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Lots of crystal gazing is going ahead with interest rate down expectations from the U.S Fed. Well, we started 2024 with 6 rate cut expectations which boiled down to 3 and it seems that it will end up with 2 only. The major reason that many of us did not get hold of is that the US is not in a hurry of its historic interest rate hikes. The economy is in stable condition and the so-called well-wishers of recession, slowdown, soft landing, and hard landing etc. are just wished only with a lack of understanding of the US economy change which has happened in the last couple of years.

 The growth of China happened when U.S. manufacturing shifted its base to their country and the US started importing its broomsticks manufactured by American companies from China. But when Mr. Donald Trump came with full courage on the Chinese economy and raised the tariff war, the US economy got back its fuel for its economic engine. Despite higher interest rates jobs market in the US is very strong as well as the earnings of its people. As per the US Bureau of Labor Statistics Job Openings and Labor Turnover Survey (JOLTS) notes that there were 601K open manufacturing jobs and 449K open construction jobs in December 2023. US unemployment currently sitting at 3.7%, which is well below the average rate of 5.8 % that prevailed during the last 2 decades.

In 2023 alone we find that US manufacturing gained significant momentum due to the laws passed in 2021 and 2022 about core three areas 1) the Infrastructure Investment and Jobs Act (IIJA),2) the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act, and the3) Inflation Reduction Act (IRA).

If we look at the blessing of these three laws, we find a significant boom in the inflow of funds towards US manufacturing.

  • Investments in semiconductor and clean technology manufacturing are nearly double the commitments made for these sectors throughout 2021, and nearly 20 times the amount allocated in 2019.
  • It has been found that close to 200 new clean technology manufacturing facilities have been announced—representing US$88B in investment—which are expected to create over 75,000 new jobs.
  • More than 50 new semiconductor projects — some of them high-cost facilities known as fabrication plants or “fabs” — have been announced following the CHIPS Act,
  • In 2023, US construction spending on new manufacturing facilities more than doubled compared with 2022.
  • As of July 2023, annual construction spending in manufacturing stands at US$201 billion, representing a 70% year-over-year increase and setting the stage for further industry growth in 2024
  • Companies spent, on average, 16.2 billion dollars a month building new production facilities.
  • The computer and electronics segment of the US has attracted 64% of all construction manufacturing spending. Just five years earlier, its share stood at a meagre 11%. This speaks loudly about the confidence growth in the US economy by its people and how the global map of manufacturing is changing.
  • In the 10 months since the passage of the IRA, private equity firms have committed more than $100 billion to new renewable energy investments that would qualify for tax credits in the next six years.

Where everyone failed was that during the last 2 decades US faced significant under-investments which created a massive blow when interest rates went up and unemployment started pouring back. By contrast, now billions of dollars of inflows are coming up into large, expensive megaprojects to manufacture batteries, solar cells, semiconductors and much more.

Now those who are thinking and betting that interest rates cut need to be aggressive since no one is buying US treasuries today and a whopping 7.6 trillion bonds will be coming for maturity and everyone is asking for discounts to buy them where as the US will soon be in a position of asking premium. Yes, when a country’s macro numbers start growing like GDP, manufacturing, tax revenues etc then one will find a commanding position just like the US is commanding the interest rate cut downs.

We will find many countries will be investing back in US treasuries over the next couple of years if not immediately. Interest rates will fall, US economy is getting stronger hence discount demanders will now be compelled for premiums to be given out of pocket. Once interest rates start falling corporate ratings and debt paper ratings will get revised and backed with manufacturing investments in projects the premium will be high.

Why 2 rate cuts expected since the macro number of the US economy is strong enough? Corporate earnings are expected to rise by more than 12% this year, and the latest survey from the University of Michigan shows that consumer confidence in the US economy has jumped by 29% since November, the greatest two-month surge since 1991. Now more jobs, more investments, and more inflow of funds lead to more consumption. If we look at Gen Z’s spending power has increased with age. In 2024, there will be nearly 50 million Gen Z digital buyers in the US, according to a November 2023 EMARKETER forecast.

Another key area that everyone is ignoring is that US energy cost is negligible and has less impact on inflation. The US is a net exporter of energy, and experts say that’s helped the US economy’s strength. The Ukraine-Russia war did not create an impact as compared to Europe with the US. Many people will point towards the slowdown of the US Real estate market due to high-interest rates. Well, Real estate cannot be the backbone of economic growth. It is bound to fall just like what happened with China or historically with the US too.

There is no way that one should bet on China’s GDP growth. This is slowly bleeding with manufacturing decline which was being dominated by the US further its growth is capped with its policy reforms and actions on foreign companies. Mr. Trump has turned the table upside down and the reason he was able to do since he comes from the background of a Business Tycoon who understands business and not politics. Can’t help by saying I am a great admirer of him. Hence don’t expect major rate cuts since the US is not in a hurry as the supply chain dynamics have already changed and now the US is soon going to be the forefront runner in manufacturing growth.

Conclusion: The U.S. economic landscape is witnessing a resurgence, fueled by robust manufacturing growth and significant investments in key sectors. With corporate earnings projected to rise and consumer confidence soaring, the Fed’s stance on rate cuts reflects a balanced approach to sustain economic momentum while mitigating inflationary pressures. As the U.S. solidifies its position as a manufacturing powerhouse, global markets must recalibrate expectations, anticipating a measured approach from the Fed in 2024.

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God has been kind and the people with whom I have the journey of my career over the last 19 years have been great fortune to have as my best friends standing today . Well, I hold more than 16 years of experience in Financial Advisory, Global Macro Analysis and Business Development Strategy. I am a S View Full Profile

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April 2024