Latest news with #EY-Parthenon
Mint
6 hours ago
- Business
- Mint
Stocks are flying, the Dollar is falling, tariffs haven't hit yet. Why cut rates now?
As 2025 nears its halfway point, a latter-day Rip Van Winkle who might have been napping since the start of the year might think not much had changed. The S&P 500 index, while closing at a new high on Friday, was up an unremarkable 5%. That, of course, obscures the dramatic swings in between, with a near bear-market 19% decline from February to the lows after the Trump administration's April 2 Liberation Day tariff announcements. Then came an equally dramatic rebound following a pause in tariffs and a retreat from triple-digit levies threatened for China. But mainly, the first half gave rise to the investment meme of 'Nothing ever happens," insofar as the stock market is concerned. Trade wars and the uncertain impact of tariffs on the economy; fiscal fights over the Big, Beautiful tax bill that resulted in the U.S. losing its last triple-A credit rating; and conflicts in the Middle East, including the U.S. bombing of Iranian nuclear sites on June 22. After all of that, the S&P 500 and the Nasdaq Composite are ending the first half at record highs. Forget about the proverbial 'wall of worry" that bull markets supposedly ascend. The new belief, 'Nothing ever happens," is actually relevant to stocks and helped induce individual investors to buy the steep dip in April and May, putting a lie to all the hand-wringing. By halftime, the mood had swung back to FOMO, or fear of missing out. What hasn't changed is the Federal Reserve's policy stance. And yet, despite an ebullient equity market, an accommodative credit market, and a sharply lower dollar—all signs of easy financial conditions—the president has harangued Fed Chair Jerome Powell for failing to slash its federal-funds target range, which has been held at 4.25% to 4.5% since December. In congressional testimony this past week, Powell reiterated uncertainty about the effect on prices from tariffs, which mostly haven't hit yet. As EY-Parthenon Chief Economist Gregory Daco explains, their impact has been blunted by the front-loading of imports before the levies hit; use of bonded warehouses and foreign trade zones, which can delay tariff payments until goods enter the U.S.; temporary cost absorption by importers; lags in measuring tariff pass-throughs; and absorption of costs by exporters. Goldman Sachs economists expect just a one-time inflation boost from tariffs, raising the year-over-year core personal consumption expenditure index (excluding food and energy) to 3.4% in December, significantly higher than the 2.7% increase in the latest 12 months for the Fed's preferred inflation gauge reported on Friday. Brean Capital economic advisors John Ryding and Conrad DeQuadros note that the most recent CFO survey, conducted by Duke University and the Richmond and Atlanta Feds, found 41% planned to hike prices while 30% said they would absorb tariff cost increases in the next year. Goldman's inflation forecast is well above the Fed's 2% target, making it difficult to justify cutting rates now. Yet two Fed governors, Christopher Waller and Michelle Bowman, have said they would consider rate cuts if inflation is stable. The fed-funds futures market is pricing in two cuts of a one-quarter percentage point each by year end, with a 74.8% probability of the first move in September, according to the CME FedWatch site. Given the uncertain course of tariffs and their inflation impact, the more likely spur for a rate cut would be a deterioration in the labor market. That will put the monthly jobs data to be released in the coming, holiday-shortened week in the markets' focus. The consensus guess among economists is for a 125,000 rise in nonfarm payrolls in June, down slightly from May's 139,000 increase, with the headline unemployment rate continuing to hold steady at 4.2%. Deutsche Bank economists estimate it may take only a monthly payroll increase of 100,000 to keep the jobless rate steady, below the average gain of 124,000 in the first five months of the year, because of slower labor force growth. With no net immigration flows, only a monthly payroll rise of 60,000 would keep the unemployment rate flat. With deportations, just 40,000 payroll gains would be at break-even. Given the surge in retirements by baby boomers, RBC Capital Markets Senior U.S. Economist Michael Reid writes that the U.S. needs more workers rather than more jobs. While the labor-force participation rate is historically low at 62.4%, for the prime working age cohort it's near a record high of 