US Labor Market

This morning’s employment report showed solid job growth, but recent consumer spending indicators are more concerning. The risk of recession starting within the next few months has increased. We suggest some important indicators for investors to track in the current environment.

The US economy is set to enter a recession within the next few months. Stay underweight equities and overweight cash. Look to increase fixed-income duration exposure over the coming months. The euro is likely to strengthen and European stocks should outperform US stocks over the next month or so, but these trends will reverse by the middle of this year.

Some thoughts on this morning's employment data and Treasury Secretary Bessent's recent attempts to talk down the 10-year Treasury yield.

All the growth in the US labour supply since mid-2023 has come from immigration. This means if net immigration comes to a grinding halt, as Trump wants, it will hurt economic growth as well as keep the labour market supply-constrained. An increase in productivity growth could save the day, both to maintain growth and to kill inflation. Yet hopes that AI is about to usher an imminent and sustained boost to productivity growth are misplaced. Hence, expect a slowdown in US growth combined with inflation stuck close to 3 percent, a combination that I call a ‘mini stagflation’. We go through the investment implications. Plus: Tactically overweight Portugal versus Europe.