Did you miss Monday’s FEAR post?
SERVICES PMIs
USA: Renewed rise in employment as output growth strengthens
The seasonally adjusted S&P Global US Services PMI® Business Activity Index rose for the second month running in December, reaching a 33-month high of 56.8 following a reading of 56.1 in November.
Companies indicated that client demand had improved, with customers more willing to commit to new projects following the outcome of the Presidential Election.
In line with the picture for business activity, the rate of expansion in new orders also reached the fastest since March 2022 in December. New business was up rapidly in the final month of the year, extending the current sequence of growth to eight months.
A further increase in new business from abroad was registered, although the pace of expansion eased from that seen in November and was much weaker than the growth in total new orders.
The strength of the rise in overall new business meant that backlogs of work accumulated again in December, the third time in the past four months in which this has been the case.
Efforts to limit the build-up in backlogs of work and respond to strong growth of new orders led service providers to take on extra staff at the end of 2024. A rise in staffing levels ended a four-month sequence of job cuts, but it was still only modest.
There were further signs of cost pressures moderating in December as the pace of inflation eased for the third consecutive month to the weakest since last February. Input prices still increased markedly, however, and at a pace that was faster than the pre-pandemic average. A number of respondents mentioned higher shipping costs, while others reported wage pressures.
In response to higher input costs, companies increased their own selling prices. The despite quickening slightly from that seen in November.
Service providers expect the incoming administration to strengthen business conditions in 2025, leading to growing confidence in the year-ahead outlook for business activity. In fact, optimism was the strongest in a year-and-a-half and above the series average as 44% of firms expressed a positive outlook. Marketing efforts are also predicted to help boost activity over the coming year.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence
“The US economy ended 2024 on a high according to the latest business surveys. Business activity in the vast services economy surged higher in the closing month of 2024 on fuller order books and rising optimism about prospects for the year ahead.
“Expectations of faster growth in the new year are based the anticipation of more business-friendly policies from the incoming Trump administration, including favorable tax and regulatory environments alongside protectionism via tariffs.
“The improved performance of the service sector has more than offset a continued drag on the economy from the manufacturing sector, meaning the survey data point to another robust expansion of the economy in the fourth quarter after the 3.1% GDP growth seen in the third quarter.
“The strong service sector PMI reading for December sets the US economy up for a good start to 2025 but, with growth as strong as this, it’s understandable that policymakers are taking a more cautious approach to lowering interest rates. However, a key focus in the coming months will be the potential vulnerability of the economy to any major change in the interest rate outlook, especially as financial services activity has been an important engine of growth in late 2024, partly on the anticipation of a further lowering of borrowing costs.”
The Composite PMI is as strong as it gets even without contribution from manufacturing.
What if the latest surge in manufacturing new orders is sustained?
Since the pandemic, manufacturing new orders ($ values) are up 27% but production (black line, units) is unchanged. All prices…
… and imports:
Goldman Sachs
Yet, construction spending on manufacturing tripled (red line above). All data centers! No humans, no widgets, all cloud data!
If there is a multiplier effect from these expenditures, it must be through increased productivity. See the AI Corner below.
But the bond market is not sharing equity investors’ enthusiasm, is it?
The Fed has cut interest rates 100 basis points since September, and over the same period, 10-year interest rates are up 100 basis points. This is highly unusual. Is it fiscal worries? Is it less demand from abroad? Or maybe Fed cuts were not justified? The market is telling us something, and it is very important for investors to have a view on why long rates are going up when the Fed is cutting.
Since the Fed started cutting interest rates in September, financial conditions have eased with a rise in the stock market, a tightening of credit spreads, a decline in the VIX, a rise in inflation expectations, and an appreciation of the US dollar.
The charts below show the net effects of these developments on GDP and inflation using a model of the US economy that is similar to the Fed’s model, FRBUS.
The bottom line is that Fed cuts and associated developments in financial markets will boost GDP over the coming quarters by 1 percentage point and boost inflation by 0.5 percentage points.
