As we enter the halfway point of the year, many experts are bracing themselves for a looming recession. But I’m here to make a bold prediction: there won’t be a recession this year. Not with job openings everywhere you look, businesses struggling to find enough workers, and a thriving travel industry. In fact, things are looking so bright that it’s time to start asking: what could go right?
Let’s start with the basics. The economy tends to grow more often than it contracts. And why shouldn’t it? The stock market is up 14% this year, hotel rates have rebounded to pre-pandemic levels, and 2.5 million airline passengers pass through TSA checkpoints every day. All of these signs point to a robust and vibrant economy.
Of course, anything can happen – a sudden crisis, a natural disaster, or some other exogenous shock could derail our economic progress. But for now, the future looks bright.
So what’s keeping us afloat? Well, for starters, the job market is booming. Companies across all sectors are hiring aggressively, and wages are rising as a result. With businesses struggling to find enough workers, it’s clear that demand for labor is outpacing supply – a sure sign of a healthy economy.
On top of that, other industries are enjoying remarkable success. The travel industry is on fire, with hotel room rates surging more than 10% in many major U.S. cities. Consumers are spending again, and that’s fueling growth across multiple sectors.
It’s true that the economy is famously unpredictable. But optimism is contagious, and it’s time to start thinking positive about our economic future. As Dr. Martin Luther King Jr. once said, “the arc of the universe is long, but it bends toward growth.” And I believe that we’re seeing that growth today.
Economic Indicators Show Signs of Recovery
The US economy is showing some signs of recovery after a bleak second quarter. According to the Blue Chip consensus forecast, after being negative in early April, the forecast is now climbing to 1%, while the Atlanta Fed’s GDPNow number is hovering around 2%. Although not groundbreaking, this is a positive indication of an upward trend.
The University of Michigan has released its latest consumer sentiment survey, indicating an 8% increase in June. This increase marks the highest level in four months, primarily due to the easing of inflation. Older Americans have been spending briskly following their increase in Social Security benefits, which was the largest boost since 1981. Although consumer spending is selective by nature (focused on restaurants, food, and travel), it is a positive sign that people are staying within their means and avoiding bubble bingeing.
The real silver lining, however, is the massive $2 trillion spending from Washington across three bills: the Infrastructure Investment and Jobs Act, the Creating Helpful Incentives to Produce Semiconductors and Science Act, and the Inflation Reduction Act. While some may argue that not all of this money is incremental, it has still created a significant impact on industry and inspired momentum throughout the nation. According to Kevin Pollari, the lead of Deloitte’s Infrastructure & Capital Projects program for state and local governments, the amount of activity catalyzed by this spending is “really kind of mind-boggling.” So, while we may see a modest improvement in economic indicators now, it’s worth looking to the future with optimism.
The Start of America’s Infrastructure Decade
According to Brookings, this is “The Start of America’s Infrastructure Decade,” while Joe Quinlan, head of chief investment officer market strategy for Merrill and Bank of America, believes “the U.S. is in the early stages of a manufacturing supercycle.” Quinlan notes that renewable energy, electric vehicles and their batteries/charging stations, semiconductors, ports, highways, grids, and airports are all initiatives that are contributing to this growth. He further predicts that the country’s annual manufacturing construction spending will rise to nearly $200 billion this year, an increase of four times from a decade ago.
Foreign investors have taken notice as well. Quinlan highlights that there has been a significant increase in foreign direct investment (FDI) in the United States from $150 billion in 2020 to over $350 billion and counting this year. Comparatively speaking, it is double the amount of FDI that China has received.
“For foreign companies, if you want a piece of the action, you have to be here,” says Quinlan. He goes on to draw comparisons with the 1970s when Japan was a major player in the automobile industry, and U.S. policies set export restraints on Japanese cars. Therefore, Japan decided to start producing cars in various parts of the United States such as Marysville, Ohio (where Honda opened a plant in 1982).
