Economy: Still solid, slightly slowing

good morning. President Donald Trump’s big beautiful bill became his big lovely law on Friday. The law creates questionable debt dynamics. Over the next decade, it is expected to add $3TN to 4TN to the federal deficit (Dun Dun Dun!). The market moved moderately in response: Treasury yields for 10 years rose by 10 basis points shortly after the bill was passed. Email: Unedged@ft.com.

economy

Back on Thursday, the June employment report was stronger than expected. 147,000 new jobs have been added, and the unemployment rate has dropped from 4.2% to 4.1%. The expectations for Fed rate reductions tracked by Futures Market were answered. Traders are hoping to cut two rates by the end of the year. The odds for the July cut plunged from 24% to below 5%.

However, take a closer look at the number of jobs. Photos are more continuity than intensity. Workforce participation fell, maintaining the recent pattern. More importantly, while job growth in June was driven by government employment and healthcare, the cyclical industry show was markedly noticeable.

Monthly job data is noisy. It’s best to look at the rolling average. Start with the circulation industry basket (construction, manufacturing, leisure, hospitality, transportation, temporary support). Temporary help and manufacturing are very weak, but now it’s on a slightly upward trend. Hospitality, transportation and construction are all positive, but soft. Summary them all (the dark brown line below) and there is a noticeable recent slowdown, but only when compared to the jumps in activity in late autumn and spring. Current employment growth (approximately 20,000 jobs a month) is in great agreement with the past few years.

On the non-periodic side, things aren’t that different. The federal workforce has been shrinking this year for reasons familiar to everyone. State and local governments are creeping up. Healthcare is flat. The assemblage (in the blue below) shows a mild, recent downward trend, if any.

All of these are in line with what we know from other key economic indicators. It fits very low levels of employment, layoffs, smoking cessation and is suitable for the fact that unemployed people are starting to struggle to find new jobs recently. Corporate profits are still growing much faster than a year or two ago, but not too fast. The consensus between the Atlanta Fed GDPNOW tracker and economists both showed that GDP rose to around 2% in the second quarter, perhaps slightly outweighing the long-term potential of the economy.

The economy appears to be, in short, very static, except for its tendency to be solid, but mildly slow. Next test? Second quarter revenue season. The major banks will start things next week.

(Kim)

Clean Energy and Budget

Both the Senate and House versions of the budget bills have concluded years of tax subsidies for the manufacture of renewable energy components such as solar panels, wind turbines and batteries and for investment in renewable energy projects. The house version of the bill suddenly did that. The Senate version, the current land law, is staged. If construction begins in 2026, the project will be subject to a full tax credit and manufacturing incentives will remain in the book until 2028.

Renewable stocks fell after the House bill was passed, and the fall again in mid-June was seen as the Senate added additional taxes to renewable energy. But most renewable stocks were once again rejuvenated after the House approved the Senate version when the Senate bill was passed as written. Today, much of the stock is where it was when the new Trump administration began.

Companies focused on residential projects such as Solaredge have particularly large lifts. According to Joseph Osha of Guggenheim Partners, the Senate version of the bill, which got caught up in provisions that made residential projects easier to qualify for tax credits, many expected these provisions to be killed by the home. They weren’t.

However, there are some dark clouds. First, it is unclear whether the new renewable energy project will be able to meet the 2027 deadline. “There’s very little way for most new projects to connect to the grid (at the time),” said Glenschwartz of Lapian Energy. “The queues of interconnections are long (in some places), and (companies) will face many other permitting obstacles.” The long timeline is primarily useful for projects already underway.

The bill then withholds tax credits from manufacturers and installers whose supply chains are too dependent on China. The Biden administration has put a huge push into domestic manufacturing, but there is still a lot of Chinese exposure in the US industry, and it is unclear how well the government can monitor the industry. “We are concerned about the ability of businesses to demonstrate compliance. This is an unknown territory (for the government). They need to know how to implement this law,” says Ben King of Rhodium Group.

Uncertainty comes at a time of bad for the US economy and the environment. The US faces record demand for electricity driven by AI data centers. According to Jesse Jenkins of Princeton University’s Ardlinger Energy Environment Center, most US power generation comes from natural gas, with its supply network at its maximum capacity.

Slack within the system only reaches two locations: more wind, solar and battery building. Otherwise, you will need to lean more towards a more efficient and dirty power plant. What we see under this bill is a high reliance on wind and solar, more expensive wind and solar, and existing, less efficient generators.

Jenkins estimates that the average household energy cost will rise by $160 by 2030 and $280 by 2035 under the bill.

However, it is not certain that renewable investments will slow down. Most analysts expect that, but some are optimistic. “The industry doesn’t want to publicly acknowledge it, but most industrial-scale projects can run without subsidies. People can make less money, but the concept that solar soon becomes zero when credits leave,” Osha argues. As OSHA claims, if it can only be met by renewable energy and the project has a profitable energy demand, they are built.

For many reasons, it is difficult to imagine a future energy grid without a supply of renewable energy. The budget bill creates a barrier to that. I hope I can get over it.

(writer)

One good read

consulting.

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