In short, there are significant tailwinds in the pipeline to growth and inflation coming from the Fed having started to cut interest rates and the associated easing in financial conditions.
Combined with the ongoing fiscal outlook, we continue to worry more about the upside risks to growth, inflation, and interest rates over the coming quarters. (Apollo)
Eurozone economy contracts marginally in final month of 2024
After signalling the first decline in services output across the single-currency union for ten months in November, the HCOB Eurozone Services PMI Business Activity Index bounced back above the neutral 50.0 threshold to 51.6 in December (49.5 previously). This therefore pointed to a renewed upturn in output across the services sector, albeit one that was moderate and weaker than the survey average (52.6).
The rejuvenation in growth was achieved with little support from new sales, as new business intakes rose only fractionally. Nonetheless, this was the first month since August that demand for euro area services improved. Increased sales were a reflection of domestic client appetite, as new export business shrank for a nineteenth straight month.
Backlog reductions were a means for firms to expand activity, latest data suggested, as outstanding order volumes decreased in December. Euro area services companies remained in hiring mode, stretching the current period of job creation to nearly four years. That said, the rate of employment growth was only fractional and among the softest seen over this sequence.
Sustained hiring came amid a pick-up in firms’ expectations for growth in the coming year. Albeit stronger than November’s 14-month low, the level of optimism was historically subdued.
Services prices continued to rise at a quicker rate in December. Both input costs and output charges saw their rates of inflation accelerate for the third month running to reach five- and seven-month highs, respectively.
The seasonally adjusted HCOB Eurozone Composite PMI Output Index posted in sub-50.0 contraction territory again in December, marking a second successive monthly decline in economic activity across the euro area. At 49.6, the index was up from November’s 48.3, indicating a deterioration that was not only softer than the previous month, but just marginal overall.
Notably, the eurozone’s contraction in December was entirely manufacturing-led as services activity bounced back. However, with the expansion in services limited to just a modest pace, it was more-than-offset by a sharp drop in factory production.
As was the case in November, the big-three eurozone economies of Germany, France and Italy all posted reductions in business activity during the final month of 2024. France was the weakest-performing, followed by Germany, while Italy saw just a marginal decrease in output. The other nations with Composite PMI available, Spain and Ireland, bucked the contraction trend and posted continued expansions in economic activity. Notably, private sector output in Spain rose at the fastest pace since March 2023.
Demand for euro area goods and services declined once again as 2024 came to an end, marking seven straight months of falling new orders. As was the case with output, services companies saw new business intakes rise (albeit only fractionally), but a sharp and accelerated fall in factory sales meant the overall trend in new orders remained a downward one. Euro area companies also received little support from their customers in export* markets, with demand from non-domestic clients decreasing, stretching the current sequence of decline that has been ongoing for almost three years.
Employment across the single-currency market subsequently fell in December, with firms reducing their workforce capacity. In fact, the rate of job shedding was the joint-sharpest in four years (matching that seen in October). Job shedding was again exclusively driven by the manufacturing sector as a fractional and slower uptick in headcounts at services firms failed to counteract factory retrenchment.
Nevertheless, despite lower staffing numbers, eurozone companies were able to reduce their volumes of work-in-hand (i.e. orders received but awaiting completion) during December. Backlogged work has fallen in every month since April 2023.
December survey data signalled an acceleration of price pressures across the euro area. Input costs rose at a pace that was the fastest since July and stronger than the pre-pandemic survey average. Eurozone factories recorded no change in their expenses, whereas services companies saw a notable uptick. Charge inflation for the two monitored sectors combined likewise quickened and hit a four-month high. The composite data did however mask discounting by goods producers, with more aggressive price setting in the services industry driving overall output charge inflation up.
Lastly, the latest survey data showed an improvement in business sentiment, with expectations for growth in the coming year picking up to their strongest since September. That said, when compared with the historical average, confidence remained subdued.
China: Services activity expands at quickest pace since May
The seasonally adjusted headline Caixin China General Services Business Activity Index posted 52.2 in December, up from 51.5 in November. This extended the period of expansion to two years. Moreover, the rate of business activity growth accelerated from November to the fastest since May.
