A version of this article first appeared on TKer.co
(AI) is currently optimistic about the promise of collecting, processing, and cost-effectively producing goods and services that could also be made by humans.
And this is expected to boost profit growth for companies, which is good news for the stock market.
But all this talk is mainly about financial benefits and conjures up images of a time when the human aspect has disappeared, because its intangible value has been taken for granted.
The good news is that history teaches us that emerging technologies do not mean the end of what they were intended to improve.
“As the ubiquity of technology increases and individuals become increasingly dependent on technology as they communicate across networks, the value they place on ‘authenticity’ and human connectivity—which can evoke a nostalgic image of a simpler, pre-digital life—is likely to increase,” wrote Peter Oppenheimer of Goldman Sachs. “This is true across many product categories, including food.”
In a research paper on AI, Oppenheimer highlights examples of handmade, low-tech, “retro” goods and services that have survived technological advances. From his note:
…The growth of artificially immersive entertainment may also drive demand for real-world experiences. This may reflect the growing popularity of goods and services that are seen as ‘authentic’ or nostalgic. Retro ‘crafts’ are becoming increasingly popular, whether it’s the proliferation of reality TV shows in which contestants compete in baking, spelling, sewing or even ballroom dancing competitions.
These trends are spreading to retail. For example, according to Grand View Research, the global market for so-called “artisanal” bakery products was valued at $95.13 billion in 2022 and is expected to grow at a compound rate of 5.7% from 2023 to 2030. The focus on sustainability and interest in the past are creating new consumer markets. According to research conducted by GlobalData for ThredUP, a US-based thrift store, the market for second-hand clothing is growing 15 times faster than traditional retail. According to a report by Statistica, 42% of millennials and Gen Z respondents said they were likely to buy second-hand items in 2021.
You might assume that the widespread adoption of the wide range of ridesharing options would mean that demand for the vehicles you own would decline. That is not the case. From the memo:
A similar trend has emerged in transportation with the growth of the ‘sharing economy’ and the growth of bike, scooter and car sharing. Few would have predicted the steady growth of the bicycle market a decade ago; the global bicycle market was valued at over $64 billion in 2022 and is expected to grow at a compound rate of 9.7% from 2023 to 2030. Perhaps even more striking is how the bicycle is outpacing the car. Analysis of 30 European countries by the Confederation of the European Bicycle Industry (CONEBI) and the European Cyclists Federation (ECF) suggests that on current trajectory, 10 million more bicycles will be sold per year in Europe by 2030, up 47% from 2019. On this basis, the 30 million bicycles sold annually in Europe would be more than double the annual sales of cars.
As the world moves forward, it is interesting to think about the value consumers place on the past. From the note:
In the 21st century, in a highly digitalized world where almost everyone is connected to the Internet and the latest technology threatens to displace jobs and businesses, it is telling that one of the largest companies in Europe is LVMH. This is a company that sells the value of heritage in historic brands. It was formed in 1987 through the merger of two old companies: Louis Vuitton (founded in 1854) and Moet Hennessey, itself a merger in 1971 between Moet & Chandon, the champagne producer (founded in 1743) and Hennessey, the cognac producer (founded in 1765). According to its website, the company develops brands that “perfectly embody everything they have embodied for our customers for centuries.
Intangible value is a kind of value. And people find it in goods and services that have been demonstrably improved.
It’s not easy to explain why we like this stuff. But the point is that we do.
And we demand these kinds of things.
And if enough people demand something, there will be companies that will deliver that thing. It’s just basic economics and capitalism at work.
Revisiting the macro crosscurrents
There were a few notable data points and macroeconomic developments from last week to consider:
Inflation is cooling down. The (CPI) in August was 2.5% higher than a year ago, down from 2.9% in July. This was the lowest print since February 2021. Adjusted for food and energy prices, the core CPI was 3.2% higher, unchanged from the previous month.
On a month-on-month basis, CPI rose 0.2%, while energy prices fell 0.8%. Core CPI rose 0.3%.
If you convert the monthly figures — a reflection of the short-term trend in prices — to an annualized rate, the CPI rose by 1.1% and the core CPI by 2.1%.
Inflation figures are hovering around the Federal Reserve’s target of 2%, which is why the central bank has signaled that interest rate cuts could come soon.
Inflation expectations remain cool. From the New York Fed’s September Survey of Consumer Expectations: “Median inflation expectations on the one- and five-year horizons were unchanged in August at 3.0% and 2.8%, respectively. Median inflation expectations on the three-year horizon recovered somewhat from the low reading in July, rising to 2.5% from 2.3%.”
