Economy

The writer is co-chair of the Bill & Melinda Gates FoundationYears ago, I visited a rural province in India and met a group of women farmers who were part of what economists call “the informal workforce”. They were the economic backbone of their community. These women had pooled their money and purchased seeds, so they could support their families and one another. Their hard work contributed a great deal to their country’s economy — as does the labour of the other 2bn informal workers worldwide.These farmers weren’t employed by any company and didn’t earn a regular pay cheque. They probably didn’t show up in government labour statistics. When Covid-19 hit, many such informal women workers used their skills to help their communities and countries get through the pandemic. But as is often the case, governments frequently overlooked and undervalued their contributions. Economically, they lost more than nearly anyone. In a 2020 analysis of 10 countries, job losses were two to three times higher among informal workers than those formally employed. And they have no safety net to fall back on — no paid sick leave, no unemployment insurance.The world now has a big opportunity to do better. If leaders — including the finance ministers participating in this week’s World Bank and IMF meetings — put informal women workers at the centre of their economic recovery plans, they will repay an enormous debt. What is more, they will also be able to get their economies growing more quickly. When the women working in fields, markets and homes around the world lose their livelihoods, of course they and their families suffer. But economies do, too. Informal work accounts for 60 per cent of all global employment. In Africa and India, as many as nine in 10 working women are in informal jobs. Right now, thanks to $93bn mobilised recently by the World Bank’s International Development Association, governments in low-income countries have the opportunity to take decisive action to support these women and jump-start their economies. First, countries should invest in childcare. This is just common sense: when their children are safely looked after, more women can return to the workforce or start a new business. All told, the Eurasia Group estimates that expanding access to childcare for families who don’t currently have it could increase global gross domestic product by more than $3tn. At the Gates Foundation, we are investing in the World Bank Childcare Incentive Fund, which will help governments fund promising models. Second, countries should direct financial resources, including cash transfers, to women, many of whose assets were wiped out in the pandemic. To support economic growth, countries need to increase access to affordable credit for women, who often can’t get the financing they need to start and grow businesses. Expanding bank lending and directing funds to collective enterprises like the one I saw in India can turn this story around, by providing liquidity, rebuilding assets and encouraging growth, especially in the private sector. Third, countries should use data better to track challenges and progress. To solve a problem, you have to be able to see it. Too often, leaders don’t understand how women are suffering disproportionately and how that affects economies, because that’s not how they break down their data. By consistently disaggregating economic and development data by sex and other key characteristics, countries can gain a fuller picture, and ultimately devise more effective policies. In Mexico, information gathered over several years from the financial sector and surveys of citizens allowed leaders to see, and then narrow, gaps in women’s access to financial services.When Afghan girls desperate to learn are banned from school and pregnant Ukrainian women are stumbling out of bombed maternity hospitals, it is hard to think of anything else. These are grave atrocities. And they are not totally disconnected from the economic neglect of women. When we build a world where those furthest from economic opportunity have an equal chance to thrive and lead, we build a world that’s more peaceful and more resistant to shocks.As global leaders seek solutions to the mounting financial, health and security challenges, they must not overlook the informal women workers who hold up their societies in innumerable and often invisible ways. These individuals can be the engine of our global recovery. We must see them. But more than that, we must support them — with action, not just words.   More

