Brendan Larsen: Milford Asset Management expert on whether the US economy will improve

US economic data has been all over the news, with experts uncertain whether things will get better or worse.

Conflicting data, a declining labour market and ongoing tariff uncertainty have contributed to a murky outlook regarding the US economy.

Milford Asset Management's Brendan Larsen explained further.

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Episode Transcript

Speaker 1 (00:00):
Now, US data has been in the spotlight in recent
weeks and we've got more signs things could be turning.
Question is is it about to get worse or inflex
and with US now, as Brendan Larson of Milford Asset Management, Hey, Brendan,
good evening, how are you interpreting the data?

Speaker 2 (00:14):
Look, it's fair to say we are on a bit
of a knife s edge now with regards to the
US economy, Heather, We're getting some quite conflicting data that
is making it quite difficult to have conviction in the
overall direction of the economy. Labor market data last week
was undoubtedly weak, including negative revisions. Since May, payrolls have
averaged just twenty seven thousand per month, so since two thousand,

(00:37):
that's actually the weakest four month trend outside of recession periods.
So the question around the labor market is whether this
reflects delays in hiring during those turbulent months given that
tarif uncertainty we had, or if that reflects a real
flowing in demand in the economy. A fair reason to
think it may be the latter is that growth indicators
are still not showing signs of falling off a cliff
yet the ISM and PMI reports actually indicated that new orders,

(01:01):
which is a leading indicator for demand, actually surge last month,
and so the question is whether that translates into an
inflection and labor demand again.

Speaker 1 (01:10):
So is it possible that that weaker labor market is
why markets are pricing in a lot more cuts.

Speaker 2 (01:16):
Yeah, I think that's right. So I think markets had
been pre empting the Federal Reserve becoming more dubvish. So
the market is now actually pricing around three cuts this
year and just over five over the next twelve months.
The issue here is that the Fed may be cutting
into rising inflation. We get more clarity on this later
this week, but core inflation is expected to increase from here.

(01:38):
High frequency data does suggest the RI is scope for
meaningful increases in core goods prices in coming months. One
potential offset to that is that US rents now look
to be falling meaningfully and that may help drive shelter disinflation.

Speaker 1 (01:51):
So, if you've got the concerns around the labor market,
the inflation risks, what about the US consumer because they
have been really key for the economy there, haven't they.

Speaker 2 (01:59):
Yeah, it's a really good The US consumer really was
underpending that really strong US economy. What we are still
seeing though, is a really K shaped economy, and what
that means is that the top quartile is doing really
well still, but the lower end is hurting. One thing
to keep in mind as we go into next year, though,
is that the big beautiful bill that was passed earlier
this year will provide meaningful stimulus early next year, and

(02:22):
so that is a potential positive for growth as we
sort of get into twenty twenty six.

Speaker 1 (02:26):
Yeah, it's pretty tricky stuff. So what does that mean
for the markets?

Speaker 2 (02:30):
Yeah, it is tricky, I think, particularly when you add
in that sort of fiscal overreach that we've discussed with
you over recent weeks. And so the US administration is
continuing to creep closer to fiscal dominance and potentially undermining
the FEDS inflation targeting mandate. And so if we couple
that with potentially rising core inflation as tariffs show through,

(02:50):
and a federal reserve who are cutting raids, the outcome
is actually quite positive for stores of value. So gold
is the clearest example of this store of value, and
investors have really been piling and gold is up forty
five percent over the last year versus the S and
P five hundred, up just nineteen percent over that same
time period. For interest rate markets, clearly the bias for

(03:10):
short term interest rates in the US is lower, but
with potential inflation risks, there is scope for longer term
interest rates to remain a little bit more elevated. We
think this could way on share markets, especially given a
strong run they've had and quite elevated investor positioning.

Speaker 1 (03:25):
Hey, thank you, Brandon, really good to talk to you.
Brendan Larson. Milford Asset Management ETS auction failed again today.
This is the third time it's failed this year, and
it's the third time it's run. So basically all three
have failed. Now let me just run, so this will
start it at the end of twenty twenty two. The
first one that failed, as far as I can remember,
was the start of twenty three. So this is what's
happened in twenty three, twenty four to twenty five. All

(03:47):
four failed in twenty three. Three out of the four
failed last year. Three this year have failed. So that
means in three years out of the eleven only one
has partially sold. That's not good.

Speaker 2 (03:59):
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