3 in 3: A Raise, a Capex Bump, and a Bullish AI Signal

Lower income households are getting a raise. 

Capex signals confidence, and that confidence continues to increase. 

And small businesses are quickly catching up to large businesses and their use of AI. 

I'm Jim Lydotes, and today in our three points in three minutes, we're going to look at three recent macro data points and how they connect to investment ideas. So let's flip over the timer and let's go. 

First up is wage growth. There's been a lot of talk about the K-shaped recovery where you had higher income households doing better, while lower income households were facing much more pressure from everyday costs. That's been going on for a while now. Well, with the June data now in hand, we're starting to see a meaningful inflection in lower income household wages, which is really the first positive change that we've seen in quite some time. 

This should have positive implications for the consumer package goods space. These are the companies that sell cereal, they sell detergent, they sell snacks. This is a group that's cheap today. It's been cheap for probably the last two years, but it's been missing a catalyst. And if wages for the lower income consumer continue to move in the right direction, this could in fact be the catalyst to get that group going. 

Second, capex estimates. One of the things we keep a close eye on is changes to capex estimates as we move through the year. How much companies are spending to buy machinery, to build out their plants. And the most recent check on this shows continued increases in spending estimates over the last three months. Numbers continue to move higher. It's in tech, it's in com services, all the areas that you'd expect, but it's also broader than that. Nine out of eleven sectors are showing a tick higher. The other two are holding steady. 

If you think about it, companies have a great deal of discretion around what they are spending on. And if they are telling you that these numbers are going up, that's a huge vote of confidence in the health of the economy. And that confidence is pretty broad-based. 

Finally, the US Census Bureau publishes regular updates on AI adoption rates by US businesses. And while those rates have been growing, as you'd expect, with every update, there hasn't been much new in the data for some time. Well, that's changed with the latest update, where we saw the adoption rates by small businesses surge most recently, and they're closing the gap to large businesses at a record pace. 

Adoption rates by large businesses are normally more of a push. You have the CEO, you have boards, you have managers that are trying to push workers to get organizations to adopt different technologies. But for small businesses, it's much more of a pull. What's interesting to me here is that just as more of these AI providers are moving towards consumption-based models where you pay for exactly what you use, the authentic pull users are ramping up their adoption rate. Despite the recent volatility, I'd say this is one of the clearest signs of underlying AI demand, which reinforces our confidence to continue to lean into the AI theme across the equity platform. 

That's our three points in three minutes with a little sand left in the bottle. Have a great week and we'll see you back here next time.

Grassroots Research® and Grassroots® are registered trademarks of Allianz Global Investors GmbH (AllianzGI), and are used by Voya Investment Management (Voya IM) pursuant to a licensing agreement with AllianzGI. Research data used to generate Grassroots® reports may be paid for by commissions generated by trades executed on behalf of clients. 

Risks: Principal risks are generally those attributable to investing in stocks and related derivative instruments. Holdings are subject to market, issuer and other risks, and their values may fluctuate. Market risk is the risk that securities or other instruments may decline in value due to factors affecting the securities markets or particular industries. Issuer risk is the risk that the value of a security or instrument may decline for reasons specific to the issuer, such as changes in its financial condition.