83%. Retirees, meanwhile, provide a spending tailwind out of their savings and accumulated wealth. At record highs, the stock market provides support for these spenders, along with interest income that had been lacking during the zero-rate era. At the same time, credit markets attest to the financial strength of the corporate sector, writes John E. Silvia, the former chief economist at Wells Fargo. Along with tight corporate bond spreads, the S&P 500's record close indicates easy financial conditions. In particular, new highs in banks and financials point in the same direction. The one big change since the beginning of the year has been the dollar, which has declined by a sharp 10%, yet another easing in overall financial conditions. All of which makes calls for Fed rate cuts puzzling. Write to Randall W. Forsyth at
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First Post
10 hours ago
- Business
- First Post
US recession fears rise as personal income and spending fall in May
Amid the tariffs introduced by US President Donald Trump, fears of a recession loom in America as the US witnessed a decline in personal income and consumer spending in May read more Amid the fears of recession and inflation, the US consumer spending declined for the first time since January. According to the new data released by the US Bureau of Economic Analysis, personal income decreased by $109.6 billion (0.4 per cent at a monthly rate) in May. The Commerce Department report also showed that consumer spending fell 0.1 per cent last month after rising 0.2 per cent in April. The 50 per cent drop-off in motor vehicle sales in May was a significant driver of the overall spending retreat. The vehicle industry saw a sharp decline in May because consumers rushed to dealerships to buy cars in March and April, fearing that President Donald Trump's tariffs would send those costs soaring. STORY CONTINUES BELOW THIS AD However, the Friday report also reflected that the consumers pulled back on spending at restaurants and hotels. It is pertinent to note that Consumer spending powers more than two-thirds of American economic activity. The sharp decline prompted concerns among economists who argue that the steep tariffs on imported goods will erode Americans' resiliency. Consumer economy plunders over fear of Trump Tariffs According to the data released by the US Bureau of Economic Analysis, Personal income fell more than expected for the month, sinking 0.4 per cent. However, the economists argued that the May decline was largely a reflection of Social Security payments returning to more typical levels. In March and April, former public workers received large retroactive payments made under the Social Security Fairness Act due to reduced benefits under the prior legislation. Gregory Daco, chief economist at EY-Parthenon, told CNN that despite the recent months' volatility in those income numbers, the trend is one where income growth 'remains quite subdued." 'Real disposable income (what's left after taxes) is currently trending at a pace of 1.7 per cent year over year,' he said. 'That will bring down consumer spending from the 3 per cent (annual) pace that we were accustomed to through most of 2024 closer to 1.5 per cent over the coming months and perhaps even below 1% in the back half of 2025.' He cautioned that the closer the spending growth gets to 1 per cent, the more vulnerable the US economy becomes. 'You're much more subject to a stalling,' he said. 'You're exposed to price shocks, oil price shocks, tariff shocks, interest rate shocks, stock market shocks, and therefore you're more at risk of experiencing a more significant slowdown or possibly a recession.' STORY CONTINUES BELOW THIS AD However, the figures are still concerning. Major economic forecasts now predict sharply slower growth for the rest of 2025, with real GDP expected to weaken to as low as 1.1 per cent by year-end, compared to 2.5 per cent in late 2024. Economists warn that persistent inflation, higher tariffs, and policy uncertainty are putting additional pressure on household budgets and business confidence. Some analysts caution the US could be facing stagflation — a combination of slow growth and stubborn inflation — rather than a typical recession. The probability of a US recession in 2025 remains significant, with estimates ranging from 25 per cent to 40 per cent depending on the model and scenario. While the latest data do not guarantee an imminent recession, the combination of falling income, weaker spending, and negative leading indicators has heightened risks and could signal more economic trouble ahead.
