The Daily Spark

Default rates are falling, distressed exchanges are declining and the number of liability management exercises are declining, see charts below.

The bottom line is that the economy is strong and there are no signs of a full-blown credit cycle.

The chart below shows that pharma and insurance are dominated by large companies, while services and construction are dominated by smaller companies.

America is at peak 18, and the number of 18-year-olds will fall 14% over the coming decade, see chart below.

The share of S&P 500 profits captured by the 10 largest companies has doubled since 1996, see chart below. The S&P 500 is not a diversified index anymore, it is dominated by a small number of extraordinarily profitable tech companies.

Business formation in the US is on the rise driven by AI, see here. As more Americans launch AI-driven ventures, early-stage deal activity is accelerating, with large rounds now capturing nearly 30% of all deal count versus almost nothing a decade ago, see chart below.

Jevons paradox holds that when technology makes a task more efficient, total consumption of that task increases rather than decreases, because lower costs expand demand, see also here.

Examples are radiologists, call centers, and travel agents.

The release of Excel is a another example. In 1993, Microsoft released Excel 5.0 for Windows, which included Visual Basic for Applications, opening up near-unlimited possibilities for automating repetitive tasks, crunching numbers and presenting data.

The bottom line is that rather than reducing the need for accountants, Excel dramatically lowered the cost of financial analysis, reporting and record-keeping, making these services accessible to a far broader range of businesses and use cases.

The result has been more accountants, not fewer, see chart below.

Daily data on consumer confidence shows sentiment falling for households making less than $50,000 a year, while households making more than $100,000 are seeing consumer confidence go up, see chart below.

This divergence is likely driven by lower-income households worrying about rising gas prices, while higher-income households are focusing on rising stock prices.

When China joined the WTO in 2001, US manufacturing was hit hard, but US nationwide unemployment stayed remarkably low because offsetting forces like service sector growth, export gains and business expansion absorbed much of the blow.

The AI shock is following the same playbook. The displacement force is different this time, impacting cognitive and white-collar work rather than factory floors. But every other element of the structure is remarkably familiar: a powerful disruption, immediate job losses in exposed sectors, and a wave of offsetting gains that keep headline unemployment low, see chart below.

And if history is any guide, the gains will be substantial. Just as cheaper Chinese inputs helped US businesses grow and hire, AI is already accelerating business formation and productivity gains across the economy. Half of post-1980 job growth came from occupations that didn't exist in 1980.

The bottom line is that we have seen this before. Just as the China shock gave way to new industries and stronger businesses, AI will drive productivity gains and create opportunities that will more than replace jobs lost today.

Unlike previous capex cycles, today's investment boom is concentrated entirely among large-cap firms, see chart below.

Online booking was supposed to wipe out the travel agent. It did not. Jevons paradox explains why: cheaper travel booking created more total travel demand, and some of that flowed back to human agents for complex trips, luxury travel and corporate accounts, see chart below.