Tag Archives: United States

Updates from McKinsey

Unequal America: Ten insights on the state of economic opportunity
By André Dua, Kweilin Ellingrud, Michael Lazar, Ryan Luby, Matthew Petric, Alex Ulyett, and Tucker Van Aken – As parts of the United States begin the long path to recovery from the health and economic impacts of the COVID-19 pandemic, we set out to understand what Americans think about their current economic standing, their views on economic opportunity, and the barriers they see standing between themselves and a more inclusive and prosperous future.

So we asked them directly.

Together with the market-research and opinion-polling firm Ipsos, we surveyed 25,000 Americans in the spring of 2021 in an effort to understand their perceptions of the current and future state of the US economy, to discern firsthand their hopes for the future, and to learn about the challenges they face. We also wanted to establish a baseline of data to better understand how outcomes and perceptions are affected by people’s access to resources, as well as by factors such as their identity, education, and level of caregiving responsibility. The breadth and depth of our sample allowed us to draw timely insights across demographic categories and geographic cuts (see sidebar “About the survey”). While the results of our inaugural survey reflect just one moment in time—a period during which the course of the COVID-19 virus and economic conditions were rapidly evolving—they serve as a useful baseline view into the economic experiences of a broad swath of Americans.

What we learned was sobering. Among the findings: Americans report that their financial situations have deteriorated over the past year, and at the time of our survey only half of all respondents reported being able to cover their living expenses for more than two months in the event of job loss. Our survey results also indicated that the pandemic has harmed the economic well-being of many groups, exacerbating inequalities that existed before the crisis. Americans reported facing numerous barriers to economic opportunity and inclusion—among them, inadequate access to health insurance and physical and mental healthcare, as well as to affordable childcare. Moreover, many respondents said that they feel their very identity limits their access to jobs and to fair recognition and reward for their work. more>

The F-35 At 20: How Its Successes, And Failures, Shaped The Aerospace Industry

The takeaway from the last 20 years, according to aerospace analyst Richard Aboulafia, might well be, “You succeeded, but please don’t try that again.”
By Valerie Insinna – On Friday, Oct. 26, 2001, executives and employees from the nation’s two biggest defense primes gathered in boardrooms and sprawling production facilities to watch a Pentagon press conference. At stake: the Joint Strike Fighter competition, which would decide who would dominate the next 40 years of the defense aerospace industry — and rake in hundreds of billions in profits.

It was a moment five years in the making. The Pentagon wanted to buy a single stealth aircraft for the Air Force, Navy and Marine Corps capable of three distinct operational requirements: conventional landings on a runway, landing on aircraft carriers, and performing short takeoffs and vertical landings.

It awarded contracts to Lockheed Martin and Boeing in 1996 to build competing prototypes, known as the X-35 and X-32. By July 2001, Lockheed’s X-35 had proven it could execute a short, 500-foot takeoff, fly at supersonic speeds and then vertically land in a single flight. While Boeing’s X-32 also demonstrated supersonic flight and vertical landings, it did not accomplish them in the same flight.

For the engineers that had designed and developed the two planes, emotions were running high as a group of white-haired defense acquisition officials approached the podium of the Pentagon press briefing room.

And just like that, the competition was over. more>

With extreme weather events and other disasters on the rise, how well are Americans prepared?

By Drew Desilver – Powerful stormswildfiresheat waves and other extreme climate-related events are projected to become more common and affect more people. According to a recent Washington Post analysis, nearly a third of Americans live in a county that was struck by a weather disaster this past summer, and around two-thirds live in places that experienced a multiday heat wave. In an April Pew Research Center survey, half of Americans said their area had experienced extreme weather over the past year.

Human-caused climate change will make extreme weather events more frequent and more damaging in the coming decades, according to the latest report from the United Nations Intergovernmental Panel on Climate Change. While the nations of the world struggle to agree on how to address the root causes of climate change, there are various ways people can prepare to deal with the immediate effects on a household level.

This analysis examines the prevalence of four specific tools to endure extreme weather in the United States: flood insurance, air conditioning, portable generators and home insulation. (As we’ll see, some of these tools may have their own climate impacts.) more>

America is still stuck in the world 9/11 built

By Sean Illing – Did 9/11 pave the way for Donald Trump?

That’s a big question, and until I read Spencer Ackerman’s new book, Reign of Terror: How 9/11 Destabilized America and Produced Trump, I hadn’t really thought about it. Ackerman is a longtime national security journalist who’s covered the “war on terror” since its inception roughly two decades ago.

Ackerman’s answer to the above question is yes, but his thesis is even more pointed: The war on terror — and the panoply of excesses it unleashed — eroded the institutional armor of American democracy and left the country defenseless against its own pathologies. And those pathologies, which Ackerman lays out with meticulous attention, prepared the ground for a figure like Trump.

