US economy defies slowdown fears as corporate earnings and travel surge
AP The last three weeks I spent in the US, I found myself making some observations:
It's not the economy, stupid
The first was that its economy is slowing down. It's actually thriving. Q1 corporate earnings for S&P 500 grew 12%, of which the Magnificent 7 minus Nvidia (which reports on May 28) reported an average 28% growth. The 493 rest grew 9%, exceeding consensus earnings estimates by 16%.
Travel, too, is booming. Hotels in Jackson Hole and Yellowstone are full, despite tourist season starting 3 weeks later. Flights are packed to capacity.
Inflation's raging The US is among the most expensive countries to holiday in. Any half-decent hotel in midtown Manhattan is north of $350-450 a night (breakfast is extra). A medium cappuccino that cost $5.40 in October 2023 now costs a dollar more at Peet's Coffee in JFK's Terminal 4. A medium latte costs a whopping $6.55, +21%.
Labour shortages are showing
JFK's Terminal 4 has 16 immigration booths. Only 7 had officers processing incoming passengers when I was there, leading to wait times of 1.5 hrs. This is not good for the gateway to the US for most international travellers, and one of the busiest airports in the world. Restaurants and hotels, too, are stretched with limited staff.
Not cut rate yet A cross-section of fund managers and asset allocators I met believe that the probability of a US recession this year just got lower with the 90-day agreement on tariffs between the US and China. China remains a no-go for now. But that may change if relations improve. Most felt that given record low unemployment and high inflation, it's unlikely that the Fed will cut rates anytime soon.
India-Pakistan, huh? US investors didn't seem particularly concerned about the latest India-Pakistan conflict. Media coverage of the event was overshadowed by Trump-tariffs, his visit to West Asia and other domestic issues. In the four India-Pakistan conflicts since 2000, Nifty50 saw a median drawdown of 4% within the first 10 trading days, and recovered within a month from the event day. In fact, markets rallied 34% during the 3-month Kargil War (May-July 1999).Whether Washington and Average Joe and Jane like it or not, 'Made in China' still dominates supermarket shelves. Unlike the price of coffee, price of garments haven't been raised as yet. That said, last week, Walmart threatened to increase prices on certain goods, much to the chagrin of the White House. I found 2/3rd of Costco's private labels were made in China, followed by Mexico, Honduras, India, Cambodia, Vietnam, Pakistan, Peru and Kenya.
So, how much would higher US tariffs impact India? Last year, India's merchandise exports to the US were only $80 bn (18% of India's total goods exports, a mere 2% of GDP). India's trade surplus with the US was $46 bn, significantly lower than China's $292 bn and Vietnam's $123 bn. That said, this is an opportunity for India to gain export market share from China, Vietnam and Mexico by playing the tariff arbitrage in industries ranging from footwear to garments to electronics. Fresh on the success of Apple (1 in every 5 iPhones sold globally is made in India today), GoI is focused on bringing more overseas manufacturing into India.Foreign ownership of the US equity market is 18%, a record high. But money is now flowing out of the US and going into markets like the EU, and some to EMs. Investors think India seems to have gone from 'very expensive' to 'expensive'. It's unlikely to go to 'moderately expensive' anytime soon, given unabated strong domestic flows for the past 48 months (net inflows of $60 bn in 2024, plus another $27.8 bn so far this year).Foreigners who had net sold as much as $14 bn upto the last week of March have returned with over $4 bn in the past six weeks, taking India's market cap to $5.2 tn. Things remain positive on India, given earnings growth, strong infrastructure build- out, return of foreign capital and huge export opportunity.
The writer is managing partner,Nepean Capital (Disclaimer: The opinions expressed in this column are that of the writer. The facts and opinions expressed here do not reflect the views of www.economictimes.com.) Elevate your knowledge and leadership skills at a cost cheaper than your daily tea. What pizzas are Indians eating? The clue lies with India's largest QSR.
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