Stanley Gibbons expects stamp and coin enthusiasts to benefit from rising prices for their collections, as inflationary pressures push investors to hedge against inflation. Graham Shircore, chief executive of the collectibles dealer, said on Tuesday there was “some evidence that real assets tend to do reasonably well during periods of heightened inflation . . . stamps and coins have shown to be at the better end of the spectrum.” Talk of the increasing potential for investors to hedge against inflation by buying real assets comes as gold rose to its highest level in more than a month on Monday, reaching a peak of $1,998 a troy ounce before falling back to $1,977.Shircore said any tangible increase in value for stamps and coins would become clear by the end of the year and the company said it was “by no means taking this for granted”. However, he said a series of record sales “would suggest the higher end is going through a period of price appreciation”.A US coin sold last year for $18.9mn in an auction at Sotheby’s in New York, breaking its own record set in 2002 when it went for $7.6mn. Stanley Gibbons bought the world’s most valuable stamp for $8.3mn at the same auction. Both items formed part of the collection of luxury shoe designer Stuart Weitzman.The dealer has since offered collectors the opportunity to acquire fractional ownership of the 1856 One-Cent Magenta stamp, through its partner Showpiece Technologies.The sale attracted more than 1,000 customers in a few weeks, while ownership of a second item on the platform, an Edward VIII penny coin, sold out in under four days, the company said in its trading statement.Shircore also said the company had worked on the concept of non-fungible tokens of stamps and coins, as part of “the changing ways of people collecting things”. Interest in stamp and coin collecting rose along with growth in other hobbies during the pandemic, he said, but Stanley Gibbons suffered from auction closures and a fall in sales during lockdowns, with revenue slumping to £10mn in the 12 months to March 31 2021 from £13mn the previous year.The dealer said the company expected annual revenues of about £12mn in the year to March 2022.Christophe Spaenjers, an expert in real assets and associate professor of finance at HEC Paris said that while “it is true that British stamps appreciated a lot in the inflationary 1970s”, there was no guarantee they would do so again.Gold, silver and diamonds were the best-placed real assets to hedge against inflation, according to Spaenjers, followed by stamps and art.“There is arguably an interesting self-fulfilling element here,” he said. “Stamps will only hedge against inflation if people start buying them as a hedge against inflation.” More

Vladimir Putin’s assault on Ukraine has silenced last year’s “transitory versus permanent” debate over the global rise in inflation. The economic effects of the war will be huge everywhere, and the behaviour of inflation will reflect those consequences as much as reveal who was right beforehand.That disagreement still matters, however. Where central banks came down on the question before the war has implications for how they must think about handling its effects today if they want to be consistent. Recall that accelerated inflation in 2021 arose from Covid-related production disruptions in global value chains, leading to relative shortages of manufacturing inputs and commodities. There can be reasonable disagreement about whether to tighten monetary policy in the face of a negative supply shock, when inflation occurs because the economy’s productive potential has been damaged. A central bank could judge that this type of inflation should be ignored if the supply shock involves a temporary adjustment in relative prices after which the price level stabilises by itself.Last year, however, this side of the argument lost out inside the major central banks. The Federal Reserve, the European Central Bank and the Bank of England all made clear hawkish turns. By adopting that stance then, they painted themselves into a corner. The war against Ukraine brought a new negative supply shock on top of the old one, adding both to the drag on growth and the upward pressure on prices. Hawkish signals in response to a first supply shock logically committed central bankers to doubling down on tightening when a second one made things worse.Monetary policymakers everywhere are promising that their decisions will be “data-dependent”, but how they interpret incoming data is what matters. So far, major central banks have eschewed the opportunity to use the shock of Putin’s invasion to restate how they think about the economy.How should they do this? First, by better explaining their thinking around negative supply shocks. Are they really committed to tightening more and faster, the worse the shocks buffeting households and businesses get?Second, central banks should clarify how they think their monetary policy works. Presumably, the point of reducing monetary stimulus is to take the wind out of the sails of demand in the economy, so as to bring it down to the damaged supply capacity. This was already hard to justify, given that nominal spending had only barely returned to pre-pandemic trends in the US and still fell short in the eurozone and the UK — hardly “excessive” demand. Do central bankers really think the most severe war in Europe in a lifetime, where the aggressor is the region’s most important commodity exporter, calls for pressing the brake harder on their own economies’ growth? Third, they should be addressing head-on the novel nature of these supply shocks. The Covid lockdowns caused an unprecedented sectoral reallocation in the US. Durable goods spending is still some 25 per cent above its pre-pandemic trend; on nondurable goods it is roughly 10 per cent higher. Services spending remains correspondingly depressed. While the pandemic did not cause a dramatic reallocation of spending in Europe, the war on Ukraine may. The prospect of a sharp fall in fossil fuel supplies from Russia — a coal embargo is already scheduled, and the pressure is strong for oil and gas to follow suit — will, after all, force a significant shift away from production and consumption that use such resources intensively. Such needs for (possibly permanent) reallocation complicate standard arguments about how monetary policy should treat an inflationary supply shock. A recent paper by Veronica Guerrieri, Guido Lorenzoni, Ludwig Straub and Iván Werning shows that if keeping interest rates low makes reallocating resources easier, the optimal stance for a central bank is looser than it would otherwise be. Thus, if it is clear that labour and capital must move from one sector to another — and the faster the better — how can it possibly be right to tighten monetary policy, making investments in new capacity both more expensive and less attractive as demand growth slows? A simple answer would be that this is no concern of central banks responsible only for controlling inflation. But that would be wrong — and not just because central banks have more tasks than this. Since insufficient reallocation means lower productive potential in the future than could otherwise be had, it also means an overzealous fight against inflation today will either raise inflation in the future or increase the cost of keeping it low. What these questions together amount to can be put more simply. Today a pandemic, a war and a climate crisis all necessitate huge structural shifts — which may themselves maximise potential productivity and minimise long-term inflationary pressures. In such a situation, how could it be right for central banks to delay investment and jobs growth, and with them the needed reallocations? Until central bankers can answer that question convincingly, they should be less eager to [email protected] More