Axios
21 hours ago
- Business
- Axios
Americans spent and earned less in May as trade war bites
Amid Stagflation Watch 2025, the latest data dump shows a little more stag-, but no real sign of -flation. Why it matters: Mainstream economic forecasts see the trade war leading to both higher prices and more sluggish growth. In May spending and income data out Friday morning, there is more reason to worry about the latter than the former. By the numbers: The Personal Consumption Expenditures price index targeted by the Fed rose a mere 0.1% in May, with the core gauge — excluding food and energy prices — up 0.2 %. While core inflation ticked up to 2.7% year-over-year in May, it has risen at only a 1.7% annualized pace over the last three months. That's the lowest since December 2023, and fully consistent with the Fed's 2% inflation target. Tariff-driven inflation remains the dog that won't bite. State of play: The worrying aspects of the report weren't on the inflation side of the ledger, but in what Americans are earning and spending. Adjusted for inflation, consumer spending fell 0.3% after rising by 0.1% in April. Real disposable income declined by 0.7% last month, the first time since last August that inflation outstripped pay growth. The new numbers brought Atlanta Fed's GDPNow tracker down to an estimate of 2.9% GDP growth rate in Q2, from 3.4%. What they're saying: "Consumers cut back on outlays last month, making fewer discretionary purchases as they grapple with softer labor market conditions, increased financial uncertainty and the onset of tariff-induced price increases," wrote EY-Parthenon senior economist Lydia Boussour in a note. Reality check: The drops in consumption spending and incomes can be at least partly chalked up to one-off events, instead of outright evidence of an economic slowdown. Consumers are easing spending after a springtime splurge on all sorts of goods, aimed at getting ahead of tariff-related price increases. For instance, the biggest drag on spending was goods, autos in particular — a category that was a key beneficiary of spending earlier in the year. The drop in personal income came after a spike in recent months, including a 0.7% jump in April alone from a payout of social benefits for teachers, firefighters and police officers, related to recent legislation. Now it is wearing off. Yes, but: It's clear that the economy had less momentum coming into the second quarter than initially believed. Revisions out Thursday showed the economy weakened at a faster pace in the first quarter, in part due to a slower rate of consumer spending. Economic policymakers were reassured that underlying measures of growth held up as tariff front-loading weighed on the headline figure. But those measures were also revised lower: Real final sales to private domestic purchasers, the sum of consumer spending and investment, rose 1.9% in the first quarter — down 0.6 percentage point from the previous estimate and well below the 3% figure first reported. Minneapolis Fed president Neel Kashkari pondered Friday how tariffs are likely to impact consumer prices — and why there's so little sign of it in the data so far.
Yahoo
2 days ago
- Business
- Yahoo
U.S. economy shrank more than previously thought in early 2025
The U.S. economy shrank faster than previously thought during the first three months of 2025, with growth contracting for the first time in three years. The country's gross domestic product fell at an annual rate of 0.5% from January through March, the Commerce Department reported Thursday in its third and final GDP report for the period. The agency's initial first-quarter GDP report, issued in April, estimated a 0.3% decline, which was later revised to a 0.2% dip in its second print. First-quarter growth was weighed down by a surge of imports as U.S. companies and households rushed to buy foreign goods before the Trump administration's tariffs went into effect. Although a surge in imports can appear to lower economic growth because it shows a shift away from domestic consumption, that doesn't tell the whole story about the U.S. economy, experts say. A category within the GDP data called "real final sales to private domestic purchasers," which measures the economy's underlying strength, rose at a 1.9% annual rate from January through March. While that represents a solid number, it's down from the 2.9% pace in the fourth quarter of 2024 and from the Commerce Department's previous estimate of 2.5% January-March growth. The new data also shows that consumers sharply pared spending earlier this year, with growth at 0.5%, down from a robust 4% during the last three months of 2024. First-quarter consumer spending fell to its lowest level since the pandemic ended, with Americans particularly cutting back on recreation and dining, Greg Daco, EY-Parthenon chief economist, said in a research note. "What we're witnessing is an economy temporarily buffered from the tariff shock by smart logistics maneuvers, proactive pricing strategies and some foreign exporter concessions," Daco