Reading Ackerman’s book was a bit of a whirlwind. I was 19 years old when the Twin Towers fell. I’ll never forget watching the planes hit the wall. I’ll never forget how confused and angry I was. And I’ll never forget the thoughts running through my mind as I realized I was heading to boot camp in just four months. more>

Why Investors Shouldn’t Worry About Slowing Growth

Despite talk of a “growth scare,” the U.S. economy and markets may be poised for steadier gains ahead.
By Lisa Shalett – These days, we are seeing some of the classic indicators of a transition into the middle phase of an economic cycle: Year-over-year comparisons of growth measures and corporate earnings are cresting. So, too, are economic surprises, or the rate at which data is beating forecasts.

As economic growth moderates, uncertainty has risen and a “growth scare” narrative has begun to take hold among some investors. The market’s rotation toward defensive and secular technology stocks indicates that investors’ outlook on economic growth is dimming. There also seems to be worry that the Federal Reserve might start to taper its stimulative asset purchases earlier than expected, a concern seen in the U.S. Treasury market as the gap between short- and long-term yields narrows. Some pundits are even warning of a return to 1970s-style stagflation, a difficult period of high inflation and slow growth.

These may be popular market sentiments, but we remain convinced that a growth scare is overblown. Here are three reasons why:

  • Although economic growth is slowing from the extreme comparisons of last year’s trough, it remains solid. Recently, preliminary estimates for second-quarter gross domestic product (GDP) growth came in at 6.5%. And Ellen Zentner, Morgan Stanley’s chief U.S. economist, forecasts third-quarter annualized GDP growth at 6.1%, expecting that supply-chain pressures will continue to resolve and fiscal spending prospects will turn up. Strong fundamentals also underpin this forecast: Recent data updates saw U.S. manufacturing activity grow, housing prices rebound and durable goods orders advance.
  • Second-quarter corporate earnings have been excellent so far. As of July 30, with 59% of S&P 500 companies having reported results, 88% of them have reported earnings that came in above analysts’ expectations, and 88% have reported a positive revenue surprise. Looking ahead, analysts are projecting double-digit earnings growth for the remaining two quarters of 2021.
  • The consumer remains strong. U.S. consumer confidence as measured by the Conference Board Consumer Confidence Index inched up slightly in July, to 129.1, the highest since February 2020. Stable confidence and rising wages, together with growing household wealth and ample savings, should keep consumer spending strong.

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Is Your Portfolio Positioned for These Three Megatrends?

Increased consumer spending, an expanding digital economy and an emerging class of millennial investors could power stocks in the years ahead. Learn how you can prepare.
By Daniel Skelly – While investors often focus on daily headlines about the post-pandemic reopening and economic recovery, it’s important to step back and think about the longer-term impact of COVD-19. For investors, the question is not always what it means for the stock market next week, next month or even next year, but what are the implications over the next two to three years?

My team at Morgan Stanley Wealth Management sees three megatrends for investors to watch in the years ahead—and they are bullish for stocks:

1. A Surge in Consumer Spending

Perhaps the most immediate driver of both economic growth and stock prices is a continuation of strong consumer spending, thanks to additional fiscal stimulus hitting the wallets of lower-income U.S. consumers. The vaccine rollout and resulting reopening of the U.S. economy could also drive further spending on a variety of services, especially from higher-end consumers. Indeed, in June, Ellen Zentner, Morgan Stanley’s chief U.S. economist, forecast this year’s GDP growth at 7.1% as rising labor income boosts the buying power of U.S. households and excess saving remains an important cushion.

Conditions today contrast with 2008, when the housing market was the epicenter of the financial crisis. This time around, most consumers are not dealing with high debt or defaults, and banks remain financially strong and ready to lend to both business and individual borrowers. That could help drive faster economic growth.

Consumer Savings Hit Historic Highs

Many American consumers socked away cash during the pandemic, pushing the savings rate from 7.2% in December 2019 to a record high of 33.7% in April 2020. more>

Restoring the manufacturing base in the US is the key to our prosperity

By Tom Conway – Eager to capitalize on opportunities in the dynamic renewable energy field, the manufacturing company Rotek secured incentives, hired additional workers and successfully launched production of the huge metal rings that keep wind turbines spinning.

But the boom quickly faded. The Aurora, Ohio, plant struggled to compete with unfairly traded, foreign-made products and ended up eliminating many of the jobs it created just a couple of years before.

Ensuring future prosperity will require not only stimulating a manufacturing resurgence but also stabilizing long-term markets for domestically produced goods and raw materials.

Fortunately, President Joe Biden’s American Jobs Plan provides an unprecedented opportunity to do exactly that.

The plan calls for historic investments in American infrastructure, including roads and bridges, schools and airports, locks and dams, water-treatment systems, communications networks, the electric grid and renewable energy projects, like the wind farms that workers at Rotek strived to supply. more>

Has the U.S. Housing Market Peaked?