Surging inflation and sharply higher borrowing costs in the US and Europe threaten to push indebted emerging market and developing economies into further financial distress, a top IMF official has warned.Almost a quarter of emerging market countries that have issued “hard currency” debt have bonds now trading in distressed territory, with spreads more than 1,000 basis points above US Treasuries, according to the multilateral lender. Borrowers around the world have taken advantage of aggressive monetary easing by the Federal Reserve and the European Central Bank and issued dollar- and euro-denominated debt at ultra-low rates. But borrowing has become more expensive as central banks seek to tackle price pressures with tighter monetary policy. Tobias Adrian, who heads the fund’s monetary and capital markets department, suggested levels of distress were at risk of rising further if central banks in advanced economies moved too abruptly or aggressively to unwind the monetary policy stimulus injected at the onset of the pandemic.“There are certainly many countries that are either already in distress or will potentially be in distress in the near future,” he said in an interview with the Financial Times. The IMF on Tuesday cut its forecast for growth in emerging markets and developing economies to 3.8 per cent this year — down one percentage point from its January estimate. “At some point, some major emerging market could also come into distress and the picture could change . . . That is not in our baseline right now, but it depends on how adverse the evolution of financial sector shocks is going to be,” Adrian added, noting that the amount of debt at risk is not “systemic in nature at this point”.Countries that were particularly vulnerable included commodity and food importers such as Egypt and Bhutan, he said. Tunisia and Sri Lanka have also run into trouble, with the latter defaulting on its debts this month. In its twice-yearly Global Financial Stability Report, published on Tuesday, the IMF said central banks in advanced economies were walking a narrow “tightrope” as they attempted to tame the highest inflation in roughly four decades against the backdrop of mounting geopolitical tensions, weakening global growth and whipsawing financial markets.Traders now expect the federal funds rate to jump to 2.5 per cent by the end of the year from its current level of between 0.25 and 0.50 per cent. The ECB is also expected to lift rates for the first time in more than a decade later this year. The Fed’s attempts to combat price pressures could hit emerging markets laden with foreign currency debt, the IMF warned on Tuesday.The fund said: “A disorderly tightening of global financial conditions would be particularly challenging for countries with high financial vulnerabilities, unresolved pandemic-related challenges and significant external financing needs.”Tobias Adrian, head of the IMF’s monetary and capital markets department: ‘There are certainly many countries that are either already in distress or will potentially be in distress in the near future’ © Alex Kraus/BloombergDebt levels across emerging market economies have risen sharply in recent years, with the total amount outstanding jumping to nearly $100tn at the end of 2021 from less than $65tn roughly five years ago, according to the Institute of International Finance.Global financial conditions have already tightened in recent months as inflationary pressures have become more acute following Russia’s invasion of Ukraine.Adrian said the shift towards less accommodative monetary policy had been smooth, but warned the Fed and other central banks would have to proceed carefully and communicate clearly to ensure that remained the case.“Right now, monetary policy in the vast majority of countries is being tightened and so this is exacerbating downward movements in sovereign debt.”

