There's a productivity boom in the U.S. similar to the 1990s, says KKR's Henry McVey

Economic Overview - The latest economic data in the United States has shown better-than-anticipated results, supporting the positive outlook for KKR and its portfolio companies [1][2] - A significant capital expenditure (capex) boom is occurring, particularly in AI, which has outpaced growth in personal consumption [3][5] - Personal consumption, which constitutes about 70% of the economy, has seen upward revisions, indicating a potential recovery [3][5] Labor Market Insights - The unemployment rate is expected to remain low, influenced by demographic factors and a reduced labor supply [3][10] - There is a noted asynchronous recovery in the economy, with manufacturing facing challenges while the services sector performs well [7][11] - Despite some slower hiring, there is no significant wave of layoffs, contrasting with trends seen before past recessions [11][12] Federal Reserve and Interest Rates - The Federal Reserve is anticipated to shift its focus from inflation to employment, with expectations of rate cuts to support economic growth [12][15] - The housing market is currently weak, with 21% of states experiencing negative home price appreciation [15] Global Market Dynamics - KKR's portfolio, which includes 150 to 200 businesses, continues to see increased capex and stable consumer spending, suggesting a relatively safe market environment [16] - Asian markets are showing strong performance, with Korea up 60% and China up 35% year-to-date, indicating potential investment opportunities [17][18] - The trend of companies shedding unprofitable subsidiaries presents significant opportunities for private equity investments in Asia [19][20] Trade and Consumption Trends - A shift towards a tripolar trading world is emerging, with increased intra-Asian trade expected to rise from 48-50% to 70% [22][23] - Consumption upgrades in emerging markets like Vietnam and India are contributing to GDP growth, benefiting from increased trade [24] Productivity and Economic Outlook - A productivity boom reminiscent of the 1990s is occurring, driven by digitalization and automation, which may lead to higher wages and revenue growth [8][9] - Concerns exist regarding the sustainability of AI spending and its impact on GDP if returns on capital decline [25][26] - The productivity boom may lead to a lower savings rate among Americans, raising concerns about low-income credit and reinforcing the need for continued Fed easing [27][28]