the numbers alone, nothing here looks alarming: Longer-running trends (e.g., health care’s ongoing jobs growth) remain intact and, overall, more employers were hiring than laying off. But in a sign of today’s lingering pessimism, the analysis here is glass-half-empty. Sure, professional and business services added positions; but blue-collar industries’ job creation was frozen. Yes, wage growth accelerated; but, not fast enough to keep up with inflation. Ok, employers aren’t firing a ton of workers; but, they aren’t hiring anyone, either. We don’t dismiss the personal pain and hardship tied to job loss or difficulty finding work. But from a macroeconomic perspective, nothing changed. Jobs growth isn’t gangbusters, but it doesn’t have to be to fuel a bull market. Actually, the skepticism here indicates the bull has plenty of wall of worry to climb.