Tags: Budget | Economy | Fed | Rates

Govt Budget Battles May Be Intense Amid Extreme Party Divisions

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Monday, 27 Feb 2017 09:38 PM Current | Bio | Archive

  • INDICATOR: January Durable Goods Orders and Pending Home Sales
  • KEY DATA: Orders: +1.8%; Excluding Aircraft: -0.4%; Capital Spending: -0.4%/ Pending Sales: -2.8%
  • IN A NUTSHELL: “Solid demand for big-ticket items should lead to a further improvement in manufacturing.”


WHAT IT MEANS: The nation’s manufacturing has been slowly recovering and that upturn should continue, though don’t look for any great acceleration in production.

Durable goods orders jumped in January, but much of that came from a surge in both civilian and defense aircraft demand. Boeing has been trying hard to reduce its backlogs and the added orders could lead to more production even in the shorter-term. That is not normally the case with the aircraft industry. Other than aircraft, new orders for durable goods were mixed. There were increases for fabricated metals, machinery, computers and vehicles, but a cut back in demand for telecommunications equipment, electrical equipment and primary metals. Order books did thin and that should limit the increase in output.

The National Association of Realtors reported that pending home sales fell in January. There were major declines in the Midwest and especially the West, where the drop was nearly 10%. How much weather played in those weak numbers is unclear, but the major rainstorms in California had to hurt traffic. This report does imply that we could see some future softening in the existing home sales pace.

MARKETS AND FED POLICY IMPLICATIONS: Today’s data don’t scream out that the Fed has to raise rates. Actually, they imply the Fed can be a little cautious. But like the weather, you need to wait a little while. Almost all the indicators have bounced around, but the trend has been positive. That is likely to be the case with both durable goods orders and home sales. And in any event, on March 10 we get the jobs data and they could be the deciding numbers for the FOMC when it comes to a March rate hike.

I am not expecting a very robust report, as the December numbers were a lot stronger than can be explained by economic fundamentals. Thus, we could get some pay back in January. We will also be getting some indications about what the first Trump budget will look like. That might affect investors and possibly the Fed even more than a mediocre jobs report. So, sit back and digest the data and budget information that come out this week before jumping to conclusions about the course of interest rates.

As for the economy, keep in mind that even when the president and the Congress are of the same party, budget ideas don’t often become law as proposed. Spending cuts to offset any spending increases are likely to create major battles in both parties. They could be quite intense given that the divisions in the nation are so extreme.

Joel L. Naroff is the president and founder of Naroff Economic Advisors, a strategic economic consulting firm.

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Solid demand for big-ticket items should lead to a further improvement in manufacturing.
Budget, Economy, Fed, Rates
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2017-38-27
Monday, 27 Feb 2017 09:38 PM
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