The acceleration of services activity growth was in line with the trend for new business. Incoming new work rose to extend the current period of growth to two continuous years and at a rate that was the fastest in five months. According to service providers, promotional efforts and better underlying demand supported the latest increase in new sales. Sales growth was notably supported by higher domestic demand as new export business declined for the first time since August 2023 amid softening foreign interest.
On the back of faster new business inflows, outstanding work accumulated again. The pace of growth was the fastest in the current five-month sequence in December but remained marginal. Meanwhile, employment fell for the first time since August even with intensifying capacity pressures. This was attributed to both resignations and redundancies according to panellists, with some firms mentioning cost concerns.
Indeed, cost inflation intensified in the latest survey period. Panellists often mentioned rising input material and wage costs had contributed to stronger cost pressures. This marked the first rise in the rate of cost inflation for three months, though it remained only marginal overall. As a result of rising cost pressures, average selling prices increased for the first time since June as Chinese service providers sought to share rising cost burdens with clients.
Finally, sentiment in the Chinese service sector remained positive at the end of 2024 as firms were generally hopeful that business development efforts and supportive government policies can support sales growth in 2025. That said, the level of business confidence eased to the second-lowest since March 2020, ranking just above September’s level. Some businesses expressed concerns over rising competition and the negative effect outlook for international trade.
Commenting on the China General Composite PMI® data, Dr. Wang Zhe, Senior Economist at Caixin Insight Group said:
“In December, the Caixin China General Composite PMI was 51.4, down 0.9 points from the previous month while remaining in expansionary territory for the 14th straight month. Both the manufacturing and services sectors saw increased output, with growth in demand at the composite level outpacing supply for the first time in four months.
“Employment contracted across the board. Price levels were weak, marked by a decelerating increase in input costs while output prices went from growth to decline, dragged by the manufacturing sector. Meanwhile, market optimism weakened.
“Since late September, the synergy of existing policies and additional stimulus measures has continued to act on the market, producing more positive factors. The economy in general remains stable, on the path to achieving the main goals set for 2024.
“That said, it is worth noting that prominent downward pressures remain, with tepid domestic demand and mounting unfavorable external factors. Meanwhile, employment remains sluggish and profit margins have been squeezed, leading to a decline in market optimism. In December, some of the Caixin manufacturing PMI survey’s gauges declined, suggesting more time is needed to assess the consistency and effectiveness of previous policy stimulus.
“The external environment is expected to become more complex this year, requiring early policy preparation and timely responses. In addition, future policy efforts should focus more on increasing household income and improving people’s livelihoods, with particular attention paid to increasing socially disadvantaged groups’ ability and willingness to spend.”
China’s December Home Sales Stay Flat in Sign of Stabilization Value of new-home sales from biggest developers is unchanged
The value of new-home sales from the 100 biggest real estate companies for the month remained unchanged from a year earlier at 451.4 billion yuan ($61.8 billion), compared to a 6.9% on-year drop in November, according to preliminary data from China Real Estate Information Corp. Sales gained 24.2% from a month earlier.
For all of this year, sales from the top 100 builders slumped 28.1%, compared to a 16.5% drop in 2023. (…)
Morgan Stanley expects China real estate sales to drop 12% next year, and home prices to decrease by high single digits in percentage terms from November’s level. Fitch Ratings said prices could fall by 5% in 2025 and new-home sales to decline 10% by area.
China gives government workers first big pay bump in a decade to boost economy
- Millions of government workers get wage hikes to boost spending
- Immediate payout may inject $12-$20 billion into fragile economy
- First nationwide civil servant pay raise in China since 2015
Euro-Zone Inflation Rebounds But Won’t Derail ECB Rate Cuts
Consumer prices rose 2.4% from a year ago in December, up from 2.2% in November and matching the median estimate in a Bloomberg poll. The increase was largely driven by energy costs, which climbed for the first time since July, Eurostat said.
