EPB Macro Research | Free Research

Executive Summary

• The economy has long-term (secular) trends and shorter-term (cyclical) trends.

• Secular trends are slow-moving and are impacted most closely by demographics and debt.

• Cyclical trends are the 6-18 month fluctuations in growth that occur on top of the secular trends.

• Asset prices respond very closely to the cyclical trends in economic growth.

• The EPB Secular & Cyclical Framework monitors both of these critical trends and details the probable path forward for asset...

Executive Summary

• The 2008 crisis was characterized by excessive debt in the single-family home market and the financial sector.

• Since the last major crisis, the single-family home market and the financial sector have deleveraged.

• The total public and private debt burden have accumulated in the government sector and several other segments of the economy.

• Aggregate debt levels are beyond well-documented thresholds and will drain economic growth in the years ahead.

Where...

Executive Summary

• All major economies are suffering from aging demographics.

• An economy gets a boost from the 25-54-year-old age cohort and suffers a drag from the 65+-year-old age cohort.

• Older populations are correlated to lower real growth and lower inflation.

• With major economies already stuck at the zero-bound, fiscal and monetary authorities will have to contemplate negative interest rates or continued debt-financed fiscal spending.

• Both options will not reverse...

Executive Summary

• The rate of inflation is starting to peak and move lower.

• The decline in durables inflation will more than offset the increase in services and rent inflation.

• The combination of durable inflation and commodity price inflation declining will push the rate of inflation lower.

• An inflation cycle downturn is beginning. Both real economic growth and inflation are set to decline over the next 3-6 months.

Are You Worried About Rent Inflation?

The Bureau of Labor...

Executive Summary

• Average hourly earnings is a poor measure of the labor market and inflation.

• Average hourly earnings frequently rise during recessions because hours worked (the denominator) declines.

• You should look at aggregate income, real aggregate income, or real disposable income per capita for a better understanding of wage dynamics in the economy.

• The most important income metric is real disposable personal income per capita and it is on the verge of falling below trend.

...

Executive Summary

• The Atlanta Fed GDPNow model has reduced the estimate for third-quarter GDP from over 6% to 3.7%.

• Inflation increased too early in the expansion, and real growth is declining.

• A 3.7% increase in real GDP still leaves the economy with a 2.2% gap relative to the pre-COVID trend.

• Tightening monetary policy into a declining growth rate environment with an existing GDP gap is going to prove difficult.

• Watch for a flattening yield curve and an increase in the US Dollar.

Executive Summary

• Total employment growth cooled to 4.7% in August after the economy added significantly fewer jobs than expected.

• Cyclical employment growth declined and the average hours worked in the manufacturing sector dropped, two signs of ongoing cyclical weakness.
  
  
• The yield curve steepened, gold rose, and the US Dollar fell in reaction to the jobs report as the pervasive weakness may cause the Fed to retract recently hawkish commentary.

Cyclical Employment Growth Falls Further In...

Executive Summary

• The consensus is looking for a gain of about 740,000 jobs on Friday, which would mark an increase in total payrolls growth.

• A headline jobs reading below 620,000 would mark a sequential decline in payrolls growth on a smoothed six-month annualized basis.

• Also, look at the labor force participation rate, the employment to population ratio, and the growth rate of cyclical vs. non-cyclical payrolls.

Payrolls Preview: What To Look For In Friday's Jobs Report

On Friday,...

Executive Summary

• The importance of growth rate cycles on asset class performance
• How to track economic cycles
• Spotting economic inflection points

The Importance of Growth Cycles

The growth rate cycle is the most important fundamental factor impacting your investment returns, yet so few people understand what a growth rate cycle is, how to track it, and why it should be an essential part of every investor's tool kit.

In this article, I’m going to walk you through just how important...

Executive Summary

• Private-sector leverage is too onerous to sustain high levels of new bank loan growth.

• High levels of debt restrict private loan growth, and the government sector uses more resources to bridge the gap.

• Government expenditures are less effective than private-sector lending.

• The result of high private leverage and low bank loan growth will be another expansion of weak economic growth and depressed levels of inflation.

Liquidity Trap: Private Leverage To Hinder Bank...

Executive Summary

• The economy has not closed the GDP gap relative to the pre-COVID trend in nominal or real per capita terms.

•  Fiscal and monetary stimulus are proving to have massively diminished returns.

• The economy will be left with a persistent gap in real per capita terms.

• The standard of living continues to erode, and investors will tolerate even deeper negative real interest rates.

The GDP Gap

Over a year has passed since the bottom in economic data surrounding the...

Executive Summary

• Real GDP increased by 6.5% (SAAR) in Q2, likely marking the peak in growth on a year-over-year basis.
• Housing, inventory, and government spending dragged growth lower while consumption remained strong.
• The real GDP per capita gap remains open and will struggle to close by 2023.
• Any Fed tightening into a real GDP gap will negatively impact the economy.
• A highly indebted economy results in lower real interest rates.

Peak Growth

Real GDP increased 6.5% in Q2 on a seasonally...