The headline data on the U.S. economy has been dynamic, with unemployment at a low 4.9% and yet Industrial Production down 2.0% year-over-year. Those in PE feel busy, but per Pitchbook’s recently released Q1 report, year-over-year transaction volume is down 28%.
The popular press tends to focus on the negative. At CMF, we’ve done research into economic details and present the following points that balance out the story and lead us to believe that the U.S. economy will continute to show improvement.
Employment and Talent
- Unemployment is particularly low for all college educated individuals at 2.6% and “financial/managerial” at 2.3%
- The four-week moving average of unemployment claims through April 23, 2016 was at its lowest absolute level since 1973; interestingly, U.S. total population in 2016 and 1973 was 322M and 212M, respectively
- 8.8M jobs were lost in the 2009 recession, 14.4M created since then, resulting in a net 5.6M created – the top two categories for jobs added were financial and business services and manufacturing at 4.0M and 3.6M, respectively
- The Labor Participation Rate is down 3 percentage points — a big number with a total U.S. population of 322M. The details indicate a large portion of the decline tied to retirements and a growing “other category” – drugs, other convictions and illiteracy
- Overall, Household Net Worth is at an all-time high of $88T, up from $67T in Q2 2007
- Household debt service as a % of disposable income is 10.1% – near 35 year low
- Consumer confidence now stands at 89.0 – which is a generally high level – average over last 40 years is 85
- Down over past year, but largely due to oil and commodities. At CMF, we see evidence that the market is starting to clear energy assets at bargain prices, and combined with an increase in oil prices from a low of $26 in January to $45 in late April, we believe the U.S. entrepreneurs (and PE) are beginning to freshly redeploy these assets
- Production was also impacted negatively by a strong U.S. dollar that slowed exports; the U.S. dollar trade weighted index began the year at near decade high of 126 – and has declined below 120 since then
- Corporate cash as % of current assets is 29%, nearly double the percentage from 2001
- M2 money supply as % of nominal GDP is 68.4% – an all-time high
- Total cash on hand for March 2016 is $11.8T, which has trended up from June 2015 ($11.4T), September 2015 ($11.6T), and December 2015 ($11.7T)
- 66% of global government bonds pay less than 1% on your money
The pessimists would note that the current recovery since 2009 is long compared with historical norms; we do not see growth abating for the U.S., at least for the next 18 months. However, we are monitoring construction, automobile production, interest rate and “millennial” data for softness as early indicators for change.
See full newsletter here.