Core inflation, which strips out such volatile components, stood at 2.7%. In the services sector, price growth edged up to 4%. (…)
A separate report from the ECB showed that inflation expectations of consumers increased in November. (…)
Concern about inflation in the services sector remains, however. It’s been stuck at about 4% for more than a year, largely due to rising wages, which play a greater role in that part of the economy than elsewhere.
The ECB doesn’t see this situation persisting. Workers’ pay grew at a slower pace in the third quarter, and early indicators point to a softening in the jobs market. (…)
FYI: Natural gas prices are now more than 50% higher than a year ago, and oil prices are no longer falling. As such, energy will be a significant upward risk to inflation in the first quarter.
AI CORNER
AI Coming To Vegas, Baby, Vegas!
Ed Yardeni is about my age so he remembers the dot.com era when investors blindly bid up shares of any company taking dot com language.
The Q4-2024 earnings reporting season is about to start, led by the big banks. We expect that during their conference calls, company managements will discuss how AI may be starting to boost their productivity. In effect, they’ll be trying to convince investors that every company is now a technology company either producing AI hardware and software or using them.
The AI excitement will be palpable this week. As Vince Vaughn famously said: “Vegas, baby, Vegas.” The Consumer Electronics Show, or “CES” for short, kicks off Monday evening in Las Vegas and runs through Friday, January 10. It will undoubtedly be mostly all about AI. (…)
On December 9, Google’s stock price rebounded off its 200-day moving average after the company announced that Willow, its latest quantum computing chip “demonstrates error correction and performance that paves the way to a useful, large-scale quantum computer”. The press release didn’t specify how long the way might be to get there. When we do get there, quantum chips might replace GPU chips to power AI software.
When AI is combined with quantum computing, science fiction will no longer be fiction. It’s hard to predict the impact of this development on our economy and society. However, it will probably be bad news for blockchain and the cryptocurrencies that depend on it because encryption codes will be easy to hack. For now, that possibility isn’t stopping bitcoin’s ascent.
During the upcoming earnings reporting season, we expect to hear lots of guidance about the likely impact of AI on earnings. The question is whether the spending on AI technologies is showing signs of paying off in higher corporate profit margins.
Industry analysts are currently estimating that S&P 500 operating earnings per share rose 8.2% y/y during the last quarter of 2024. We are expecting a 10.0% increase. During the four quarters of 2025, the analysts are expecting double-digit increases: Q1 (11.0%), Q2 (10.8%), Q3 (12.0%), and Q4 (16.8%). That’s a 12.5% increase in 2025.
We are forecasting a 17% increase because we expect the S&P 500 profit margin to rise to a record high this year.
In my yesterday post FEAR:
But profit growth is not that strong outside of Tech and Communication Services. These 2 sectors are expected to show combined earnings up 22.6% in 2024 on revenues up 12.8%. The other 9 sectors combined: +4.1% on revenues up 3.0%.
Yet, analysts see the same 9 sectors earnings up 11.8% in 2025 on revenues rising 11.7%. Most of this growth is expected to come from Health Care (+20.8%) and Industrials (+19.8%).
One has to wonder how analysts are incorporating the potential Trump administration policies on health care costs and import tariffs at this time.
FYI, in March 2024, analysts expected Health Care revenues to rise 13.5% in 2024. It now looks like +8.3%, but they are expecting +13.4% in 2025.
Industrials revenues were expected to grow 11.2%. It now looks like –3.9%, but they are forecasting +14.7% for 2025.
I would not bet much on these 2025 numbers…
(…) If you focus on the expenditures for software, technology hardware, industrial equipment and data center structures at the heart of the AI boom, you’re looking at nearly 6% of US GDP as of the third quarter of 2024. That number is likely to rise further in the coming quarters. If so, we would surpass the share of GDP that the tech-industrial-telecom boom of the late 1990s reached at its peak back in 2000:
Source: Skanda Amarnath
If recent and upcoming months to be banner ones for capital expenditures, as megacap-tech firms have been guiding, we are likely to see it show up in the relevant GDP components, albeit with a potential lag. At something close to 7% of the US economy at the end of 2025, it’s plausible and arguably even likely, that the AI boom would be on a par with the share of the US economy housing investment represented at its 2005 peak. (…)
Unlike aggregate consumption, which is a large share of the US economy but very smooth and relatively acyclical, AI-relevant GDP components have exhibited more volatility in the not so distant past.
