We think this demographic constraint means the U.S. We see constraints on supply building over time – especially from a shrinking workforce in the U.S. We’ve long said we’re in a world shaped by supply. But in this new regime, the typical business cycle framing – likely does not apply. We think labor market tightness – low unemployment - has been misconstrued as a sign of economic strength.
But, more importantly, we expect the economy to broadly flatline for another year, making it the weakest two-year growth stretch in the post-war era, aside from the Global Financial Crisis. economy hasn’t grown much in the last 18 months.Īn outright recession is still in the cards. GDP data suggest activity has held up in the U.S., but on some measures, the U.S. Meanwhile, a stealth stagnation in the U.S. In Europe, manufacturing activity has slowed sharply.
Importantly, inflation declining through 2023 has come at the cost of economic growth. A skills mismatch is also normalizing, helping cool wage growth. Goods prices are dragging inflation down as demand normalizes. We think about two-thirds of the spending shift to goods from services has unwound. Inflation has been falling as pandemic mismatches unwind.
