Can Biden's Infrastructure Bill Reinvigorate the Economy?

TL;DR

The discussion does not establish that Biden’s infrastructure bill will reinvigorate the economy; it notes a $1 trillion Senate bill and a $3.5 trillion House bill that must be reconciled. The stronger conclusion is that growth and inflation were expected to slow in the second half of 2021, with the ISM index falling to 59.5. Read on for the indicators behind that outlook.

Transcript

welcome to the real vision daily briefing it's monday august 2nd 2021 i'm ash bennington joined today by jack farley and our guest darius dale from 42 macro here are the stories we're looking at right now stocks fractionally lower at the close after advancing this morning on strong earnings then declining after the ism factory activity gauge weaken... Read More

Key Insights

• 🐢 Economic growth is expected to slow in the second half of the year, accompanied by decelerating inflation.
• ☠️ The TIPS market indicates a negative real rate of interest, suggesting a potential deflationary environment.
• 📈 Investable duration may be around three to six months, with the back end of the year and early next year experiencing trended deceleration in PMIs.

Questions & Answers

Q: Can Biden's infrastructure bill reinvigorate the economy?

The discussion does not reach a conclusion about whether the bill can reinvigorate the economy. It says senators were finishing a $1 trillion Senate infrastructure bill that would need to be reconciled with a $3.5 trillion House bill, while the broader economic outlook pointed to slowing growth.

Q: What did the ISM manufacturing index indicate about the economy?

The ISM purchasing managers’ index came in at 59.5, below the 61.0 economists expected. Because a reading above 50 indicates monthly economic growth, the economy was still expanding, but its pace of recovery was slowing.

Q: Why was economic growth expected to slow in the second half of 2021?

Darius Dale said demand in goods and manufacturing was moving past its peak without a strong handoff to service-sector consumption. He described that transition as creating a soft patch in the economy.

Q: What was the outlook for inflation in the second half of 2021?

Dale expected inflation to slow during the second half of the year. He also said growth and earnings were likely to begin disappointing further into the third and fourth quarters.

Q: What did South Korea's business sentiment data suggest?

South Korea’s business sentiment indices were showing incremental deceleration. Dale said these diffusion indices track and lead global PMI data by one to two months, supporting an expectation that PMIs would continue trending lower.

Q: How long were PMIs expected to trend lower?

Investors were told to expect PMIs to trend lower through the back end of the year and into the early part of the following year. The outlook reflected manufacturing activity rolling over from its cycle peak.

Q: What did the global manufacturing data show about major economies?

The manufacturing PMI comparison showed several major emerging-market economies experiencing trending deceleration. Some were also in contraction, with China identified as an obvious example.

Q: Could weaker economic news become positive for markets?

Dale said investors might return to a regime in which bad economic news was treated as good news after they understood how the Federal Reserve was likely to respond. He said that interpretation also depended on inflation dynamics being supportive.

Summary & Key Takeaways

• The ism purchasing vendor's manager's index came in at 59.5, indicating a moderate slowdown in economic growth. However, the economy is still growing.

• Economic data from South Korea also shows incremental deceleration, suggesting that PMIs will trend lower in the coming months.

• The global macro risk matrix indicates that most economies will experience a decline in growth and inflation, transitioning from a reflation to a deflationary environment.