Source: Skanda Amarnath
As of now, the aggregate of software, tech hardware, industrial equipment, and data center expenditures is growing at a 10% clip. While the future is always uncertain, it’s at least plausible that the growth rate swells further over the next two to five quarters. A rising share of GDP alongside an accelerating growth rate would mean higher real GDP contributions from these segments, in the short run at least.
Source: Skanda Amarnath
In the third quarter of last year we saw these segments contribute 0.5% to real GDP growth. It’s not a number to sneeze at but also meaningfully lower than the 1-1.2% contribution to real GDP growth seen in the late 90s tech boom. (…)
So much of the rise in IT-relevant GDP segments up until this point has been subtle. The fact that information technology spending went through a one-time level shift up during the pandemic, means it’s back at a share of US GDP not seen since the late 1990s. (…)
Source: Skanda Amarnath
A third year above 2% productivity growth would likely force the Fed to raise its estimates of potential GDP growth. And while I would disagree with drawing a conclusion that it should necessarily imply a higher neutral rate of interest (r*), plenty of other FOMC members have suggested otherwise. Booming AI investment in 2025 has the chance to be yet another catalyst to push up both short- and longer-run expectations for Fed policy.
The other side of the coin to booming tech investment in the coming quarters is that we see subsequent analogues to the 2000-2003 downturn. Contrary to the common conception of it being a shallow recession lasting less than a year, the hangover from the late 1990s tech boom involved persistent multi-year declines in the labor market (as evidenced by the prime-age 25-54 employment rate), real business fixed investment, and the stock market. (…)
For the time being, the AI boom is poised to be a real economy tailwind through much of 2025. In the process of pushing up activity, new bottlenecks may grow more acute, just as we’re already seeing with transformers and the state of the US electricity grid.
Contingently, the more acceleration and outperformance we see in the coming few quarters, the greater the risk of future investment overhangs and real economy weakness. Timing these types of cycles is indeed a mug’s game, but it’s all the more reason to pay close attention in this space.
From Evercore ISI:
Surge in AI mentions across Corporate America, strong Hyper-Scaler Capex, and record Google searches reflect large enthusiasm over AI. Adoption remains muted, though nearing Inflection.
AI has moved beyond chatroom queries, integrating into workplaces and leveraging tools to produce goods and services. Generative AI propels physical and digital automation forward with breakthroughs in Inference Time Reasoning, communication, and training data capabilities.
Freed from hardcoded rules, AI-infused Autonomous Agents can now tackle a broader set of tasks. While oversight remains critical to ensure accuracy, AI’s newfound ability to “think” then “act” underpins our confidence in a 2025 adoption inflection base case.
I am using Perplexity.ai many, many times daily, and my usage keeps rising as I query on all kinds of matters. Googling is mostly out for me. For $20/month for the Pro version, a bargain for me given the jump in productivity. If you wish, use this referral, we will both save $10! https://perplexity.ai/pro?referral_code=9IL19U5E
- Nvidia CEO Pitches Robotics, Cars as Growth Areas to Consumer-Electronics Audience CEO Jensen Huang touts gaming chips, robots, autonomous vehicles and a personal AI supercomputer
Taking the stage at the annual CES conference in Las Vegas, Huang showed “physical AI” tools that he said would help robots learn using simulated environments that closely mimic the real world. That could bring more automation to warehouses and factories and boost a humanoid-robot market that the company said could be worth $38 billion in the next couple of decades. (…)
Among Huang’s other announcements:
- Nvidia will make a personal AI supercomputer called Project DIGITS. It will be a desktop computer with a version of its latest Blackwell AI chip inside, and will start at $3,000. The computers are aimed at AI researchers and data scientists, allowing them to work on AI models without having to tap Nvidia’s cutting-edge AI chips housed in data centers.