In addition to raising rates, the Fed will shrink its $9tn balance sheet by halting reinvestments of the proceeds from maturing Treasuries and agency mortgage-backed securities it holds. Should its actions roil markets and lead to a destabilising sell-off, Adrian said he expected the US central bank to moderate the pace at which it allowed its holdings of securities to shrink. The shift in central bank policy — coupled with the fallout from the Ukraine war and sanctions imposed by the US and its allies on Russia — has also dented market liquidity, leading to larger price swings. The IMF on Tuesday warned that there were “some signs” that the uptick in volatility could be weighing on the ability of banks to lend and trade. The fund pointed to the chaos in commodity markets that led to an eight-day suspension of trading in nickel on the London Metal Exchange this year. JPMorgan Chase disclosed a $120mn loss tied to the trade last week. Huge swings in commodity prices have triggered big margin calls on short positions. Those margin calls were, the fund said, “testing the resilience of corners of global financial markets that were little known by the broader public only a few weeks ago”. More

Energy chiefs have warned of a “truly horrific” spike in bills in the autumn that could leave up to 40 per cent of households in Britain in fuel poverty unless the government offers further help.Keith Anderson, chief executive of ScottishPower, told MPs that people were going to “really, really struggle” in the autumn with the weather turning cold and the household energy cap expected to rise again. Anderson told the House of Commons’ energy select committee that ScottishPower had received 8,000 calls last week alone from people expressing worries about their ability to pay their energy bills.He said customers were expressing “a huge amount of anxiety”, adding: “There are a lot of people for the first time facing this issue; they’ve never been in this position before.”Michael Lewis, chief executive of Eon, warned the committee that a large proportion of Britain’s 27mn households were likely to end up in fuel poverty from October without further government intervention. “We are looking at up to 30 or 40 per cent of people going into fuel poverty when the price goes up again in October,” he said, adding that the situation required “unprecedented action from the government”.Meanwhile, Hayden Wood, chief executive of Bulb Energy, told MPs he was still being paid the same £250,000 salary he was receiving before the company collapsed in November and was rescued in the biggest state bailout since Royal Bank of Scotland more than a decade ago.Bulb was the biggest supplier out of the 29 companies that failed as a result of the sharp rise in energy prices since the middle of last year. Wood, who founded the company, said he was no longer an “active director” although administrators have asked him to continue temporarily as chief executive. The Bulb bailout is expected to cost the taxpayer more than £2bn.Michael Lewis, chief executive of Eon, called for ‘unprecedented action’ from the government © Parliamentlive.tvAt the start of the month, energy bills for the 22mn British households not on fixed-term deals rose 54 per cent as regulator Ofgem increased the price cap to just under £2,000 a year on average.Analysts have warned of a further jump in the price cap in October by as much as £600, depending on movements in wholesale energy prices in the coming months.In an attempt to help, chancellor Rishi Sunak in February announced a £150 rebate on council tax bills for those in property bands A to D from April and a £200 loan to households in October. But Lewis said Sunak’s intervention in February was “not nearly enough” to mitigate the impact.Anderson said he expected most families to cope during the summer when consumption usually falls because of warmer weather but warned: “Come October, that’s going to get horrific, truly horrific.”He called for a “deficit fund” under which the government would knock £1,000 off the bills of anyone considered “vulnerable” or in “fuel poverty”, with the money repaid over 10 years.Keith Anderson, chief of ScottishPower, said the situation in October would be ‘truly horrific’ © Parliamentlive.tvLewis said he backed the proposal but also called for short-term measures, such as cutting VAT on bills.Chris O’Shea, chief executive of Centrica, owner of British Gas, said the situation would get “much worse” from October without further intervention. The number of Centrica customers late with payments had risen by 125,000 to 716,000 over the past year.Simone Rossi, chief executive of EDF, said his most vulnerable customers would see the proportion of their income spent on energy rising from £1 in £12 to £1 in £6 later this year.There is no single definition for fuel poverty across Britain, but it is generally classed as households that must spend a high proportion of their income to keep their home at a reasonable temperature. Latest estimates suggest it affects about 13 per cent of households in England, 25 per cent in Scotland and 12 per cent in Wales.The Treasury said the chancellor had promised to review the situation before October and would decide on an “appropriate course of action at that time”.Additional reporting by Leke Oso Alabi More