said. On Tuesday, Federal Reserve Chair Jerome Powell told a House committee that businesses' rush to build their inventories earlier this year ahead of tariffs taking effect has helped delay any inflationary impacts from the import duties. Because tariffs are paid by domestic importers, all or some of the costs are typically passed onto consumers. Stocking up on inventory early in the year has allowed companies to sell those goods without the added costs of tariffs, Powell noted. "The things that are being sold at retail now, they might have been put into inventory before the tariffs in February or March," the Fed chief said. "We think we should start to see this over the summer, in the June numbers and in the July numbers." Second-quarter rebound? The category of real final sales to private domestic purchasers includes consumer spending and private investment, but excludes volatile items like exports, inventories and government spending. Ryan Sweet of Oxford Economics called the decline in that figure "troubling,″ though he doesn't expect to make a significant change to his near-term economic forecast. Sweet noted that he'll be looking Friday's release of personal consumption expenditures, or PCE, because it will "show how the revisions impacted the trajectory of consumption headed into this quarter." The PCE, the Federal Reserve's preferred inflation measure, shows household spending on goods and services. Economists are forecasting that the first-quarter's influx in imports won't be repeated in the second quarter, which spans April through June, and shouldn't weigh on GDP during the period. Economic growth is forecast to bounce back to 3% in the second quarter, according to economists polled by financial data firm FactSet. The Commerce Department will release its first estimate of second-quarter GDP on July 30. Young Cuban girl asks Trump to lift travel ban stopping her from joining mom in U.S. Hegseth gets heated over reporting on Iran strikes initial assessments Supreme Court allows South Carolina to block Medicaid funds from Planned Parenthood
Yahoo
05-06-2025
- Business
- Yahoo
Uncertainty is the new norm, says EY boss Janet Truncale. She's advising clients to rely on 'muscle memory' to get through.
EY boss Janet Truncale says that uncertainty is here to stay. She shared some advice for entrepreneurs and business leaders in an interview with Bloomberg TV. Lean on muscle memory and don't go it alone, Truncale said. Uncertain times are here to stay, according to the head of the Big Four firm EY. "Uncertainty is going to be the norm. It's going to be there for some time," Janet Truncale, EY's global chair and CEO, told Bloomberg TV in an interview on Wednesday. Business leaders are facing change and tough decisions on all fronts, from quickfire tariff policies and stock market swings, to how to implement AI and handle generational shifts in the job market. Truncale said that "confidence has been up and down in the C-Suite for the last year" and that technology, AI, and tariffs are all topics that entrepreneurs are talking about. Her advice for entrepreneurs and clients is to "stay the course and remember that muscle memory." Entrepreneurs should "go back to what you know and make sure that you don't go it alone," she added. "We've been talking to a lot of entrepreneurs who got to this point of their business without taking outside capital, without outside advice. And I think it's really important in our strategy and for all our customers, you don't need to go it alone," Truncale said. As businesses confront a new era of American trade policy, many are turning to consulting firms like EY for strategies to adapt to the rapidly changing regulatory landscape. The CEO added that in today's uncertain environment, EY's clients were focusing on transformation, growth, the customer, and cost cutting. As global chair and CEO of EY, Truncale is responsible for leading 400,000 employees and overseeing a global network that with revenue of over $50 billion last year. EY has faced its share of uncertainty in recent years. In April 2023, EY made headlines after a bid to split the firm's consulting and audit lines under the previous CEO, Carmine Di Sibio, fell apart amid infighting. EY has also been hit by the wider industry slowdown in demand for consulting services. EY's global annual revenue growth fell by 10 points in its 2024 financial year — the business grew by 3.9% compared to 14.2% in 2023. Truncale has pushed some major strategic changes since she took over as CEO in July 2024, almost one year ago. They include plans to merge EY's existing geographical regions into 10 superregions and the expansion of the EY-Parthenon brand to represent the entire EY strategy and transactions service line. Have a tip? Contact this reporter via email at pthompson@ or Signal at Polly_Thompson.89. Use a personal email address and a nonwork device; here's our guide to sharing information securely. Read the original article on Business Insider Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
