1/ Income and spending are two sides of the same coin, with one person’s spending powering another person’s income.This relationship isn’t necessarily 1:1, as consumers can save income. Nonetheless, the pass-through is large:
2/ Currently, aggregate income remains supported by a high level of nominal wages and heightened employment. We see this in today’s economic data, where nominal personal income grew primarily as a function of increasing employee compensation:
3/ Employee compensation accounted for 51% of monthly income growth, which remains in line with its one-year trend. On an annual basis, employee compensation continues to power nominal income growth, and the drop-off in government benefits continues to drag on growth:
4/ However, these marginal increases in income were not allocated to spending but rather saved. We show the composition of the monthly change in income and its uses:
5/ In May, 51% of income increases were saved by consumers, effectively canceling out the growth in employee compensation. The impact of these increased savings was a decline in monthly outlays, i.e., a drag on personal spending, with 60% of sub-categories turning lower in May.
6/ Over the last year, Real Consumption has been in a downtrend though the latest print breaks this trend. This sequential acceleration was due to the drop-off of last May’s data, which showed a decline of -0.5%. We offer the monthly trend:
7/ This print disappointed expectations with a monthly change of -0.4% versus expectations of -0.3%. Motor Vehicles & Parts has been the most significant driver of these moves with a weighted year-over-year growth of -8.3%.
8/These weak areas of the economy tend to be highly responsive to the business cycle, i.e., they swing ahead of major inflections in the business cycle. They bode I’ll for the business cycle. We use these components to get a sense of the direction of GDP growth to come:
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The best information we can ever provide investors is the mechanics of how we think about macro conditions over time rather than what we think about them at any particular time.
Below we share a list of our most comprehensive Macro Mechanics notes. Enjoy!⬇️
1. Why Does GDP Growth Matter?
We offer our thoughts on what we consider table stakes in trading markets and a precise understanding of why Growth markets to investors.
The best information we can ever provide investors is the mechanics of how we think about macro conditions over time rather than what we think about them at any particular time. We share our framework for thinking about bonds and how to time them. 🧵
Bonds are fixed-income assets issued by the government that offer compensation as a reward for migrating from cash. In turn, cash seeks to entice savers by offering a return that largely neutralizes the depreciation of money caused by inflation.
Thus, in order for a treasury bond to be attractive, it will seek to earn a return in excess of cash and implicitly seek to offset the impact of inflation over the course of its life. The life of a treasury varies by its tenor, ranging from a 3-month bill to a 30-year bond.
The best information we can ever provide investors is the mechanics of how we think about macro conditions over time rather than what we think about them at any particular time.
We share our framework for thinking about stocks and how to time them. 🧵
Before discussing how we think about making bets on the stock market, we briefly provide an overview of what a stock is. A stock represents a share of ownership in a company. When you buy a stock, you are a partial company owner.
Companies issue stocks to raise money for operations, expansion, or other projects. Investors are willing to invest in equities because they perceive the current price to be at a discount due to the uncertainty around the company’s operations being successful.
1/ Prometheus ETF Portfolio was our first retail strategy, launched in November 2023. The strategy has achieved our goal of achieving strong risk-adjusted returns relative to cash with limited capital drawdowns in depth and duration:
2/ Prometheus ETF Portfolio aims to allow everyday investors to access an investment solution that combines active macro alpha, passive beta, and strict risk control, all in an easy-to-follow, low-turnover solution. Thus far, we have been successful in generating these outcomes.
3/ However, innovation has been the cornerstone of our evolution, and we’re constantly pushing forward our understanding of macroeconomic dynamics to further our edge in markets.
Employment growth has begun to deviate meaningfully from GDP numbers. This is unlikely to persist.
Will output come down to meet employment, or will labor markets accelerate?
1/23 Thread.
2/Employment & output are at odds. To understand what’s driving the gap between them, we examine each individually. We then reconstruct the gaps between spending & employment for major industries, allowing us to assess 1) what’s driving divergence, & 2) its sustainability
3/In terms of labor market mechanics, the two primary macro drivers of employment growth are changes in the labor force and changes in unemployment.
1/20 At its core, inflation is a simple concept: the change in the overall price level in the economy. This price level can be measured in various ways: CPI, PCE, PPI, GDP Deflator, etc.
2/20 Like economic growth, inflation represents a mechanical framework that has more power than any specific definition.
3/20 Inflation is fundamentally driven by the balance between nominal spending (demand) and the available supply of goods and services in an economy.