The global economy will suffer a hit to growth and higher inflation this year as a result of Russia’s invasion of Ukraine, the IMF said on Tuesday. In its World Economic Outlook, the fund said prospects had “worsened significantly” with countries closest to the war likely to be hardest hit. But it warned that risks had intensified everywhere, raising the chances of even lower growth and more rapid price rises, and upending the fund’s view that there would be a stronger recovery from the pandemic this year.The IMF’s forecasts showed global growth of gross domestic product this year of 3.6 per cent, down 0.8 percentage points since the fund’s January projections and 1.3 percentage points lower compared with six months ago. In 2021, global growth was estimated at 6.1 per cent, the fund said. In a simulation exercise, the IMF warned an immediate oil and gas embargo against Russia would raise inflation further, hit European and emerging economies hard and require even higher interest rates, including in the US.Pierre-Olivier Gourinchas, the IMF’s new chief economist, told the Financial Times that “we’re facing a slowdown in growth [and] facing elevated inflation”, although he was keen to avoid the word “stagflation”, meaning a prolonged period of low economic expansion and rapidly rising prices. “The notion of stagflation comes with some baggage, and I want to be a little bit careful about whether we really want to put ourselves in a frame of mind of the stagflation of the 1970s,” he said. Gourinchas did not downplay the problem of high inflation this year, which the fund has marked up severely in its forecasts. Compared with its October forecast of US inflation of 3.5 per cent in 2022, it now expects 7.7 per cent. The eurozone average inflation rate has been revised up from 1.7 per cent to 5.3 per cent. With the forecast rise in US inflation set alongside a relatively moderate economic hit from the Ukraine conflict, the IMF recommended the Federal Reserve continue to raise interest rates rapidly. But the war was likely to have a bigger impact on European growth, complicating the monetary policy response. The European Central Bank was in a “much less comfortable position” than the Fed, Gourinchas said. “The signals are aligning in the US that something needs to be done about inflation, and because the economy is strong there is room to do that without necessarily going into recession territory. The ECB is facing a situation where if it starts to address inflation, then it’s going to make the softening of aggregate demand worse. That’s never a good situation to be in as a policymaker.” The IMF forecast a 35 per cent collapse in GDP in Ukraine as it suffered from destruction of its infrastructure and mass emigration, while sanctions and a pariah status would lead to an 8.5 per cent drop in Russian GDP. If Europe and the US went further with sanctions they could intensify the economic pain on Russia, the IMF said in its scenario examining the effects of an oil and gas embargo.

This could knock 15 per cent off Russian economic output by 2027, imposing significant pain on President Vladimir Putin’s regime, but would also come at a significant cost, especially to European economies. The IMF estimated the EU would lose 3 per cent of output by 2023, while global inflation would rise more than another percentage point this year and next. There was “relatively little” that could be done to mitigate the effects of an embargo in the short term, Gourinchas said. As for the necessary investment to increase alternative gas supplies significantly, he said “we’re not talking six months, we’re probably not talking one year”, adding there would still be a “sizeable shortfall” even with coal or nuclear supplements.Given limited alternatives, “there would have to be some adjustment [to] energy consumption inside the EU, and there will be some price adjustment as well”.

IMF chief economist Pierre-Olivier Gourinchas did not downplay the problem of high inflation, which the fund has marked up severely in its forecasts © David Paul Morris/Bloomberg

Emerging economies would underperform even more in 2022 and 2023 than advanced economies, the IMF said, because most commodity importers were harder hit by higher prices for energy and food imports. But the good news, it said, was that there had been no significant capital flight from developing nations so far since the Fed signalled it was set to tighten monetary policy significantly this year. “We haven’t had a temper tantrum. We haven’t had capital flows rushing out of emerging markets,” Gourinchas said. Growth is expected to recover in emerging economies in 2023 as prices stabilise but the forecasts were still weaker than those in January. More

