Recent Economic Developments:
- President Biden has signed the debt ceiling bill into law, preventing a US default.
- Despite the debt ceiling resolution, Fitch may downgrade the US credit rating.
- A surge in new US Treasury sales could become a benchmark for liquidity stress.
- IMF chief reports, “We don’t yet see a significant slowdown in lending,” indicating stable financial conditions.
- Expectations for Federal Reserve rate cuts in 2023 are starting to fade as the economy demonstrates resilience.
- OPEC+ plans to extend oil production cuts to stabilize crude prices.
- The US added a significant number of jobs in May, marking the largest gain since January.
- Small-cap stocks could perform well should the risks of a US recession diminish.
- The US stock market (S&P 500) reached a 9-month high last Friday.
Life after Capitalism: The Meaning of Wealth, the Future of the Economy, and the Time Theory of Money
George Gilder
Review via RealClearMarkets.com
Although Gilder authored “Wealth and Poverty,” recognized as a cornerstone of supply-side economics, his later work, “Knowledge and Power,” critiques the previously accepted notions of “incentive” economics. Gilder argues that wealth is fundamentally the result of innovative information, rendering individual tax rates less significant, especially in technological sectors. He insists that individuals, particularly those driven by the desire to innovate, are not weighing tax implications before committing to entrepreneurial ventures. Furthermore, while tax rates undeniably influence economic activity, Gilder urges a reevaluation of their role in fostering work and innovation.
The anticipated long-term return for the Global Market Index (GMI) has slightly increased to a 6.0% annualized rate in May, surpassing the previous month’s estimation. This forecast, derived from the average of three models detailed below, is on the lower end of typical realized performance over the last decade.
Latest Legislative and Economic Updates:
- The Senate has passed the debt ceiling bill, sending it to President Biden to prevent default.
- Global manufacturing output increased in May, but new orders continue to decline.
- Arizona has implemented restrictions on residential construction in Phoenix due to water scarcity.
- The US manufacturing sector is experiencing contraction, as reflected by the ISM Manufacturing Index.
- Jobless claims have risen slightly, yet remain at low levels.
- Construction spending in the US for April surged beyond expectations.
- US companies added more jobs than anticipated in May, per ADP.
In May, most major asset classes experienced declines, except for US stocks and cash, which stood as the notable exceptions. The broader market, represented by an assortment of proxy ETFs, recorded significant losses last month.
Key Legislative Updates:
- The House has approved a bill to raise the debt ceiling, alleviating the threat of default.
- The Senate is under pressure to expedite the passage of the debt-ceiling bill.
- Eurozone inflation has dropped to 6.1%, exceeding forecasts in May.
- China’s manufacturing output grew to an 11-month high in May, as per a PMI survey.
- The Eurozone is experiencing a deepening manufacturing recession, now at a six-month low.
- The Federal Reserve’s Beige Book points to a slowing economy.
- US births have slightly declined in 2022 compared to 2021.
- The Chicago PMI decreased in May, indicating a worsening in manufacturing.
- US job openings unexpectedly rose in April.
The warning signs regarding the economy are becoming increasingly evident. Nonetheless, the US economy continues to defy expectations that a recession is imminent. Despite being in a precarious state with vulnerabilities on various fronts, a positive macro trend persists and seems poised to continue.
The agreement reached on Saturday between President Biden and House Speaker McCarthy regarding the debt ceiling may prove to be the simpler aspect of this issue. The real challenge now lies in navigating the legislation through both houses of Congress to avert a US government default this week.
Current Global Events and Economic Outlook:
- President Biden and Speaker McCarthy are actively seeking votes to ensure the passage of the debt ceiling bill.
- If approved, the debt ceiling deal could serve as a new obstacle for the US economy.
- Moscow has faced drone attacks as Russia intensifies its bombings in Ukraine for the third consecutive day.
- NATO troops have been injured during clashes with Serbs in Kosovo.
- Biden discussed military equipment with Turkey’s newly re-elected President related to F-16s and Sweden’s NATO application.
- North Korea has announced plans to launch satellites for real-time monitoring of US military activities and those of its allies.
- China’s ongoing recovery reveals deeper economic struggles developing over time.
- Market analysts are downgrading expectations regarding a potential pause in interest rate hikes.
- Small-cap stocks are seemingly pricing in recession risks.
