The Strategy Page: 3% Growth Edition
Marc Emmer
President at Optimize | Keynote Speaker at Vistage Worldwide | Forbes & Inc.com Contributor | Expert Strategy Facilitator
At a glance:
When GDP numbers come out in the next few days, some may be surprised that the economy is expected to grow at a projected 3.1% in Q3. Some eyes may roll given that the Fed just cut rates to combat perceived weakening in the labor markets. It’s important to note that numbers commonly reported are “real”, meaning inflation is not considered.
Quarterly GDP Growth (2024 Q1 to Q3)
Consumer spending remained robust, driven by low unemployment and resilient wages. The services sector continued to thrive, while retail and housing markets saw moderate expansion. Markets slid on Monday based on Jerome Powell’s comments. But the Fed has been posturing for months, and the second it saw a soft CPI number, it took the opportunity to act.
Jerome Powell’s Speech
While there are many contributors to the Consumer Price Index (CPI), some seem to be “technical,” as in permanent contributors, and others temporary. This graphic shows federal spending as a percentage of GDP and CPI. The relationship between elevated spending and the spike in prices that followed is clear.
Federal spending (% of GDP) & CPI over the last 8 years (2016–2023)
One could also assume that since we’ve cycled through most of the employer stimulus, spending could ease. This is part of the Fed’s calculus.?
Moving forward, 2025 GDP projections are in the low 3% range—meaning the U.S. economy is completely stable. Ho hum. Don’t buy all the fear mongering on the evening news. The economy is strong, and about to get stronger. Lower interest rates will principally impact borrowers, including credit card debt and mortgages.
The Story of Two Economies
All that being said, there appear to be two economies. Those taking advantage of emerging technology and those who are not. Below is the percentage contribution to the rise in the S&P 500 by the “Magnificent Seven”––leading tech stocks comprising of Apple, Microsoft, Alphabet, Amazon, Meta (Facebook), Tesla, and Nvidia. Most months, it’s about 50%, meaning 7 stocks make up half the value, and 493 the other half.
Monthly S&P 500 Increase & Magnificent 7 Contribution (Jan-Sep 2024)
领英推荐
YTD, the Magnificent Seven demonstrated consistent performance. The group’s combined market dominance was driven by strong earnings, continued growth in cloud computing, artificial intelligence, electric vehicles, and digital advertising. Nvidia led the charge, capitalizing on AI advancements while Apple and Microsoft maintained solid growth through new product launches and service revenue streams. Meta’s renewed focus on cost efficiency and Amazon’s expansion in ecommerce and cloud services also boosted performance. Despite some market volatility, the Magnificent Seven remained strong, solidifying their leadership in tech.
Softening in Manufacturing
Manufacturing output is expected to be flat this year. The U.S. manufacturing sector experienced a softening due to supply chain disruptions, rising input costs, and slowing global demand. Reduced factory orders and declining production rates signaled a contraction. A dock strike can’t help matters, for imports?or?exports.
Microsoft and Three Mile Island
We were struck by the deal made by Microsoft to take 20 years of output from Three Mile Island. Home of the U.S.’s most notable nuclear disaster, Three Mile Island in Harrisburg, Pennsylvania was shuttered in 2019 for economic reasons. It had two reactors, the one that failed and the other, which became economy unviable.
But it’s becoming clear that AI companies will need to consume a tremendous amount of electricity. The U.S. is facing a growing deficit of energy supply. By going right to the source, Microsoft is engaging in a unique form of vertical integration.
Inc: AI Bubble or Breakthrough?
Young people have been reporting a sharp rise in anxiety and depression. This maps neatly onto the global rise of the smartphone. Some researchers are convinced that one is causing the other. But how strong is the evidence?
Recommendation: Google CEO Sundar Pichai & the Future of AI
The Strategy Experts
Marc Emmer?is President and Chief Strategist & Facilitator at Optimize Inc. He is an author, speaker and consultant recognized as a thought leader throughout North America as an expert in strategic planning.
President, MBM Elevate | CEO Group Chair, Vistage Worldwide | Executive Coach | Accelerating Organizational Impact
1 个月I was surprised and intrigued by MS & 3 Mile Island announcement. I look forward to watching this as it evolves. Will it be a material answer to the need for power? Thanks Marc Emmer for capturing all 9 important categories of updates for us!
NYC Master Chair & CEO Coach @ Vistage NYC | Leadership Development
1 个月Marc Emmer So much important information and analysis here! Your perspective on the dual economy is particularly thought-provoking. It's fascinating to see how technology is shaping growth, especially with the "Magnificent Seven."
I help ambitious leaders develop their sales management systems and people to get measurable, predictable, and profitable growth
1 个月Refreshing to see objective data pointing to a stronger and more resilient economy inspite of widespread perceptions to the contrary.
Connecting CEO's to Build Power Peer Groups | Vistage Chair | Executive Coach and Mentor | Strategic Compassionate Leader
1 个月Despite economic concerns, resilient consumer spending and tech growth are driving strong GDP projections. Let’s focus on innovation and opportunity.