While there was not a lot of news, what came out was still notable. On the back of Trump’s tariffs, the world bank cut their expectations for global economic growth notably, and American growth dramatically. Meanwhile, manufacturers in the midwest reported delaying activity, despite being the people that Trump claims he is supporting with his policies. In other news, Moodys came out with a report on private credit, and basically, it is leveraged in enough complicated ways to pose a potential structural financial threat.
Releases
Small Business Optimism
May 2025: For The First Time Since December 2020, Small Businesses Ranked Taxes As The Greatest Source Of Uncertainty. According to the National Federation of Independent Businesses, “The NFIB Small Business Optimism Index increased by three points in May to 98.8, slightly above the 51-year average of 98. Expected business conditions and sales expectations contributed the most to the rise in the index. The Uncertainty Index rose two points from April to 94. Eighteen percent of small business owners reported taxes as their single most important problem, up two points from April and ranking as the top problem. The last time taxes were ranked as the top single most important problem was in December 2020. ‘Although optimism recovered slightly in May, uncertainty is still high among small business owners,’ said NFIB Chief Economist Bill Dunkelberg. ‘While the economy will continue to stumble along until the major sources of uncertainty are resolved, owners reported more positive expectations on business conditions and sales growth.’” [the National Federation of Independent Businesses, 2025-06-10]
Context NFIB’s Strong Republican Lean
Small businesses, especially those represented by the NFIB have historically been extremely Republican in their leaning. The NFIB itself is a big booster of the Trump administration’s BBB, so to see taxes as the same source of uncertainty as in December 2020, when small businesses were terrified of Democrats raising taxes on them, could be notable.
Labor Market Momentum
Code
include("../scripts/oxocarbon-plot.jl")theme(:oxocarbon)# Load the FRED API And other necessary packagesusingFredData, DataFrames, Dateskey =ENV["FRED_API_KEY"]f =Fred(key)# Get The datamomentum =get_data(f, "FRBKCLMCIM"; observation_start ="2023-06-01", observation_end="2025-05-02").data# Create a plotbar(momentum.date, momentum.value; alpha =0.75, title="Weak Labor Market Momentum", xlabel="Date", ylabel="Index (0 = Long-Run Average)", label="")hline!([momentum.value[end]]; linestyle=:dash, linewidth=2, label="May 2025")vline!([Date(2024,11,5)]; linestyle=:dash, linewidth=2, label="Election")vline!([Date(2025,1,20)]; linestyle=:dash, linewidth=2, label="Inaguration")
Weakening Economy
World Bank: Turbulence Caused By The Trump Administration Has Cut Global Growth Forecasts By 40 Basis Points. According to the New York Times, “The global economy is projected to slow sharply this year as President Trump’s trade policy disrupts international commerce and increases economic uncertainty, the World Bank said on Tuesday in a report that underscores the toll of America’s trade war. Despite the weakening outlook, the global economy is not expected to fall into a recession, the World Bank said. However, the trade tension is setting the stage for the weakest decade of growth since the 1960s. Economic development in many of the poorest parts of the world has come to a standstill. Expansion in global output is forecast to slow to 2.3 percent in 2025 from 2.8 percent last year, the World Bank said in its Global Economic Prospects report. That is down from the 2.7 percent growth that it forecast in January. ‘The world economy today is once more running into turbulence,’ Indermit Gill, chief economist of the World Bank, wrote in the report. ‘Without a swift course correction, the harm to living standards could be deep. The United States enacted across-the-board 10 percent tariffs on imports and 50 percent tariffs on steel and aluminum imports this year. It has also threatened ’reciprocal’ tariffs on dozens of trading partners and raised tariffs on Chinese imports to 145 percent before lowering them to allow for trade negotiations.” [the New York Times, 2025-06-10]
June 2025: The World Bank’s Forecast For American Economic Growth Was Cut By Almost A Full Percentage Point To Half The Rate Seen In 2024. According to the New York Times, “The country facing the biggest downgrade from the World Bank’s projections in January is the United States, which initiated the trade fights. U.S. output is poised to slow to 1.4 percent this year, from 2.8 percent in 2024. That is nearly a full percentage point below the January estimate. ‘The rise in trade barriers, heightened uncertainty and the spike in financial market volatility are set to weigh on private consumption, international trade and investment,’ the World Bank report said. It added that investment was likely to cool ‘due to record-high uncertainty, the rise in financing costs, and reduced domestic and external demand.’” [the New York Times, 2025-06-10]
June 2025: Citigroup Announced It Would Likely Set Aside Hundreds Of Millions Of Dollars To Cover Losses “Given The Macro Environment.” According to Bloomberg, “Citigroup Inc. is set to put aside hundreds of millions of dollars more than it did last quarter to account for potential losses on loans and credit cards, an early sign that the biggest US banks may be bracing for deteriorating consumer health. ‘Given the macro environment, etc., cost of credit compared to last quarter, we expect to be up a few hundred million,’ Vis Raghavan, Citigroup’s head of banking, said Tuesday at a conference hosted by Morgan Stanley.” [Bloomberg, 2025-06-10]