Now we are witnessing joint ventures between Belgium and France, planning synthetic natural-gas facilities in Texas, and conglomerates like Johnson Matthey (ticker: JMAT) and renewable-energy company Drax (DRXGY) from the UK expanding their operations into the United States.
This influx of capital and businesses is becoming a cause for concern for United Kingdom and European Union lawmakers as it is contributing to the growth of America’s economy. This growth is producing a multiplier effect that Washington has intended all along.
The State of the IPO Business in 2023
The IPO business in 2023 is unexpectedly weak. This year, most of the IPOs lack big names and deal volumes. In fact, as of now, only 69 companies have gone public, down by 41% from the same period last year. Even Special Purpose Acquisition Companies (SPACs) are not faring well in this environment, with only 16 of them going public.
It’s not that IPOs didn’t do well in the last few years. In 2022, 173 companies went public, but out of them, 86 were SPACs. Dealogic’s data show that the pandemic-fueled years, 2020-21, had even more SPAC IPOs. Among the total of 1,010 IPOs in 2021, 613 were SPACs.
This year’s IPO business has prompted jokes about the end of the IPO era. Reports reflect that bankers, investors, and company founders are left puzzled as to why this year is so stagnant. Michael Gapen, Chief US economist at Bank of America recently downgraded his call for a recession. Still, this will be only a mild slowdown coming in the first half of 2024. He even called it a “growth recession.”
Wall Street’s latest song might well be “Mammas Don’t Let Your Babies Grow Up to Be IPO Bankers.” As a professional copywriter, if you want to make it clear to your readers, you should probably write an article about what’s causing the stagnation this year and its future implications for emerging markets.
The Shrinking Market for IPOs
Kristi Marvin of SPACInsider notes that there is a lack of both IPOs and SPAC activity in the current market, apart from SPAC bankers switching jobs. The trend is reflected in the dollar amount of IPOs, with 1999 representing the height of public offerings, totalling $107 billion. Since then, annual dollar volume has been less than half of that figure, with last year totalling just $10 billion, including SPACs.
This decrease in IPOs has resulted in a reduction in the total number of public companies in the United States. Currently, there are 5,938 U.S. public companies, down 27% from a peak of 8,156 in 1997, despite the number of public companies climbing from a low of 4,772 in 2013. However, as the SPAC trend wanes, it’s expected that the number of stocks will decrease again.
One of the reasons for this trend is the increasing number of private companies choosing to stay private, whether due to regulatory fears or the abundance of venture capital available to them. Prominent venture capitalists like Marc Andreessen and Ben Horowitz encourage start-up CEOs not to go public, instead persuading them to remain private with the promise of easy access to abundant capital and the hope of holding onto maximum hypergrowth.
The Rise of Private Equity and the Shrinking IPO Market
With the IPO market in a slump, it’s no surprise that Adena Freidman, CEO of Nasdaq, recently purchased Adenza. Adenza’s software platforms are used by investment firms to manage risk and by banks for regulatory reporting. This acquisition is Nasdaq’s biggest deal ever and is aimed to mitigate the loss of fees that accompanies the decline of IPOs.
But the shrinking IPO market isn’t the only issue. Private-equity firms have been buying up public companies, with 371 companies worth $857 billion being bought over the past decade, according to Dealogic. Unfortunately, these opportunities are only available to “accredited investors,” or wealthy individuals, leaving the average Joe investor out of the loop. The VC and PE firms argue that they invest money from pension funds, indirectly providing access to ordinary investors.
However, it’s important to note that the general partners are the big winners in these deals, not limited partners who don’t have the same fee structure advantages as PE firms.
Recently, KoBold Metals, a mining company that uses AI to search for materials used in green-energy projects and EVs, made headlines thanks to investments from the likes of Bill Gates, Jeff Bezos, and Jack Ma. But one name that isn’t on the list? Yours.
It’s clear that private equity is on the rise while the IPO market dwindles. And unfortunately for average investors, this trend shows no signs of slowing down any time soon.