The U.S. economy is growing with much of recent growth fueled by government deficit spending and Artificial Intelligence boost to productivity.

Real GDP rose at a solid 3.3% annual rate in the fourth quarter, and consumer spending was strong in December meaning the first quarter is off to a good start. New home sales came in above expectations and initial jobless claims remain low, although orders for durable goods came in low due to weak demand for aircraft.

All eyes are now on Friday’s jobs report, which we expect to show a gain of about 170,000 while the unemployment rate holds steady. But the strength in employment seems fragile. If we exclude job gains in government, health & education (which are largely funded by government), and leisure & hospitality (still recovering from lockdowns), job growth looks exceptionally weak.

In the last seven months of 2023, payrolls excluding those categories rose only 3,000 per month, the kind of weakness we might expect before a recession. In other words, much of recent growth is fueled by government deficits.

Meanwhile the stock market continues to rally, with the S&P 500 closing at a new record high last Thursday. That’s great, but we aren’t exactly sure what the market sees, writes Brian Wesbury, First Trust Chief Economist.

If the economy remains healthy and keeps growing, it’s very hard to imagine the Federal Reserve cutting short-term interest rates by the 125-150 basis points the markets appear to expect. In turn, less rate cutting than the market expects should be a headwind for equities in 2024.

What would get the Fed to cut rates by 125-150 bps? Either a sharp drop in inflation or a decline in economic growth. While lower inflation is good, can a sharp drop happen without a weak economy? Either way, we don’t think the stock market would like that outcome because they would likely signal lower corporate profits.

Artificial Intelligence and other new and rapidly advancing technologies provide a miraculous boost to productivity. This could keep growth strong, or even accelerate it, while bringing inflation down. In other words, profits up and interest rates down.

References:

1. https://www.ftportfolios.com/Commentary/EconomicResearch/2024/1/29/a-stock-market-conundrum

The U.S. economy is being fueled by productivity growth due to artificial intelligence and fiscal spending.

According to a report by Goldman Sachs Research, AI could increase US productivity growth by 1.5 percentage points annually, assuming widespread adoption over ten years. The report estimates a growth boost to GDP from AI of 0.4 percentage points in the US by 2034.

The US Bureau of Economic Analysis reported that real gross domestic product (GDP) increased at an annual rate of 4.9 percent in the third quarter of 2023, primarily reflecting rising consumer spending and inventory investment.

AI productivity growth and fiscal spending are the primary contributors to the growth of the US economy. However, other factors could have played a role as well.

“The worst sort of business is one that grows rapidly, requires significant capital to engender the growth, and then earns little or no money. Think airlines. Here, a durable competitive advantage has proven elusive ever since the days of the Wright Brothers. Indeed, if a farsighted capitalist had been present at Kitty Hawk, he would have done his successors a huge favor by shooting Orville down.” – Warren Buffett, 2007 Chairman’s Letter for Berkshire Hathaway.

Invested capital is the amount of money that has been invested in a business for purchasing inventory, equipment, property, leases, and funding the difference between accounts receivable (i.e., how much money is owed by customers to the business) versus accounts payable (i.e., how much business owes vendors).

Return on Invested Capital (ROIC) is a financial ratio that shows a company’s ability to allocate capital. The standard formula to calculate ROIC is to divide a company’s after-tax net operating profit by the sum of its debt and equity capital.

Once the ROIC is calculated, it is evaluated against a company’s weighted average cost of capital, commonly referred to as WACC. If a company’s WACC is not immediately available, it can be calculated by taking a weighted average of the cost of a company’s debt and equity.

The cost of debt is calculated by averaging the yield to maturity for a company’s outstanding debt. This is easy to find, as publicly traded companies must report debt obligations.

The cost of equity is typically calculated using the capital asset pricing model, or CAPM.

Once the WACC is calculated, it can be compared with the ROIC. Investors want to see a company’s ROIC exceed its WACC. This indicates the underlying business successfully invests capital to generate a profitable return. In this way, the company is creating economic value.

References:

1. https://www.suredividend.com/high-roic-stocks/
2. https://www.stratechi.com/fcf-and-roic/

Life is all about relationships, health & wellness, purpose, being grateful and mindful, and learning:

• Relationship refers to the state of being related or interrelated to others. It refers to the connection or bond between two or more people.
• Health is the state of complete physical, mental, and social well-being, while wellness is the active process of achieving it. Wellness has six dimensions: physical, intellectual, emotional, environmental, social, and spiritual.
• Purpose refers to having a definite vision and goal and being determined to achieve it. It is your “why” for life.
• Being grateful is a positive emotion that entails focusing your time and attention on what you appreciate. The intent is not to block out difficulties but to approach those difficulties from a different perspective.
• Being mindful is a state of active, open attention to the present moment. It involves observing one’s thoughts and feelings without judging them as good or bad.
• Learning is acquiring new knowledge, skills, and behaviors through experience, observation, and reading. It is a relatively lasting change in perspective and behavior resulting from experience, observation, and reading.

Reference:

1. Psyche Wizard

Frequent American Airlines flyers have one big reason to consider the Citi AAdvantage Executive World credit card with its $595-a-year fee: It comes with access to the carrier’s exclusive airport lounges, wrote Gregory Karp and Craig Joseph.

The advantages of the card include:

Pros

• Admirals Club® membership for you and access for up to two guests or immediate family members traveling with you.
• No Foreign Transaction Fees on purchases.
• Earn 1 Loyalty Point for every 1 eligible AAdvantage® mile earned from purchases.
• First checked bag is free on domestic American Airlines itineraries for you and up to 8 companions traveling with you on the same reservation.
• $100 credit on Global Entry or TSA PreCheck every four years.
• 25% discount on in-flight food and beverages on AA flights.
• Priority boarding, check-in and screening on AA flights.
• Luxury perks

One of the easiest ways to get an Admirals Club membership is to get the Citi AAdvantage Executive World Elite MasterCard. The credit card includes access to nearly 100 Admirals Club® and partner lounges worldwide. Immediate family (spouse, domestic partner and/or children under 18) or up to 2 guests may join you. Up to $850 value.

This card has some great perks that would interest anybody looking to frequently fly with American Airlines, such as: 2X on purchases on American Airlines, free baggage, and priority boarding privileges.

Priority check-in offers you a special counter area for you to check in at many airports. These check-in areas (seen below) can have much smaller crowds than the standard check-in areas so you can save a lot of time.

Priority boarding privileges

The priority boarding benefit will display on your American Airlines boarding pass as “Group 4.”

This is the final group in the priority boarding group, so you’ll be boarding before all the economy passengers but you’ll still have some first class and elites in boarding in front of you.

Additionally, American Airlines implemented a fully dynamic award chart, where the number of miles required for a free flight changes based on demand.

For low-demand periods, you can reportedly find flights within the lower 48 states for as low as 7,500 miles each way.

The bottom line is if access to Admirals Club airport lounges is a high priority for you, then this is your card.

References:

1. https://www.nerdwallet.com/reviews/credit-cards/citi-aadvantage-executive