The Week in Review: July 31, 2023
Defying Expectations
Gross Domestic Product (GDP) is a broad measure of the value of goods and services in the economy over a certain period.
Last week, the U.S. Bureau of Economic Analysis reported that GDP rose at an annual pace of 2.4% in Q2, accelerating from Q1’s 2.0% and topping the forecast of 2.0% (Wall Street Journal).
Sometimes, we analyze the quarterly change and find that one-off factors aided or detracted from the headline number. This time, however, that was not the case.
Although consumer spending slowed a bit, strong spending, and investment by businesses more than made up for any slack. It’s also worth noting that the many recession predictions made since the start of the year continue to miss the mark.
Meanwhile, the Federal Reserve hiked its key rate by 0.25 percentage points to 5.25 – 5.50%, the highest in 22 years.
The fast pace of rate increases last year has been replaced by a much more subdued posture, which has helped fuel the recent stock market advance.
The Federal Reserve didn’t shut the door on another rate hike (or hikes) this year, but it didn’t provide much detail on the timing or certainty of an increase. Much will depend on the economy and inflation.
And that’s a bit of an unknown, even for the best economic forecaster.
Please do not hesitate to contact me if you have any questions or concerns.
Two for the Road
The U.S. today accounts for 58% of the output of the G-7 group of leading nations, compared to 40% in 1990. Investors who put $100 into the S&P 500 in 1990 would have more than $2,000 today, four times what they would have earned had they invested elsewhere in the rich world. Incomes for the country’s poorest fifth have risen in real terms by 74% since 1990. America has done very well in the past three decades. And it will keep doing so if Americans can avoid narratives of negativity that invite politicians to “mess up the next 30 years.” - The Economist, April 13, 2023
Last year was a record-setting year for income tax payments. Americans paid out an estimated 14.7% of their personal income in 2022, an all-time high. The main reason for this record-setting tax burden is that asset prices rose so much, and people sold them for big profits. For many others, there was bracket creep as inflation caused some incomes to get bumped temporarily into higher brackets. - Bloomberg, April 12, 2023
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