U.S. Economy This Week: Big, Beautiful Good News
Tax cuts extended, mild spending cuts implemented. That's a good week's work.
Guest post by economist Robert Genetski, Ph.D.
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After the House of Representatives approved Trump’s “big, beautiful bill,” long-term interest rates moved higher. Beauty is in the eye of the beholder, and financial markets were not favorably impressed.
Although the initial reaction was negative, the bill is very good news. It permanently locks in most current tax rates and reduces next year’s federal spending to $6.7 trillion, down from this year’s $7.2 trillion. There is also a chance the Senate’s version will cut spending even further
Thursday’s S&P business surveys registered an improvement in business activity for May. Both manufacturing and service company readings moved to 52, up from 50 (break-even) in April. These are positive signs the economy is moving ahead.
Despite the tariffs, in April most official inflation data shows only moderate price increases. Both the total and core CPI increased by 0.2 percent. This may be the first indication that Trump is correct about tariffs not adding to inflationary pressures. [And you heard me forecast that months ago at Life, Liberty, Property, if you’ve been following us.—Ed.)
Moody’s downgrading of US Treasuries was a nonevent as our stock markets still approached all-time highs. The US economy is the strongest in the world. This is especially true after Friday’s vote to extend the 2017 tax cuts and add to them.
Next week’s main news begins on Tuesday with a report on April new orders for durable goods. March new orders soared, and the April report will likely show a decline following those preorders in anticipation of tariffs.
Thursday’s second estimate of first quarter GDP numbers also may include a report on first-quarter profits. If so, it will show an estimate of spending and real growth based on incomes. This estimate should show the first quarter GDP was stronger than initial estimates from the spending side, which show zero growth.
The most important news will be Friday’s report on April spending, incomes, and inflation. This report provides about 80 percent of the monthly GDP information. It will confirm the extent to which the economy remained strong in the second quarter,
as indicated by other data. It also will provide further confirmation that inflation remained subdued in April.