Eric Basmajian

AI Investment Is Masking a Weaker Economy Strip out AI investment and the case for rate cuts becomes difficult to ignore. Key cyclical sectors are still struggling.

blog.epbresearch.com/p/ai-investm...

’Total GDP is running at a 6% nominal pace. The ever-important Cyclical portion of GDP is growing at a 3.5% pace but if we remove a narrow 6% slice of computer equipment investment, we drop to a stagnant 0.6% (negative in real terms).’ blog.epbresearch.com/p/ai-investm... by @epbresearch.bsky.social

YouTube video by EPB Research Why the Recession Hasn’t Started Yet

Why The Leading Indicators Failed?

We produced a video explaining what happened this cycle and what it means for the validity and usefulness of traditional leading indicators going forward.

Watch here: www.youtube.com/watch?v=N9l4...

These Are The Best (And Worst) Leading Indicators Not all economic indicators are created equal. Here are the best (and worst) for recession forecasting.

epbresearch.substack.com/p/these-are-...

Why Leading Indicators Failed This Cycle (Or Did They?) Leading indicators declined for three years with no recession - here is what actually happened.

Why Leading Indicators Failed This Cycle (Or Did They?)

Leading indicators declined for three years with no recession - here is what actually happened.

epbresearch.substack.com/p/why-leadin...

Where U.S. Growth Went The Hidden Link Between Government Size, Vanishing Net Investment, and Stagnant Real Incomes

Where U.S. Growth Went

The Hidden Link Between Government Size, Vanishing Net Investment, and Stagnant Real Incomes

open.substack.com/pub/epbresea...

‘The major question for the economy in 2026 is whether the monetary easing we’ve seen so far is enough to arrest labor market declines in cyclical sectors before they cause downstream stress in the less cyclical areas of the economy.’ blog.epbresearch.com/p/where-the-... by @epbresearch.bsky.social

Between employee cost and interest cost, there's been a 13% swing relative to total GVA.

Some of that savings went to increased depreciation costs, but most of it went right to the bottom line.

Net interest expense has been volatile historically, but it's rock bottom now, just 0.3% of GVA.

Many factors are at play, but looking at the major line items tells much of the story.

Employee compensation was stable at approximately 64% of gross value added before declining after the 2000s recession. Now sitting at 55%.

Corporations picked up 9 points in employee cost.

Corporate profit margins are nearly 20%.

Double the 10% level that was seen in the 80s, 90s, and early 00s.

What is going on?

This is a great explainer on what really matters in the business cycle.

TL;DR: Look out for
- Durable Goods Consumption (Consumers)
- Residential Investment (Consumers)
- Business Equipment Investment (Companies)

The rest is noise.

The 20% of the Economy That Drives 100% of Recessions Why conventional analysis fails — and the three sectors you should actually be watching.

epbresearch.substack.com/p/the-20-of-...

‘It’s clear that the AI-driven investment surge in narrow computer equipment is masking what would otherwise be a broad contraction in the traditional cyclical and interest rate-sensitive sectors.’ blog.epbresearch.com/p/43-gdp-gro... by @epbresearch.bsky.social

Maybe independents hold the highest signal?

Sadly, the biggest determinant of your feeling on the economy is...your political party...

The University of Michigan Current Conditions Index declined to the lowest level in recorded history in December.

The labor market remains...

No fire (stable initial claims)

No hire (higher unemployment rate)

You Could Have Seen 2008 Coming. Here's Exactly How. The three charts that signaled the recession 18 months early.

You could have seen the 2008 recession coming.

A global banking crisis? Not so much.

Here are three charts that signaled the recession 18 months early.

blog.epbresearch.com/p/you-could-...

For the private sector, the job opening rate is stable.

Hiring rate and quits are remain extremely weak while the layoff rate ticked up slightly.

It remains an extremely tough labor market for new entrants and those looking for a job.

Layoffs are still generally low.

Production of consumer autos & trucks is declining sharply 📉

Production of business vehicles is exploding 📈

What's the best explanation for this?

The 20% of the Economy That Drives 100% of Recessions Why conventional analysis fails — and the three sectors you should actually be watching.

The 20% of the Economy That Drives 100% of Recessions

Why conventional analysis fails — and the three sectors you should actually be watching.

epbresearch.substack.com/p/the-20-of-...

A big societal tension is that we have a large "social safety net" and not much scope to increase it further, but a small portion is distributed based on income rather than age.

Government transfer payments account for almost 20% of total personal income.

But roughly 60% of those transfer payments are directed at the older demographic (Social Security and Medicare).

Unemployment rate trends by age cohort.

Sizable increase in the unemployment rate in September, despite better nonfarm payroll gains.

The wealth concentration continues.

Where will the effective tariff rate settle at the end of the year?

The housing inventory situation in New York is laughably bad.

Among the worst in the country.

Thanks Mike!