1/ Here’s a hypothesis that I haven’t seen much discussed: maybe the economic growth that we are currently seeing in the United States is simply fake; that is, made up of make work to keep the economy ticking over before the election. 🇺🇸🧵
2/ I barely need to highlight how many leading indicators are screaming ‘recession’ in the US. Let’s just look at PMIs. Manufacturing PMI is at 47.6, worse than the beginning of the 2008 recession.
3/ Services PMIs are following the same trajectory.
4/ Yield curves signal financial conditions, not real economic ones. But the yield curve is at pre-Great Depression levels.
5/ Yet last time we saw these sorts of recession indicators unemployment was rising. This time employment numbers are calm as a lake.
6/ The other day a friend asked me is this normal. And I started to think just how abnormal it is. Then I started to think: maybe its all fake.
7/ The key variable here is the budget deficit. Because of the absolutely huge deficits from the pandemic, we tend to miss how weird a +5% deficit is with an economy at full employment.
8/ Spending is being driven, in part at least, by the Biden admin’s IRA. The Treasury is bragging about how the act has unleashed a building boom.
9/ In the long-term, the US needs more manufacturing so its hard to oppose this. But in the short-run this might just be providing the sugar rush needed to offset falling property prices.
10/ This would explain why we’ve seen an unusual dip in productivity since the end of 2021. The growth is simply fake. A sort of economic Potemkin Village - quite literally in fact because the government are paying people to build things with no current market value.
11/ The question then is: can it last? Did the Biden admin, consciously or otherwise, time the IRA just right to keep out of recession before the election? We’ll soon find out, I guess.
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