Growth, Employment and Inflation Cycles With Lakshman Achuthan
Aug 1, 2024
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Lakshman Achuthan, co-founder of the Economic Cycle Research Institute and co-author of a book on economic predictions, shares his insights on the interconnectedness of growth, employment, and inflation. He discusses the impact of restrictive immigration policies and COVID-19 on the labor supply. The conversation explores the influence of economic stimulus measures, challenges of setting inflation targets, and the intricate dynamics of economic cycles. Achuthan also highlights how geopolitical events and demographic trends shape economic forecasts.
Building a resilient investment portfolio requires differentiated strategies that adapt to ongoing market volatility and shifting economic conditions.
Understanding the interrelationship between growth, employment, and inflation cycles is crucial for deciphering the overall health of the economy.
Monitoring leading and coincidental indicators can provide valuable insights for investors to make informed decisions and adjust strategies effectively.
Deep dives
Building Resilient Portfolios
In today's unpredictable market, building a resilient investment portfolio is crucial for achieving long-term financial goals. The discussion highlights the significance of incorporating differentiated investment strategies alongside core portfolios, creating a flexible approach to tackle ongoing market volatility. Investors are encouraged to think beyond traditional investment methods and consider alternative strategies that can provide new income potential previously unseen over the last decade. By being proactive and adaptable, investors can better position themselves for whatever economic shifts may arise.
Understanding Economic Cycles
The conversation emphasizes the importance of recognizing the three main interrelated economic cycles: growth, employment, and inflation. Each of these cycles plays a critical role in deciphering the health of an economy and understanding the nuances behind fluctuations. The discussion illustrates that growth and inflation do not always move in tandem, highlighting that employment cycles can also behave independently. By analyzing these cycles, investors can gain valuable insights into the broader economic landscape and make informed decisions in their investment strategies.
Leading and Coincidental Indicators
The podcast delves into the utility of leading and coincidental indicators in predicting economic trends and cycles. Leading indicators provide foresight into future economic activities, enabling investors to prepare for potential shifts in the market landscape. In contrast, coincidental indicators reflect the current state of the economy, providing real-time insights into growth, employment, and income. The dialogue emphasizes that discerning the relationship between these indicators can help investors understand when to adjust their strategies or make contingency plans.
Inflation Dynamics and Future Risks
A critical point of discussion centers around the cyclical nature of inflation and its potential impact on the economy going forward. The analysis suggests that inflation is unlikely to consistently decrease to a targeted level, with indicators hinting at the possibility of an inflation upturn looming. Factors such as global commodity demand, geopolitical tensions, and changing fiscal policies must be closely monitored as they can influence inflation rates. Understanding these dynamics will be vital for investors in mitigating risks and effectively managing their portfolios amidst changing economic conditions.
Navigating Labor Market Challenges
The conversation tackles the complexities of the labor market, particularly after the disruptions caused by the COVID-19 pandemic. Labor shortages persist, affecting hiring practices across industries, which leads to unique challenges for employers trying to balance workforce demand with economic pressures. This situation has resulted in a phenomenon referred to as 'labor hoarding,' wherein companies are reluctant to let go of employees despite fluctuations in demand. Recognizing how labor market dynamics interplay with economic cycles can provide valuable context for investors as they gauge overall economic health and growth potential.
Barry Ritholtz speaks to Lakshman Achuthan, co-founder of the Economic Cycle Research Institute. Achuthan met his mentor, Geoffrey H. Moore, at Columbia University in 1990; they formed ECRI with Anirvan Banerji in 1996. He serves on the board of governors for the Levy Economics Institute of Bard College. In 2004, he co-authored Beating the Business Cycle: How to Predict and Profit From Turning Points in the Economy.
