'Summertime, And The Livin' Is Easy'

The stock market seems to be carefree. Investors likely figure that any signs of slower economic growth increase the odds that the Fed will ease. Plus, inflation remains remarkably subdued through May notwithstanding Trump's tariffs. June's CPI inflation rate is tracking around only 2.6% y/y according to the Cleveland Fed's Inflation Nowcasting model. The dollar's weakness is viewed as boosting corporate earnings. And stock investors probably figure that if the bond market doesn't seem to care much about the deficit-bloating potential of Trump's Big, Beautiful Budget Bill, why should they? "Summertime, and the livin' is easy," as the song goes from Porgy and Bess.

The regional business surveys conducted by five of the 12 Fed district banks suggest that the national manufacturing purchasing managers index (M-PMI) will be below 50.0 again during June when it is reported tomorrow morning (chart). It's been mostly below 50.0 since November 2022, yet real GDP has continued to grow over this period.