Economy Check-up Jan 31

Contents

• GDP
• Industrial Sector
• Consumer Spending
• Employment
• Business Confidence
• Housing Market
• Liquidity

GDP GROWTH

GDP Growth in the 4th Quarter slowed from (3.1% - 2.3%). This is just below the 10-year average of around 2.7%.

Industrial Sector Activity

The Industrial sector of the economy remains weak but looks to be accelerating. Trump's policies will likely result in a production boom.

Consumer Spending

Consumer spending has been the strongest driver of the economy of late. Retail Sales are right around the long-term average of 4%.

Employment

Job growth continues to slow from the 2021 highs. However, relative to history, employment is strong, as it sits well below the long-term average.

Unemployment was rising but recently peaked at around 4.2%, which is still well below the long-term average of 5%.

Business Sentiment

Small Business Optimism is having the strongest rise in it's history. Small businesses are 99% of all businesses.

PMI's are the most cyclical indicators we have. Supply Chain Managers are more optimistic about the future. Both ISM manufacturing and ISM services are reflecting re-acceleration.

Housing Market

The housing market continues to struggle, although it's in much better shape than in the last two years. Elevated Interest rates

Home Builder Sentiment is also poor. This is obviously due to elevated long-term interest rates.

Liquidity Check ✅

• Where is liquidity coming from?

The Global Money Supply is 👉🏽 up, while liquidity injections from Major Central Banks are 👉🏽down.

How is Global Money Supply rising while central banks drain credit from the financial system?

Although the Federal Reserve (BLUE) is reducing liquidity (reducing treasury holdings) from the system, US banks (GREY) are adding liquidity. A bigger balance sheet for banks means more credit creation.

US Banks are supporting market liquidity by purchasing newly issued US government debt. This liquidity ensures that the US treasury (now the Trump Administration) can start spending in the economy without raising more debt. They also need to ensure that inflation doesn't re-vamp.

Not concerned with Inflation ✅

US growth and inflation have been cooling since Q3 2023. Until Tariff policies are implemented, there's not much visibility on growth and inflation.