Manufacturing Weakness
Trump’s Tariffs, Ostensibly Designed To Boost Manufacturing, Have Caused Midwestern Manufacturing Firms To Put Projects On Hold Due To Uncertainty Over “Costs And Future Demand.” According to Bloomberg, “President Donald Trump’s signature trade policy is threatening to backfire by upending other top priorities: the revival of US manufacturing and the American Rust Belt. In Illinois, Trump’s tariffs prompted a compressor maker to delay a key equipment purchase after an ambitious factory revamp. Rockwell Automation Inc., a Wisconsin-based producer of factory tools, says some manufacturers are putting projects on hold because of uncertainty over costs and future demand. Snap-on Inc. is seeing similar hesitancy among car mechanics. The warnings underscore the rising worry that turbulence from Trump’s trade wars will smother the progress US manufacturers have already made revving up American factories. Manufacturing payrolls fell by 8,000 last month, the most this year, according to the Bureau of Labor Statistics. US and Chinese negotiators will resume trade talks Monday in London, as the world’s two largest economies look to resolve disputes over tariffs and technology.” [Bloomberg, 2025-06-09]
PNC Chief Economist: Trump’s Tariffs Will Be A Particular Drag On The Economy In The Industrial Midwest. According to Bloomberg, “In the US, perhaps nowhere is the anxiety higher than in the Midwest, which is still home to the nation’s highest concentration of manufacturing employment even after bleeding jobs early this century from the rise of offshoring. ‘Overall, it is going to be a drag on the US economy,’ said Gus Faucher, chief economist for PNC Financial Services Group in Pittsburgh, calling the tariffs a tax that will raise prices. ‘In particular, it’s going to be a drag on the Midwestern economy.’” [Bloomberg, 2026-06-09]
Private Credit
Hidden Leverage
Moody’s Analytics: Private Credit Funds’ Structures Have Embeded The Types Of Multi-Layered Leverage That Makes It Difficult To Understand Its Full Extent. According to Ghamami, Moore, Weiss, Wurm, and Zandi, “Private credit investments are primarily structured as closed-end funds, often organized as limited partnerships or LLCs, similar to private equity vehicles. General partners manage these funds on behalf of limited partners—typically institutional investors—who commit capital for a set term. By locking up investor capital for a set period, the closed-end structure reduces redemption pressure and aligns the fund’s timeline with the long-term, illiquid loans it holds. Consequently, the asset class has attracted patient investors such as pension funds, insurers, endowments, and sovereign wealth funds. The use of leverage varies considerably across funds, reflecting differing investor mandates, risk tolerances and return targets across the industry. While some direct lending funds maintain conservative profiles with modest or no fund-level borrowing, others extensively use credit facilities—including subscription lines, NAV lending, and hybrid structures from banks, and to some extent, nonbank lenders—to enhance returns. In some cases, the combined effect of fund-level borrowing and leverage at the portfolio company level results in total leverage profiles that resemble those seen in complex structured finance vehicles. This layered structure introduces risk dynamics and interdependencies that differ from more traditional credit strategies. The use of swaps and other derivatives to hedge or transfer risk—or to enhance returns—has also expanded, introducing further potential for leverage, interconnectedness and complexity. In addition to the use of fund-level leverage, private credit managers are increasingly financing their loan portfolios through private collateralized loan obligation, or CLO, structures, with well over $100 billion of private credit CLOs outstanding.6 Traditionally associated with syndicated corporate loans, CLOs are now being adapted to warehouse and securitize portfolios of middle-market direct loans. Banks may find senior CLO tranches attractive investments that expose them to private credit with sufficient protection to check regulatory boxes. These private credit CLOs provide managers with an additional funding source, often at lower cost, and allow them to scale lending without requiring new equity capital. However, this introduces another layer of leverage and structural complexity that is not always visible to end investors, further complicating risk assessment across the private credit market.” [Ghamami, Moore, Weiss, Wurm, and Zandi, 2025-06, 6-7]
In Addition To Funds Using Leverage, Investors In Those Funds Have Often Used Leverage On To Put The Money Together To Invest, Resulting In Much Less Risk-Tolerance Than Would Be Imagined. According to Ghamami, Moore, Weizz, Wurm, and Zandi, “Policymakers should scrutinize the multiple layers of leverage in the private credit ecosystem. While many private credit funds themselves use limited leverage, their investors might use subscription credit facilities or leveraged fund-of-funds, and the borrowing companies may also be highly leveraged, meaning that systemwide leverage may be higher than it appears. Regulators might set guidelines or limits on fund-level leverage and encourage robust risk management practices that take full account of the multiple levels of leverage” [Ghamami, Moore, Weizz, Wurm, and Zandi, 2025-06, 24]