Ok – it’s a bit of a clickbait title. I confess. The economic news this week wasn’t great, but we’re not actually at doomsday. I’ve been making the point that we’re in a bifurcated economy where a few people doing extremely well pulls up the overall statistics while hiding the fact that most of the country is struggling. The Kobeissi Letter nails this in one post on X. The Atlanta Fed lowers its GDP forecast by a huge amount. While I was writing this piece, they took estimates back up so let’s just conclude that no one at the Fed is capable of accurate or consistent forecasting. DKI hosts the management team of authID $AUID, and they do an excellent job explaining the outlook and end markets. There’s more nonsense in the jobs numbers. I know I swore I’d stop writing about these obviously fake numbers, but that promise was obviously fake. Manufacturing activity declines again. I’m just hoping we can at least re-shore semiconductor and pharmaceutical manufacturing.

This week, we’ll address the following topics:

• The Kobeissi Letter @KobeissiLetter makes a great case on the bifurcation of the economy. The “average” numbers are great, but the average American is struggling.
• The Atlanta Fed lowers its GDP forecast – by a lot.
• DKI hosts authID’s management team. $AUID
• Job openings fall again, but are still high.
• Manufacturing declines again.

Yet again, I’m happy to highlight the excellent work being done by DKI Intern, Andrew Brown. He continues to contribute more to the 5 Things each week. Everyone at DKI is pleased (but not surprised) by his continued progress. Although Andrew has just completed his sophomore year, he’s become a real contributor at DKI and is saving me hours each week. He’ll be traveling later this month so the rest of us will need to keep things on-track until his return.

Ready for a new week of lamenting the economy? Let’s dive in:

1) The Kobeissi Letter @KobeissiLetter on the Bifurcation of the Economy:

The Kobeissi Letter provides a concise and accurate description of what’s happening in the economy. We’re seeing banks in danger of collapsing, and declining GDP growth combined with sticky inflation. While the press continues to pump out articles chastising Americans for not being more grateful for our fantastic economy, most Americans believe we’re already in a recession. Adding to this, household debt has increased to record levels. DKI has been highlighting that debt-fueled government spending has bolstered GDP while squeezing out declining free-market economic activity.

That’s not an encouraging list.

We’re drawing the same conclusion. Great aggregate data, but many individuals struggling.

DKI Takeaway: DKI has recently been engaging in a respectful debate on the state of the economy. Those on the other side point to low unemployment, growing GDP, and declining inflation. We respond by noting all job growth is part-time, GDP growth has been entirely debt-fueled government consumption (not investment), and we have still-high and understated inflation. The Kobeissi Letter notes the huge “disconnect between economic data and consumer sentiment”. We’re with Kobeissi on this one.

2) The Atlanta Fed Lowers GDP Forecast – by a Lot:

The Atlanta Federal Reserve maintains its GDPNow model, which forecasts future GDP growth. They have revised their projections. Expected growth in excess of 4% a month ago, has been lowered to just 1.8%. That’s a big decline in expectations, especially given that government spending is at massive stimulus levels for an economy not officially in a recession. Adding to this, we reported last week that 1Q GDP had been revised down from 1.6% to 1.3% continuing the government practice of announcing encouraging data when everyone is looking only to make downward revisions in later months.

That green line made headlines for falling by more than 50%.

DKI Takeaway: DKI has previously criticized the Fed for being unable to project the fed funds rate which it controls. We also wonder what data the Atlanta Fed was looking at when it expected GDP growth in excess of 4%, a number we’d expect to see from an emerging market economy, or when coming out of a recession. The only way in which the US meets the Fed’s early May projections is with additional government spending which is already creating more inflation. We continue to note the government is terrible at projecting anything, and that the private market economy is struggling. As we were writing this week’s 5 Things, the Atlanta Fed took up the GDPNow estimate to over 3%. We again conclude that no one there is capable of projecting anything. (Another hat tip to @KobeissiLetter highlighting the difference between the aggregate numbers and consumer sentiment in Thing 1.)

3) DKI Hosts authID’s Management Team $AUID:

Last Wednesday, DKI hosted a webinar with the management team of authID $AUID. The company is DKI’s latest stock pick, and the full report is available here. Chief Technology Officer, Thomas Szoke, talked about how authID’s facial authentication differs from Google and Apple’s FaceID system. FaceID secures the device where anyone can register themselves as the owner of that device. authID secures your account using your government-issued identification. CEO, Rhon Daguro, spoke about the rising worry surrounding deep fakes, and showcased how authID’s technology identifies and rejects these kinds of insertion attacks.

DKI Takeaway: Almost every industry is struggling with how to prevent unauthorized access to their back-end systems and customer accounts with banks, hospitality, and medical firms indicating the greatest urgency. These companies need to secure their accounts and ensure that only authenticated people (not devices) can access their systems. authID’s fast accurate solution is ideal for the growing end markets. During the call, Rhon Daguro (CEO) expressed confidence in this year’s sales and bookings targets, and gave guidance for next year’s bookings that exceed what I have in my model. CFO, Ed Sellitto, expressed confidence in the company’s ability to meet financing needs later this year. Finally, new Board member from Bain, Kunal Mehta, talked about potential strategic partners for the company.

4) Job Openings Down Again in April:

The Bureau of Labor Statistics released the Job Openings and Labor Turnover Summary (JOLTS) report for April. Jobs available have declined from 12MM down to 8MM. While that’s a substantial decrease indicating a weakening private market economy, 8MM jobs available is still a high number and is greater than the number of people seeking employment. Friday’s employment report showed a huge 272k increase in jobs, but as usual, more than 100% of that was part-time work. Full-time employment continues to fall and the unemployment rate ticked up to 4%.

The trend is bad. The absolute number is still strong.

DKI Takeaway: These reports have been creating volatility as the market is trading more off of hopes for future Fed rate decreases than actual fundamentals. The reduction in job openings gave hope to the doves who are hoping for lower interest rates. Friday’s strong employment report cheered the hawks who are hoping for higher interest rates. To me, the crazy thing about all of this is the employment reports have all been subject to huge revisions so people are trading the markets based off of data that is rarely accurate. Last Thursday, @leadlagreport and the @ETFThinkTank were kind enough to host me for the weekly Get Think Tanked podcast. During the program, I reiterated my belief that the Fed wouldn’t change the fed funds rate before the election. If they lower rates this year, I expect it would come at the December meeting. Should they lower before then, it would likely be due to severe weakness in the economy which would not be positive for equity indexes.

5) Manufacturing Declines for a Second Straight Month:

The Institute for Supply Management’s (ISM) Purchasing Manager Index (PMI) fell for the second month from 49.2 percent to 48.7, down 0.5 percent. PMI is a monthly survey on how businesses feel about the current economic conditions impacting their business. The most recent GDP reports have all been positive leading us to continue drawing the conclusion that the current expanding economy is being fueled by government spending and debt.

The long-term and short-term trends here are not encouraging.

DKI Takeaway: This month’s PMI report indicates a cooling sentiment among businesses. Two weeks ago, we observed declines in both Target’s discretionary and food sales, and now, there is a noticeable decrease in overall business confidence in the economy. One factor contributing to this cooling sentiment is the significant reduction in lead times and the easing of supply shortages. Shorter lead times suggest lower demand for goods, and decreased consumer purchases at Target $TGT, Best Buy $BBY, and most recently at GameStop $GME (sorry Apes!) highlight the recent slowdown in the private sector. GDP continues to increase which is being driven by government spending, which is failing to create value, only fueling inflation.

 

Here’s the video version with some bonus $GME content: https://www.youtube.com/watch?v=4_y7kpBU-P4

 

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