1. Recently we examined the latest data on US #government spending, i..e, US #fiscal impulse. Monthly spending data from the government contains significant #volatility; therefore, we apply a smoothing process to extract spending trends in government data.
2. Above, we show our estimates of the monthly changes in US government spending. We decompose this spending into its sources, i.e., government revenues, borrowing, and cash balances.
3. Our latest estimates for government spending in May saw spending rise by 1%, primarily driven by decreases in government cash balances.
4. Over the last 12 months, the government has largely relied on spending its existing cash balances into the economy as the primary source of spending. We show this below:
5. As shown above, government spending has accelerated over the last year, despite lower government revenues and borrowing. Below, we show how this has flowed through to GDP as well:
6. This spending has come as debt growth has slowed, but following the debt ceiling resolution, debt growth is likely to be as support to total spending and GDP in the future. We show the composition of debt growth below:
7. The primary driver of this slowdown has been the significant decline in personal income tax receipts. We show this below
8. Overall, government revenues continue to paint a picture of weak private sector conditions. For government spending to continue to contribute to GDP, we will need to see continued borrowing, as government cash balances have largely been depleted.
9. As business conditions deteriorate, corporate income taxes will likely soften alongside household income taxes. This decline will eventually be a headwind for government spending in GDP. In the meantime, the shortfall will need to be made up by sustained borrowing.
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Is The Current Labor/Output Relationship Sustainable?
In recent months, employment has softened significantly after a period of strength. This has often prompted the question as to whether activity will fall to reflect this weaker employment growth.
1/1 9 We evaluate 🧵
2/
As ever, before we describe mechanics before diving into these observations.
The core principle that drives this thread is that labor market growth via employment is the dominant driver of sustainable long-term growth in the economy.
This is because labor both earns….
3/ … and spends, and is the center point of economic activity.
Given this centrality of employment growth, it is rare in the macro economy for output to meaningfully deviate from labor market growth.
If output deviates from employment growth for a time, it is usually…
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.