#1231 Darius Dale | US Economy Is VERY STRONG Right Now
8/2/2023 · 21 min · transcript via mlx
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Key topics
— US GDP accelerated to 2.4% annualized in Q2, beating consensus and supporting a resilient economy narrative against recession calls.
— Consumer spending (PCE) reached a three-month high at 2.9% in June, driven by goods consumption and income growth; employee compensation grew 6.2% and interest income 8.8%.
— Immaculate disinflation is real: core PCE inflation decelerated to 3.3% three-month annualized (lowest since Feb 2021), with super core PCE at 3.2%.
— Eight structural factors support economy resilience: near-record household and corporate cash, limited credit vulnerabilities, government investment growing 11% (Bidenomics), and labor hoarding.
— Fed likely pausing rate hikes for now, but Dale warns immaculate disinflation may shift to sticky inflation by Q4 2023, potentially forcing another hike and triggering a recession in Q4 2023–Q1 2024.
— S&P 500 likely to reach all-time highs in coming months before a "phase two credit cycle downturn" correction within 4–8 months.
Market & price signals
— Durable goods new orders hit 32.4% three-month annualized in June (highest since Sept 2020); core capital goods at 5.7% (highest since Aug 2022). Real household income growth (employee compensation + interest income) running 6–9% three-month annualized. Household debt relative to disposable personal income unchanged at 85.5% (trailing 10-year mean). Credit card debt 4.9% of disposable income (below 10-year mean). Private sector employment cost index decelerated to 4.1% in Q2 (lowest since Q2 2021). WTI crude and agriculture commodities recently turned bullish on technical momentum, raising inflation risk if sustained. S&P 500 expected to reach all-time highs but faces phase two downturn risk in 4–8 months.
Actionable insights
— The resilient economy and immaculate disinflation themes remain intact for the next 3 months, creating a window for equity gains, but plan for a material narrative shift toward recession/sticky inflation by late Q4 or early 2024.
— Monitor energy and food price trends closely; a sustained rally could reignite inflation and force the Fed to tighten further, making the near-term "Goldilocks" scenario fragile.
— Economic pain from prior rate hikes has lagged significantly; Dale expects the full impact to surface in Q4 2023–Q1 2024, so de-risk portfolios ahead of that window rather than waiting for recession confirmation.
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