The U.S. economy might be stronger than it’s ever been.
It feels like an incredible claim, but a host of economic indicators are flashing bright green.
For starters, the goods and service sectors are growing at rates simply not seen in a long time. March readings for the U.S. service and manufacturing growth came in at 63.7 and 64.7, respectively. A reading above 50 indicates growth.
The combined services and manufacturing score of 128.4 is the best reading on record by almost 9 points, and corresponds to overall U.S. economic growth of between 5% and 6%, well above the 2.5% average of the past 20 years.
While the recovery has been uneven for some Americans, the few are not benefiting at the expense of the many. Economist Ed Yardeni recently wrote that his proxy for earned income is at a record.
And there may be more growth to come simply because of the record amounts of government stimulus floating around. Eventually, that could lead to concerns that the economy is growing too quickly.
An overheating economy is the new risk. But we’ll gladly take it over the pandemic.
*** In this week’s Streetwise podcast, Barron’s columnist Jack Hough speaks with BofA stock strategist Savita Subramanian about why the S&P 500 looks wobbly and the case for going beyond U.S. large-caps. Listen now.
Credit Suisse Books $4.7 Billion Loss, Sacks Top Managers After Archegos Debacle
The Swiss-based bank said on Tuesday it would take a charge of CHF4.4 billion ($4.7 billion) after its dealing with hedge fund Archegos Capital Management forced it to dump more than $2 billion worth of stock last week in a fire sale.
CEO Thomas Gottstein deemed the losses unacceptable and the bank announced that Brian Chin, head of investment banking, and Lara Warner, chief risk and compliance officer, will step down from their roles.
- “Serious lessons will be learned,” Gottstein said in a statement. Credit Suisse said it now expects first-quarter losses at around 900 million Swiss francs ($960 million).
- Credit Suisse also suspended its share buyback program, cut its dividend by two thirds, and canceled the bonuses of its senior management team for this year.
- The Archegos scandal follows another Credit Suisse fiasco in recent weeks, when the bank became one of the main victims of the collapse of British supply chain finance firm Greensill Capital.
What’s Next: Gottstein has been in his job barely more than a year and has had to fight a string of disasters since he took office, including charges brought last year against the bank by Swiss prosecutors for alleged money laundering. Credit Suisse said at the time it would “defend vigorously” against those charges. Gottstein may need more than cutting bonuses and reshuffling personnel to overhaul the troubled lender.
How a Global Minimum Corporate Tax Rate Could Help Biden’s Infrastructure Plan
The U.S. wants the world’s largest economies to agree to a baseline tax rate that all companies would have to pay. The idea is to keep multinational corporations from avoiding taxes by shopping around for the most favorable rates.
- “We’re working with G20 nations to agree to a global minimum corporate tax rate that can stop the race to the bottom,” Treasury Secretary Janet Yellen said Monday in her first major address since taking office. She did not specify what that rate would be.
- The plan aims in part to ensure that governments have stable tax systems to generate enough revenue to “invest in essential public goods and respond to crises,” Yellen added.
- A global minimum corporate tax would help Biden’s $2.3 billion infrastructure plan, which he plans to fund with higher corporate taxes, by disincentivizing companies to relocate or seek out ways to shift profits to countries with lower tax rates.
- Sen. Joe Manchin (D., W.Va.) said Monday that he opposes Biden’s proposal to raise corporate taxes from 21% to 28% but might consider an increase to 25%. Manchin’s vote is crucial because Biden will need all Democratic senators on board to pass his plan without Republican support through the reconciliation process.
- The Senate’s nonpartisan parliamentarian on Monday ruled in favor of a Democratic effort to pass further legislation using reconciliation.
What’s Next: Biden said Monday that there was “no evidence” that his proposed tax hike would keep companies from doing business here. The average corporate tax rate in G-7 countries is 24%, according to the Tax Foundation.
CDC Decision on Vaccinations Sends Shares of Cruise Company Stocks Up
Cruise industry stocks rose Monday after the Centers for Disease Control and Prevention issued guidance saying that cruise ship passengers are not required to be vaccinated, even though it still hasn’t given a specific timeline for sail dates.
- In issuing new technical guidance including daily reporting of Covid-19 cases and routine testing of crew, the CDC did not outright require either crew or passengers to get vaccinated.
said Monday that it will require both passengers and crew to be vaccinated and has requested a July 4 sail date on the grounds that the CDC says that travel is low-risk for those who are fully vaccinated.
The U.S. issued a no-sail order last March causing cruise lines, and their stocks, to take a beating.
for example, saw revenue fall from nearly $21 billion in 2019 to under $6 billion in 2020, for a 73% decline.
Shares of Norwegian rose 7.2% Monday, with Carnival rising 4.7% and
- Biden, who is visiting a vaccination site in Virginia on Tuesday, will move the deadline for states to open vaccine eligibility for all adults from May 1 to April 19, according to a CNN report. Many states have already set deadlines for April 19 or earlier.
What’s Next: Despite growing interest in vaccine passports abroad, Dr. Anthony Fauci said Monday that the U.S. government will not issue or require them. Israel has already begun using them within its borders and the European Union is planning to issue “digital green certificates” by June.
—Janet H. Cho
Supreme Court Rules for Google in Copyright Fight With Oracle
- The case dates back to 2010, when Oracle claimed Google developed its Android operating system software, which has roots in the Java programming language, without a Java license, copying key code known as application programming interfaces, or APIs.
- Sun Microsystems, which developed Java, was acquired by Oracle in 2010. Oracle sought monetary damages and requested that Google stop using the allegedly infringing code. Google conceded that it used the code, but said that its usage met the “fair use” provision of U.S. copyright law.
- Justice Stephen Breyer wrote in the majority opinion that Google’s copying of the Java SE API, “was a fair use of that material as a matter of law.”
What’s Next: In a statement, Oracle expressed disappointment in the decision, and pointed out that various regulators are examining Google’s business practices. Kent Walker, Google’s senior vice president for global affairs, called the ruling “a victory for consumers, interoperability, and computer science.”
—Connor Smith and Eric J. Savitz
Americans Behind on Home Payments May Get Additional Relief
The Consumer Financial Protection Bureau on Monday proposed extending bans on initiating foreclosures against Americans who are unable to pay their mortgages until 2022.
- Under the CFPB plan, mortgage providers would be prohibited from initiating foreclosure proceedings until after Dec. 31, 2021. The rule would apply to all mortgages, federal and private.
- An estimated 1.7 million homeowners are at risk of foreclosure this fall when forbearance programs allowing them to defer home payments end. Those most at risk are disproportionately Black, Hispanic, Native American, low-income and rural, the CFPB said.
- “Millions of families are at risk of losing their homes to foreclosure in the coming months, even as the country opens back up,” CFPB Acting Director Dave Uejio said. “ We must not lose sight of the dangers so many consumers still face.”
- Even when protections eventually end, economists do not expect as many foreclosures as during the 2008-09 financial crisis in part because rising home prices give owners the option of selling their homes for a profit and moving to less expensive housing.
What’s Next: Economists say the scale of foreclosures that will emerge after the pandemic depends on the strength of the overall economic recovery. The public has until May 11 to comment on CFPB’s proposal.
—Janet H. Cho
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—Newsletter edited by Anita Hamilton, Stacy Ozol, Mary Romano, Matt Bemer, Ben Levisohn