LARRY KUDLOW: The economy is doing better than you think

Larry Kudlow asserts the U.S. economy is outperforming expectations, downplaying the significance of upcoming jobs report figures due to their inherent volatility. He highlights robust underlying strength, citing over 10% annual growth in non-defense capital goods orders and 6% shipment growth over three months, alongside exceptional non-financial corporate sector productivity gains of 3.4% over four quarters and 5.7% last quarter. While acknowledging some labor market softening indicated by JOLTS and ADP data, Kudlow points to a low 4.2% unemployment rate, stable weekly claims, and strong ISM services data as evidence of the economy's resilience and positive trajectory.

Analysis

The economic outlook presented is optimistic, arguing that the U.S. economy's underlying strength surpasses perceptions shaped by potentially volatile headline data. The analysis downplays the significance of the upcoming non-farm payrolls report, where consensus stands at 75,000, by highlighting the statistical difficulty of accurate forecasting and the trend of recent downward revisions. While acknowledging signs of a softening labor market—evidenced by a light ADP report of 54,000, and a JOLTS figure of 7.18 million job openings falling slightly below the 7.2 million unemployed—it frames this not as a major downturn but a modest cooling, counterbalanced by a low 4.2% unemployment rate and stable weekly claims. The core of the bullish thesis rests on strong fundamental indicators: business investment, measured by non-defense capital goods orders excluding aircraft, is up over 10% annually, and non-financial corporate productivity has surged 3.4% over the past year and 5.7% in the last quarter alone. This is complemented by a stronger-than-expected ISM services index at 52%, which contrasts with the persistently weak ISM Manufacturing Index, and reports of rising real wages with no tariff-related inflation.

Key Decisions for Investors

• Investors should look beyond the headline volatility of the upcoming jobs report and focus on more durable underlying trends, particularly the 10%+ annual growth in core capital goods orders and the significant 5.7% quarterly productivity gain.
• It may be prudent to monitor the divergence between the contracting manufacturing sector (ISM under 50) and the resilient services sector (ISM at 52%), as this could inform sector-specific allocation strategies.
• While the outlook is positive, watch for further deterioration in leading labor indicators like the JOLTS survey and weekly claims, as a more pronounced softening could challenge the thesis of robust economic health.