The low on unemployment has been found, and passed, I think, is relatively uncontroversial to say. Employment change (-ve mom) is noisy, and in level terms remains strong, and overheated. But we will see material moderation from here (slight juxtaposition of terms).
It means we aren’t interested in companies like SEEK, for example, the online job ads portal, at this stage of the cycle.
We are also avoiding the consumer discretionary names, as rates go up, employment (at some stage) goes down, and we think those names will struggle as spending normalises.
In particular the auto related stocks (distributors, sellers etc), which are at the very tip of the discretionary cycle (you can absolutely delay getting a new car) are ones we are steering clear of.
Whilst it is something of a stretch, note that the marked lack of vehicle production globally (the below is the US production stats) due to supply chain issues, and the availability of chips, had narrowed. Indeed, at the very end of the time series below, you can see the sudden jump in production to a level above the historical average.
That means some of the really acute shortages that had driven up prices, sales, revenues, and the carrying value of inventory, will start to abate.
Now, that’s US data, and we are really trying to shoehorn a point about local exposures into this, but, Australia imports most of its cars, and the general observation holds, we think.
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