Delusions
January 26, 2024
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–Once again, GDP stronger than expected with Q4 Advance reported at 3.3%. ZH notes that in nominal dollars, Q4 GDP rose by $329b, but the US budget deficit over the same period rose $510b…”In other words it now takes $1.55 in budget deficit to generate $1 of growth…” As I mentioned after the last employment report, in calendar year 2023, 25% of all new jobs added were by government.
–Today brings the Fed’s preferred inflation data. PCE prices expected 0.2 m/m and 2.6 yoy from 2.6 last. Core expected 0.2 with yoy expected 3.0 from 3.2 last.
–Attached chart shows 2/10 (amber) and 5/30 (white) with the vertical line being the last Qtrly Refunding Announcement. The initial move was flattening as funding was shifted toward the front end. Currently, 5/30 is actually near a new high at 36.2 (accentuated by a few bps due to the switch to the new 5y). The high in the spread last year was 41 bps in May, in the aftermath of the regional banking crisis. That level has been the highest since March 2022. My bias is for further steepening as the Fed begins to cut rates, though the refunding composition and changes to QT are also important factors.
–Despite GDP, yields were lower on the day. Tens fell 4.8 bps to 4.128%. On the SOFR strip, reds rose over 7 bps and greens 6 bps.
–Next week includes FOMC and Treasury Refunding Announcement on Wednesday. Alphabet and MSFT report on Tuesday, AMZN, AAPL, META on Thursday. Payrolls on Friday.
–I don’t often stray into the political sphere, but here’s a clip from Yellen’s speech yesterday, emphasis added:
“Real wages have risen from their pre-pandemic levels—especially quickly for middle-income households. And because wages have risen more than prices, middle-class Americans now have more purchasing power. New Treasury analysis shows that a worker earning the median wage can today buy the same goods and services as in 2019, with nearly $1,400 left over to save or spend. And families are now putting their extra income and their accumulated pandemic-era savings back into the economy.
Put simply, it’s been the fairest recovery on record.”
In my opinion, the public at large doesn’t seem to view it as a fair and booming recovery. Perhaps it’s a bit closer to Dean Phillips’ characterization:
Rep Dean Phillips, Presidential Candidate: “We have a duopoly, a two-party system that is literally working against voters…. my party is completely delusional right now“