US inflation-adjusted bond yields are on the verge of turning positive for the first time since March 2020 in a surge that is heaping further pressure on riskier corners of financial markets. So-called 10-year real Treasury yields have soared more than 1 percentage point since early March, hitting a high of minus 0.04 per cent on Tuesday, in a sign bond payouts are coming close to exceeding medium-term inflation expectations.The jump in real yields has been triggered by the Federal Reserve’s bid to slow intense price growth by aggressively tightening monetary policy. The move is already eroding one of the pillars that has underpinned a powerful rally in stocks and riskier corporate bonds from the depths of the coronavirus crisis two years ago. “The Federal Reserve is going to be draining liquidity,” said David Lefkowitz, the head of US equities in UBS’s chief investment office. “It is those more speculative parts of the market that benefit the most when the Fed is adding liquidity and they [may] face some . . . headwinds when the Fed is going the other way and pulling back.”The plunge in real yields on ultra low risk US government bonds deep into negative territory in 2020 set off a race by investors to hunt down assets that could provide higher returns when accounting for the effects of inflation. Prices of lossmaking start-ups and fast-growing technology groups skyrocketed from the March 2020 nadir until late 2021 as a result, with risky corporate debt also rallying sharply higher.This year’s jump in real yields has prompted investors to reassess the value of owning businesses that may not generate big profits for many years. Some private start-ups such as Instacart have agreed to cut their valuations, while shares of lossmaking technology companies have dropped more than 30 per cent this year, according to Goldman Sachs.Even America’s S&P 500 index, home to the country’s blue-chip listed companies, has declined more than 7 per cent so far in 2022, with rising real yields combining with uncertainty over the war in Ukraine and intense inflation to spook investors. In the corporate debt market, an Ice Data Services index tracking the returns on US junk bonds has dropped 6.3 per cent over the same period. This year’s jump in real yields reflects a surge in nominal, or non-inflation adjusted, borrowing costs spurred by the Fed, which is raising interest rates and moving rapidly to reduce its $9tn balance sheet as policymakers attempt to damp down intensifying consumer price pressures.Treasury yields have risen more sharply than inflation expectations, a divergence that indicates investors have confidence in the Fed’s ability to reduce troubling inflation levels in the years ahead. The 10-year break-even rate, a market-based gauge of investors’ inflation forecasts over the next 10 years, has held in a roughly 2.75 to 3 per cent range in recent weeks, far lower than the March 2022 inflation rate of 8.5 per cent. “There is a reasonable amount of faith in the Fed’s ability and willingness to combat inflation,” Ian Lyngen, a strategist at BMO Capital Markets, said. “What’s at issue isn’t whether the Fed’s response is appropriately calibrated to inflation at the moment but a belief on the part of market participants that the Fed will adjust policy as necessary.”The uptick in real yields also shows how much the Fed has been able to tighten financial conditions over time, a shift that Lael Brainard, a governor tapped to be the next vice-chair, acknowledged last week.“The communications about our policy plans have already been tightening those broader financial conditions over the past really four to five months, considerably more than you might be able to discern from just looking at the policy rate alone,” she said at an event hosted by the Wall Street Journal.

Borrowing costs for companies have shot higher, as have mortgage rates for consumers, which hit 5 per cent for the first time since 2011 last week, according to Freddie Mac.Despite the uptick, financial conditions are “still pretty loose”, said John Madziyire, a portfolio manager at Vanguard. “It could mean the Fed would need to do more, but it’s too early to know.”Economists are divided over how much further real yields could rise given the rapid move already. But some are warning they could jump again as the Fed attempts to rein in inflation. “The $64,000 question is how high do real yields go,” Lefkowitz said. More

Good morning. After we said the whole thing is dumb, a few readers still wanted to know what we think about Elon Musk and Twitter, which reportedly might soon receive a competing bid from Apollo Global Management. OK, here’s our take: go read Due Diligence. Unless and until Musk makes a buyout offer for Unhedged, we will continue to cover our ears and hum when he talks. Instead, a few thoughts on economic expectations, and consumer credit, which sure is growing fast.Email us: [email protected] and [email protected]. The economic consensus, and where it might go wrongHere are consensus medium-term expectations about the US economy, taken from Bloomberg’s aggregate of economic forecasts:Real growth will remain above 2 per centCore inflation will continue to slowUnemployment will stay near 3.5 per centHousing demand will tick down a littleS&P 500 earnings per share will grow modestly Interest rates will rise about 200 basis points in the next yearThere’s a one-in-four chance of a recessionNone of these, in isolation, sounds particularly nutty. Taken together, though, forecasters expect one of the softest landings ever — what JPMorgan’s chief economist has called “immaculate disinflation”. Other than maybe housing, this consensus doesn’t leave much to worry about. This is a very odd fit with the sour mood of market participants. Especially since the Federal Reserve shares this rosy outlook, we’ve been wondering — how plausible is it? Possible cracks in consensus include:The housing and corporate credit markets are used to low interest rates. As rates rise, one or both of these markets will stumble, forcing the Fed to choose between fighting inflation and maintaining growth.Unemployment is ridiculously low — even lower if you look at other labour market indicators — and it will have to go up if inflation is to fall. While aggregate earnings have been rising, that growth is becoming more top-heavy and probably more fragile. This chart from FactSet shows that more companies in the S&P 500 are seeing earnings estimates cut by analysts, and fewer are seeing them rise, over recent months:

