Weekly Economic Update 01-09-26: ISM Manufacturing & Services Indices; Factory Orders; Third Quarter Productivity; JOLTS; and December Employment

The labor market is weakening, but productivity may be the economy's "secret weapon."

The views and opinions expressed in this post are solely those of the author and do not necessarily reflect the views of the Georgia Institute of Technology or the Georgia Board of Regents.

While perusing the vast internet this week, I came across an interesting chart. Long-time readers know that when I come across an interesting chart online, I always try to recreate it from the source data rather than simply cut-and-paste someone else’s chart. That way, I can be confident of the data.

It took me a while, but I was able to reproduce it from source data. Before I go any further, it is probably a good idea to remind you all that I do not give, nor am I in any way qualified to give, investment advice. Anything I write is in no way intended to be investment advice, and is only my own opinion. (And frankly, you probably shouldn’t be looking for investment advice in an $8/month blog…)

The chart below is a dot plot that shows the monthly P/E ratio of the S&P 500 for the last thirty years (x-axis), and then the annualized rate of return over the next 10 years (y-axis). The gold line is the linear trend, and the trend is clear. The higher the P/E ratio, the lower your expected annual return over the next 10 years.