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US economy
There are a lot of idiosyncratic factors that juiced growth last quarter. One is that growth was relatively disappointing at the beginning of the year and was due for a rebound. Again, the numbers are noisy. But another major factor is that businesses freaking out about Trump’s trade war likely pulled forward some of their activity. That is, as Morgan Stanley chief U.S. economist Ellen Zentner puts it, they “doomsday prepped” by stockpiling raw materials, intermediate goods and finished products before tariffs raised costs on all those things. Soybean exports surged, for example, as companies raced to beat retaliatory tariffs that went into effect this month. The jump in soybean exports alone probably added 0.6 percentage points to GDP growth in the second quarter, estimates Ian Shepherdson, chief economist at Pantheon Macroeconomics. We should expect a reversal later this year, as buyers run down their existing inventory rather than place new orders..

The economy’s great. That doesn’t mean Trumponomics is. - The Washington Post

Trump’s own Office of Management and Budget projects that the deficit will reach nearly $900 billion this year and top $1 trillion next year. That’s not even including other new costs on the table, such as a $12 billion bailout for farmers hurt by Trump’s trade war or $90 billion in additional tax cuts the House passed this week. One last thing to keep in mind if you see high-fives at the White House on Friday: Where are the raises? Output may have swelled last quarter, but paychecks did not. Adjusted for inflation, average hourly earnings were flat in June compared with a year earlier, according to the Labor Department. If Trumponomics is indeed working, it’s still not working for workers..

The economy’s great. That doesn’t mean Trumponomics is. - The Washington Post


The total U.S. debt just passed the $21.3 trillion mark, of which $15.6 trillion is owed by the public. The Treasury announced Wednesday that it will be adding $1 billion each to auctions of 2-, 3- and 5-year debt over the next three months, and $1 billion each for 7- and 10-year note and 30-year bond auctions in August. In addition, the department is issuing a new two-month note to help assure liquidity in the fixed income market. The changes will add $30 billion to the debt issuance for the quarter. On the overall, the Treasury said it expects to borrow $769 billion in the second half of the year, a projected 63 percent increase from 2017.

The Trump administration is headed for a gigantic debt headache



The big conundrum, wage growth, or the lack of it..

Wage growth remains stubbornly low — and one trend across many U.S. companies could be contributing to the problem: Cutting middle managers. Even though the economy added 1.5 million jobs so far in 2018, wage growth has been persistently sluggish, said Brian Kropp, HR practice leader at consulting firm CEB, a division of Gartner, a global research and advisory firm. “Companies continue to flatten their organization,” Kropp said. “There are fewer opportunities to get promoted.” And that means less reason to bump up salaries. Average hourly pay increased 7 cents to $25.07 in July, according to data released Friday by the Bureau of Labor Statistics. Nevertheless, the 12-month wage growth rate stayed the same, at 2.7%, a figure many economists called weaker than expected. Wages generally increase at a rate of 3% to 4% when the economy is approaching full employment. The elimination of middle management positions is a trend that researchers have noted since the early 1990s, particularly as technology began to make many of the tasks performed by mid- and junior-level managers obsolete. Kropp said it reached a fever pitch during the Great Recession, when companies sought to lay off middle managers in an effort to cut costs.

One reason why wages aren’t rising faster: The gutting of middle-manager positions - MarketWatch



For the tax cuts to work long-term (apart from their short-term boost of demand and sentiment) we need business CapEx to take off. Is this happening?

Unfortunately, there is not much sign of this happening. US investment growth has accelerated slightly in 2018 and was 6.7% higher in the first three quarters of the year than in the same period a year earlier. It was actually growing faster in 2010-12 during the early stages of the recovery. “Much of the growth we have seen this year is not from tax cuts but from higher world energy prices spurring a boom in oil and gas drilling”, says Dean Baker, senior economist at the Center for Economic Policy Research in Washington. “If we pull out energy-related sectors, the rise in investment would be even less.” The growth boost from the tax cuts will gradually fade over the next 12-18 months just as higher interest rates really start to bite. To complete the picture, Trump’s protectionist measures will also be a drag on US growth..

Despite rapid growth in wages, Trump should be concerned | Larry Elliott | Business | The Guardian


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