The Covid recession was short, thanks to vaccines and fiscal stimulus, so we should expect the post-Covid recovery to end rapidly, too. George Goncalves, US macro strategy head at MUFG, thinks the optimistic forecasts reflect a belief that we are early in the cycle — but in fact we’re not.These are not decisive arguments against a soft landing, but they do make us wonder if complacency has set in. Here is a case for optimism. Ian Shepherdson of Pantheon Macroeconomics has been one of the most forceful bulls on the US economy, arguing that healthy household and corporate balance sheets can keep growth firm while inflation moderates. Here’s Shepherdson in a note last month:In short, then, it’s very hard to see why the private sector would feel compelled by a fed funds rate of 2 per cent or so by the end of this year to cut back spending to the point where the economy might tip into recession. That’s not to say the whole economy will roar ahead; we expect a steep drop in housing market activity over the next few months . . . [but] housing aside, we see few reasons to expect private sector spending to weaken, and plenty of reasons to expect solid growth, notably the potential for catch-up spending on services as Covid fear recedes . . . We just don’t buy the idea that the Fed faces a binary choice between letting inflation rip or triggering a recession. Markets love black-and-white stories, but this time we think it will be more useful to think in shades of grey.That last point seems right — the Fed’s trade-off is probably less sharp than many think. The crucial point about a soft landing is that the path is narrow, not that it is unwalkable. Perhaps the consensus suffers from a bit of optimism bias: a perfectly plausible base case with an unsettlingly wide scope to be wrong.Very fast consumer credit expansionConsumer credit, and especially card debt, is rising really fast. In February, total consumer non-mortgage debt rose at an annualised rate of 8.4 per cent (that includes cards, cars, education, unsecured loans, and so on). Within that, credit card loans rose by 21 per cent. Both of these are right up at the fastest rates of the past decade. Here are cards:There are two ways to look at this. One: the American consumer is back on the crack, and we are headed for a debt crisis. Two: the US economy is going to do well, and that’s nice. Unhedged, despite its basically twisted, pessimistic soul, leans toward the latter, happier read.Look at total outstanding revolving debt in the US:Yes, debt is growing at a historic pace, but we are still below pre-crisis debt levels, even though the economy is significantly bigger. Next, look at what three of the biggest credit-card issuing banks in the US told us about credit card use (and misuse) in their Q1 results last week:

Card sharksMeasureJPMorganBofACiti Spending growth, YoY29%25%23%Charge-off rate, Q1 20221.4%1.5%1.5%Charge-off rate, Q1 20213.0%3.5%2.8%30-day delinquency rate, Q1 20221.1%1.3%0.5%30-day delinquency rate, Q1 20211.4%1.8%0.6%Source: company filings

Yes, credit card spending is surging, but for now delinquency and charge-off (bad debt) rates are very low and falling. Americans are not, so far, pushing their credit limits. Data from the Fed’s distributional financial accounts show that the bottom 50 per cent of US wealth distribution saw their net worth double between the first quarter of 2020 and the fourth quarter of 2021. That cohort’s wealth now sits at $3.7tn (the top 1 per cent’s wealth, depressingly, sits at $46tn). Consumer debt/total assets for the bottom half of the distribution, at 27 per cent, is the lowest since 2010. Consumer balance sheets, even excluding the rich, look good.So far this picture all fits together. What doesn’t fit with surging credit use, however, is the absolutely abysmal level of consumer sentiment, which is at decade lows. If consumers think the economy stinks — and they do — why are they racking up debt purchases? And how long can this credit boomlet last?The UBS strategy team, led by Matthew Mish, makes a good point about this, using results from its quarterly consumer finance survey. Americans’ confidence that they are going to keep their jobs is rising, among both the more- and less-educated:

Inflation makes everyone thing that the economy is bad, for excellent reasons. But if Americans don’t think they are going to get fired, they will spend. There are two stings in the tail here. One is that it might be better, all things considered, if Americans would cool it a bit with the spending, so inflation would cool off, too. Strong balance sheets and propensity to borrow are not unalloyed good news in this environment. The other is that the improvement in the balance sheets of the bottom 50 per cent of Americans was driven primarily by rising real estate values. Property accounts for well over half the increase in their assets since the pandemic began. Rising US consumer spending and consumer credit are underwritten by house prices, for better or worse.One good readPeople finance pets, and other people threaten to repossess them. More