- New AI “blueprints” that make it easier to create and deploy AI agents to do things such as analyze video feeds and generate blog posts. One of Nvidia’s blueprints has users feed in multiple PDF files from which it creates a podcast “narrated in a natural voice,” according to a company release.
- A new generation of graphics chips for videogamers. The hardware, which costs up to about $2,000, enhances resolution and framerates for the most demanding games in part by leveraging AI, executives said. The chips are to be available for desktop computers this month, with laptops coming in March.
The FT has a lot more:
- Cracking the technological challenges involved in deploying robots at scale will pave the way to “the largest technology industry the world has ever seen”, said Huang.
- Nvidia said the field of robotics had reached a technological tipping point, as AI accelerates and fine-tunes the process of simulating the physical world and generating the vast amounts of data needed to train robots. In the next two decades, the market for humanoid robots alone is expected to reach $38bn, according to the company.
- Nvidia announced a suite of foundational AI models on its new Cosmos platform, which developers can use for free to generate data and build their own models. Nvidia said the foundation models, which it said were trained on 20mn hours of video data, were as fundamental a technological development as the large language models that underpin apps such as OpenAI’s ChatGPT. It pairs with Nvidia’s Omniverse platform, which is used to run simulations of the physical world. “What [those models] are doing for language, we can now do for understanding the physical world,” Rev Lebaredian, Nvidia’s vice-president for Omniverse and simulation technology, told the Financial Times. While data on the physical world is much harder to gather and process than text, Lebaredian said “it’s a necessary part” of the company’s mission. “The big takeaway [from Huang’s CES speech] is that this moment is going to be a special one,” he added. “I think this year is an inflection point where we’re going to see this acceleration of physical AI and robotics.”
- Nvidia also unveiled a collection of foundation models for humanoid robots, called the “GR00T Blueprint”, which it said would “supercharge” the development of robots, as well as new tools for developing and testing fleets of factory and warehousing robots and training autonomous vehicles. Autonomous vehicles “will be the first multitrillion-dollar robotics industry”
Tencent Shares Decline After US Adds Company to Chinese Military Blacklist Firms on Chinese military list face reputational damage
The US has blacklisted Tencent Holdings Ltd. and Contemporary Amperex Technology Co. Ltd. for alleged links to the Chinese military, targeting the world’s biggest gaming publisher and top electric-vehicle battery maker in a surprise move weeks before Donald Trump takes office.
CATL, a major supplier to Tesla Inc., joined Tencent on a Federal Register of entities deemed to have ties with the People’s Liberation Army. Both companies protested their inclusion as a mistake, saying they have no ties with the military. (…)
While the Pentagon’s blacklist carries no specific sanctions, it discourages US firms from dealing with its members. (…) And the agency added oil major Cnooc Ltd. and Cosco Shipping Holdings Co., both of which have been previously targeted by Washington. (…)
Tencent, China’s most valuable company, has big investments in or deep ties to developers from Fortnite studio Epic Games Inc. to Activision Blizzard Inc. The company founded by billionaire Pony Ma is considered one of the pioneers of the internet and private sector in China, creating a so-called everything app that Elon Musk has held up as a model for X.
During the first Trump administration, the US government sought to ban WeChat — a messaging service that’s evolved into a payment, social media and online services platform — on grounds that it jeopardized national security. (…)
In August, lawmaker Marco Rubio — nominated to become US secretary of state in the Trump administration — asked the Pentagon to target CATL because of its potential to become a vital supplier to the PLA. (…)
CATL accounted for over one-third of global battery shipments in the third quarter of 2024, according to Seoul-based SNE Research, more than double that of runner-up BYD Co. Several US companies, including Ford Motor Co., source from the Chinese firm. (…)
The Chinese firm said it was “a mistake” to include its name on the Defense Department list. It said in a statement that it’s not engaged in military-related activities, was privately founded and became a publicly listed company in 2018. (…)
Some Chinese firms have successfully fought to get removed from the US list. In 2021, smartphone giant Xiaomi Corp. managed to reach an agreement with the US government that set aside its designation as a Chinese military company. Last year, Advanced Micro-Fabrication Equipment Inc. was removed, doing away with a label the firm described as an “irrational” designation. (…)
The Chinese military company list stems from an order signed by Trump in late 2020 that barred American investment in Chinese firms owned or controlled by the military. It was part of a broader effort to rein in what the US had described as Beijing’s abusive business practices.