Home sales have cooled lately, raising some doubts about the economic recovery; but is this just a pause in buyer confidence? We look at the fundamentals.
By Lisa Shalett – The red-hot U.S. housing market, a pillar of the economic recovery thus far, has shown signs of cooling, prompting some investors to wonder whether this cycle has peaked.

Causes for concern abound. The U.S. Commerce Department recently reported a 5.9% annualized decline in May new-home sales; this unexpected second straight drop also coincided with record high median home prices and the National Association of Realtors announcing a fourth consecutive monthly slide in sales of previously owned homes. Consider also weaker consumer confidence, higher mortgage rates, low housing supply and frustrated buyers.

Yet, we believe that the supply disruptions and rapid price appreciation have merely paused buyer confidence and purchasing behavior in what should be an above-average run for housing. In our view, the U.S. housing market stands on a sturdy foundation—arguably the best in decades—supported by at least three key factors:

Demographic tailwinds for robust demand: At a time of extraordinarily healthy household balance sheets, the peak population of the Millennial generation has entered its prime household-formation years. Morgan Stanley Research estimates that 1.2 million new-ownership households have been formed over the past year, driven by owner-occupied borrowers, rather than investors, speculative builders or owners of second homes. In addition, anecdotal evidence suggests that the pandemic may have shifted behavioral priorities toward deurbanization and remote-work, creating sustainable support for housing demand.

A tight supply environment: Housing inventories remain lean due to underbuilding over the past decade. Builders, while confident given recent price appreciation, remain disciplined, having learned harsh lessons from the years leading to the Global Financial Crisis. Morgan Stanley analysis shows that housing-inventory growth now trails annual household formations by nearly 60%—a mismatch that’s likely to continue to support single-family home prices.
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Updates from Chicago Booth

Could the US raise $1 trillion by hiking capital gains rates?
By Natasha Sarin, Lawrence H. Summers, Owen Zidar, Eric Zwick – Capital gains taxes are a perennial issue in US tax-reform debates. Some people maintain that preferential rates on capital gains encourage entrepreneurship and capital formation, while others question whether these benefits are worth the costs.

What are those costs, exactly? It’s clear in terms of direct fairness costs: the wealthiest 1 percent of US households accounted for two-thirds of capital gains realizations in the Federal Reserve’s 2019 Survey of Consumer Finances. However, the fiscal costs, which are estimated by the Joint Committee on Taxation, are far less clear. In the parlance of policy makers, the JCT is considered the official “scorekeeper” that decides how tax legislation “scores” if implemented. The prevailing wisdom in the taxation-scorekeeping community appears to be that the revenue-maximizing rate for capital gains is about 30 percent, which is well below both current top marginal tax rates on other income and top rates currently under debate. But in a simple exercise, we estimate that increasing capital gains rates to match the ordinary income level could raise more than $1 trillion over a decade. This illustrates the need to rethink scorekeeping in the debate.

The prototypical example of a capital gain is a share of corporate stock. An individual who bought an $18 share of Amazon when it went public could sell that share today and pay taxes on more than $3,100 of appreciation.

If the revenue-maximizing rate is 30 percent, setting a rate too far above this level will actually reduce the total amount of revenue collected, as the gains expected will fail to materialize because the dynamic response of taxpayers will dramatically shrink the tax base.

Such a response could take the form of an investor retiming a stock sale to avoid realizing a capital gain event. This certainly happens, but we suspect that in most instances the investor doesn’t avoid paying taxes on that gain entirely, just immediately. The tax is simply postponed, in which case these behavioral effects are overstated, resulting in a potentially severe underestimate of the revenue at play. more>

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Public Sees Black People, Women, Gays and Lesbians Gaining Influence in Biden Era

Half of Americans say evangelical Christians will lose influence
pewresearch.org – As Joe Biden navigates the first few weeks of his presidency, Americans have distinctly different views of which groups will gain influence – and which ones will lose influence – in Washington during his administration.

Nearly two-thirds of U.S. adults (65%) say Black people will gain influence in Washington with Joe Biden taking office. Just 14% say Black people will lose influence, while 20% say they will not be affected.

Large shares of adults also expect women (63%) and gay and lesbian people (60%) to gain influence over the next four years. Only about one-in-ten expect each of these groups to lose influence.

Other groups expected to gain influence include younger people (54%), Hispanic people (53%), poor people (50%) and unions (48%). Relatively small shares – no more than about quarter – say any of these groups will lose influence during Biden’s presidency.

By contrast, evangelical Christians are expected to lose influence with Biden as president: 50% say they will lose influence, while just 9% expect them to gain influence; 39% say they will be unaffected.

By sizable margins, more Americans also say business corporations and the military will lose than gain influence, though about a quarter (24%) say corporations will be unaffected and 32% say the same about the military. more>