“Inflation expectations for the coming year fell for the fourth consecutive month, coming in at 2.7%. The current reading is the lowest since December 2020 and is well within the 2.3-3.0% range seen in the two years before the pandemic. Long-term inflation expectations were little changed, rising from 3.0% last month to 3.1% this month. Long-term inflation expectations remain modestly high compared with the range of the reading in the two years before the pandemic.”
Improve consumer vibes. From the University of Michigan: “Consumer confidence rose to its highest level since May 2024 for the second straight month and up about 2% from August. The gain was led by an improvement in buying conditions for durable goods, driven by more favorable prices as perceived by consumers. Expectations for the coming year for personal finances and the economy also improved, despite a modest softening in the outlook for the labor market.”
Wage growth is coolingAccording to the , the average hourly wage in August was 4.6% higher than a year earlier, down from 4.7% in July.
Oil prices fall. Brent crude futures fell below $70 a barrel on Tuesday for the first time in more than two years, closing at their lowest level since December 2021. From: “Poor economic data from the U.S. and China — including weak import figures released on Tuesday — have stoked oil demand fears among the two biggest consumers, adding to worries about a glut next year and fueling record bearish positioning. That’s been compounded by rising output in producing nations outside the Organization of the Petroleum Exporting Countries.”
Gas prices are falling. From: “The national average for a gallon of gasoline continued its rapid decline, falling six cents since last week to $3.24. The main culprits behind the decline are low demand and falling oil prices.”
Real incomes are rising. From the : “Real median household income was $80,610 in 2023, an increase of 4.0% from the estimate of $77,540 in 2022. This is the first statistically significant annual increase in real median household income since 2019.”
Meanwhile, poverty has fallen. From the Census: “In 2023, the official poverty rate fell by 0.4 percentage points to 11.1%. There were 36.8 million people in poverty in 2023, statistically no different from 2022.”
Card spending data is stable. From Bank of America: “Bank of America’s total credit and debit card spending per household rose 0.9% year-over-year (YoY) in August, a recovery from a 0.4% YoY decline in July. On a month-over-month (MoM) basis, spending fell 0.2% in August after rising 0.3% in July. In our view, this reflects a normalization of consumer spending rather than a softening. Within the aggregate, momentum in services spending remains stronger than goods spending.”
The number of applications for unemployment benefits has increased. rose to 230,000 in the week ending Sept. 7, up from 228,000 the previous week. The metric remains at levels historically associated with economic growth.
Mortgage interest rates fall. According to , the average 30-year fixed-rate mortgage fell to 6.2%, down from 6.35% last week. From Freddie Mac: “Mortgage rates have fallen more than half a percent over the past six weeks and are at their lowest level since February 2023. Rates continue to fall on calmer incoming economic data. But despite the improving mortgage rate environment, potential buyers remain on the sidelines as they negotiate a combination of high home prices and persistent supply shortages.”
There are 86 million of them in the U.S., of which . Of those who have mortgage debt, nearly all have , and most of those mortgages were before rates rose from the lows of 2021. All of which is to say: Most homeowners aren’t particularly sensitive to movements in home prices or mortgage rates.
Small business optimism is declining. It fell in August.
Importantly, the more tangible “hard” components of the index hold up much better than the more sentiment-oriented “soft” components.
Keep in mind that soft data is often more exaggerated than hard data during times of perceived stress.
Near-term GDP growth estimates remain positiveReal GDP growth is expected to rise by 2.5% in the third quarter.
Adding it all up
We are seeing increasing evidence that inflation is cooling to manageable levels.
This comes as the Federal Reserve continues to maintain a very tight monetary policy in its . Although, with inflation rates peaking in 2022, the Fed has taken a less hawkish tone in — even indicating that .
It would require loose monetary policy, which means we need to be prepared for relatively tight financial conditions (e.g. higher interest rates, tighter lending standards, and lower equity valuations) to persist. All this means for the time being, and the risk of a recession will be relatively high.
At the same time, we also know that stocks are discounting mechanisms, which means that .
It is also important to remember that while recession risks may be elevated, . The unemployed are , and those with jobs are getting pay raises.
Likewise, like many companies, even if the threat of higher debt servicing costs looms, give companies the space to absorb higher costs.
At this point it is such that the .
And as always, remember that and are just when you enter the stock market with the goal of generating long-term returns. While , the long-term outlook for stocks .
For more information on how the macro story is developing, check out the