The Defense Department noted in the Federal Register filing that companies included on the list are entitled to request reconsideration.
In the same statement, the department removed several firms from the list, including AI firm Beijing Megvii Technology Co., China Marine Information Electronics Co., China Railway Construction Corp., China State Construction Group Co., China Telecommunications Corp. and ShenZhen Consys Science & Technology Co.
The companies on the list include General Dynamics, Boeing Defense, Space & Security, Lockheed Martin and Raytheon Missiles & Defense.
China is also banning the export of dual-use items to these companies starting on Thursday, the ministry said.
Ozempic economics: How GLP-1s will disrupt the economy in 2025 Weight loss drugs are saving lives, shrinking waistlines and shaking up the economy.
(…) As of May, roughly 1 in 8 American adults had tried GLP-1 receptor agonists (GLP-1s for short). This percentage has almost certainly grown since then, as telehealth companies, “medi-spas” and compounding pharmacies have aggressively marketed GLP-1 prescriptions.
We’re only just beginning to learn the full universe of effects for this class of drugs. Originally developed to treat Type 2 diabetes, GLP-1s were soon discovered to be effective in treating obesity and managing weight loss. Now there’s an ever-growing list of other potential uses (on- and off-label), including for treating heart disease, sleep apnea, Alzheimer’s, substance abuse and maybe even gambling addiction. (…)
Spending on GLP-1s is skyrocketing. (…) Perhaps this is unsurprising given that more than 40 percent of Americans are clinically obese. The United States spent an estimated $40 billion on all GLP-1 meds in 2024, with spending projected to triple by 2030.
Consumers are spending less on food and alcohol. The average household with at least one family member on a GLP-1 is spending about 6 percent less on groceries each month within six months of adoption. That translates to about a $416 reduction in food and drink purchases per household a year. Spending reductions are even greater for high-income households, according to a new study by researchers at Cornell University and Numerator.
Other consumer-facing industries are being transformed, too. For example, rapid weight loss has encouraged some patients to replace their wardrobes. The clothing rental company Rent the Runway recently reported that more customers are switching to smaller sizes than at any time in the past 15 years. Airlines could save significant money on fuel if passengers slim down en masse, a financial firm projected. Life insurers could cash in, too, given the many mortality risks linked with chronic obesity.
(…) helping Americans lose weight has the potential to make the public much healthier — and reduce spending on other (costly) care.
Research suggests most patients who were prescribed these meds stop taking them within a year. Some stop because they’ve successfully reached their goal weight. But many others report stopping because of costs, unpleasant side effects, drug shortages or squeamishness about needles.
Obesity-related disabilities, absenteeism, “presenteeism” (that is, showing up but not performing your best), and premature death all have enormous social and economic costs. Which means that making Americans healthier can make the labor market healthier, too, especially if interventions occur while patients are young and have many working years left. (…)
FOMC 101
From Wells Fargo:
- 12 voters, currently 5 hawks, 4 doves, 3 neutral (all chair-related)
- 8 non-voting members who may influence discussions: 4 hawks, 1 dove, 3 neutral.
- 20 total: 9 hawks, 5 doves, 6 neutral.
Gosh! I can’t avoid wondering how the Fed, which could not figure out rentflation and the wealth effect, will be able to grasp how AI and Ozempic will impact the economy.
Wait, no worries, they keep saying they are data dependent, i.e. backward looking… 