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Despite promises that AI could prove to be society\u2019s great equalizer, Gregory Daco, the EY-Parthenon chief economist, argues that \u201cproductivity growth protects margins, not income.\u201d\u00a0<\/p>\n
\u201cYou tend to have greater concentration and more of a winner-takes-all type of environment when you have these technological advances,\u201d Daco said in an interview with Fortune\u2019s Eva Roytburg. In almost every technological revolution\u2014the railroad boom of the late 19th century, or the 90s dot-com revolution\u2014large, vertically-integrated firms initially capture the gains, while smaller ones face \u201cpersistent cost pressures, persistent policy uncertainty, higher interest rates,\u201d Daco noted.\u00a0<\/p>\n
In 2026, economic output grew 1.7% in the second quarter, just based on 0.3% more hours. Compensation rose 2.6%, which, set against a spring and summer of oil-driven inflation, comes out to \u201cflat to slight contraction\u201d in real terms, added Daco.\u00a0<\/p>\n
Meanwhile, margins hit a record 14.9% of GDP, while the labor share fell to 52.8%, the lowest since the government started counting in 1947. Daco said that 50% isn\u2019t a floor and that labor\u2019s share could fall even further.<\/p>\n
MORE FROM FORTUNE
\nIT\u2019S NOT THE FED ANYMORE<\/p>\n
The upward march in bond yields no longer stems from uncertainty around Federal Reserve policy, writes JPMorgan\u2019s Kriti Gupta and Nick Roberts in a note shared with Fortune.\u00a0<\/p>\n
While the initial move for bonds stemmed from a disconnect between a hawkish Fed and softer data, \u201cthe logic has shifted.\u201d\u00a0<\/p>\n
\u201cIt\u2019s a combination of worries around global fiscal deficits, an increase in hyperscaler issuance, and the rise of refined product prices,\u201d the pair wrote. \u201cThat\u2019s on top of economic growth in the U.S. economy.\u201d<\/p>\n
Trouble is also brewing \u201cunder the hood\u201d of the economy, the note adds. While on the surface, oil prices haven\u2019t spooked markets in the same way they did when the Middle East conflict began earlier this year, American refineries, largely built to convert heavy crude into those refined products, are nearing their maximum capacity.\u00a0<\/p>\n
\u201cSo, even though light crude is readily available, it doesn\u2019t necessarily alleviate the rising prices of those refined products, or the potential readthrough into more consumer-facing products, like airfares. The relationship has created a synergy between refining margins and bond yields.\u00a0<\/p>\n
\u201cAs investors measure the impact of the conflict, the building relationship shows pressure in that part of the commodities market is starting to align with the move in bond yields,\u201d the note adds. <\/p>\n
THE MARKETSWaiting on key jobs report<\/p>\n
The U.S. jobs report is released today to more scrutiny than usual. Investors and analysts have been waiting to see whether the Federal Open Market Committee (FOMC) follows through on its hawkish narrative with some action at its next meeting in September.\u00a0<\/p>\n
If the jobs report comes back ok-ish, then that frees up the FOMC to deliver a hike markets have been waiting on.\u00a0<\/p>\n
But as Deutsche Bank\u2019s Jim Reid noted this morning: \u201dThe most recent jobs report for July was much weaker than expected, with payrolls unexpectedly contracting, along with downward revisions to the previous couple of months. So that casts further doubt on a September hike.\u201d\u00a0<\/p>\n
He added: \u201cOur U.S. economists are expecting nonfarm payrolls to rebound by +65k, with the unemployment rate holding steady at 4.1%. So if realized, that would cement the view that the labor market is holding up and keep the Fed\u2019s focus on inflation.\u201d\u00a0<\/p>\n
S&P 500 futures were up 0.045% this morning.\u00a0
\nIn Europe, the Stoxx 600 was up 0.072% in early trading, and the U.K.\u2019s FTSE 100 was down 0.073% before lunch.
\nAsia: South Korea\u2019s KOSPI was up 1.64%. Japan\u2019s Nikkei 225 was up 1.26%. India\u2019s Nifty 50 was up 0.27%. China\u2019s CSI 300 was down 0.099%.\u00a0
\nBrent crude was $95.17 per barrel this morning.
\nBitcoin was just under $81,000.<\/p>\n
CHART OF THE DAYSubprime auto loans show signs of distress among poorer households<\/p>\n
\u201cThe clearest signal of stress remains concentrated in subprime consumer credit,\u201d according to Pimco\u2019s Tiffany Wilding and Lotfi Karoui. \u201c90-day delinquency rates on subprime auto loans have risen significantly in recent years, even as the rate for prime auto loans has remained relatively stable.\u201d<\/p>\n
The rising delinquencies suggest that low-income households will get hit hard if the economy experiences a reversal: \u201cIt\u2019s worth considering whether today\u2019s subprime weakness is a leading indicator of broader stress to come, or whether any broader stress would require an exogenous catalyst\u2014a genuine labor-market shock, or an abrupt end to the AI capital-expenditure cycle\u2014to materialize.\u201d<\/p>\n
NUMBER OF THE DAY3%<\/p>\n
The percentage of British people who have gambled online and have done so while in hospital \u201cor during the birth of a child,\u201d according to a survey of 2,001 adults by Gamble Mind, a website that ranks online casinos.<\/p>\n
THE FRONT PAGES TODAY<\/p>\n
The inflation genie could be out of the bottle \u2014 and bond markets are sounding the alarm – CNBC<\/p>\n
Volkswagen jumps 6% on plans to cut 50,000 jobs amid tariffs, China competition – CNBC<\/p>\n
Anthropic finalizing $15 billion pre-IPO credit facility – Bloomberg<\/p>\n
OpenAI says it has overtaken Anthropic with its latest AI model – FT<\/p>\n
Musk\u2019s Boring Co. pushes investors for recruiting, business help – WSJ<\/p>\n
U.S. diesel prices set new high – NYT<\/p>\n
ONE MORE THINGMultimillionaire Suze Orman says eating out in restaurants is a big waste of money<\/p>\n
Suze Orman has spent decades as a best-selling author and TV host, teaching people how to invest, save for retirement, and manage their money. She\u2019s also built a fortune of her own, with a net worth in the tens of millions. But there\u2019s one category of spending that has always bothered her: eating out at restaurants, which she has called one of the biggest wastes of money, Fortune\u2019s Prestone Fore writes.<\/p>\n
\u201cLook up McDonald\u2019s. Look up Taco Bell. Are you kidding me? $23, $30 just to go to McDonald\u2019s for whatever you eat there,\u201d Orman once complained.<\/p>\n
She has a particular hatred for your daily Starbucks habit: \u201cYou need to think about it as: You are peeing $1 million down the drain as you are drinking that coffee,\u201d Orman said to CNBC in 2019. \u201cDo you really want to do that? No.\u201d<\/p>\n
Having said that, if you do go out to eat with Orman, you are in for a treat\u2014because she will insist on paying. \u201cIf we go out to eat, the deal is we have to pay because I am not going to let people, who I know don\u2019t have the kind of money that we have, waste their money on … eating out,\u201d she said.<\/p>\n
#AIs #productivity #boom #create #winnertakesall #economy #top #economist #warns<\/p>\n","protected":false},"excerpt":{"rendered":"
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