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Tags: Political | Noise | Wastes | Time | Investors | Midterm | Elections

Trump Wasting Valuable Political Time as Investors Eye Midterm Elections

Trump Wasting Valuable Political Time as Investors Eye Midterm Elections
Mazura | Dreamstime.com

By    |   Tuesday, 16 May 2017 11:51 AM EDT

"Political noise" once again dominates Washington.

Whatever one could call it, this is something that market participants should better pay attention to. Every cry of "fake news" is a warning light for investors.

As with everything else that happened in Washington as of late, discussions about security, presidential behavior, and the Russian question take up political time.

Time is an expensive commodity in the world of politics, especially in a country like the United States that has a 2-year political cycle.

Time spent investigating, debating and arguing things like the “Russian question” or the leak of classified information, means less time spent debating the legislative agenda.

Every day like Monday means investors should adjust, if possible, the probabilities that ascribe as possible outcomes for tax, trade and Trumpcare 2.0.

Investors could do well keeping in mind that next year, on November 6, we will have the U.S. midterm elections where all 435 seats in the United States House of Representatives and 34 of the 100 seats in the United States Senate will be contested.

Besides that, 39 state and territorial governorships and numerous other state and local elections will also be contested.

Besides all that, the more sensationalist part of the financial media got yesterday somewhat excited about the Empire State Manufacturing Survey, which is monthly conducted by the N.Y. Fed of manufacturers in New York State, that came in weaker than expected at minus 0.1 percent, down from 5.2 the month before.

This survey has to be treated with considerable caution as sentiment surveys overreact wildly on the way up demonstrating how they have lost any relevance to reality.

Now, a mean reversion back to sensible levels tells us nothing about the dynamic of the U.S. economy. The only thing we could learn is how unreliable the earlier hysteria was.

It is also worth observing that these surveys appear to be unduly influenced by media comment and as the main stream narrative has now become more concerned about the legislative agenda in the U.S., so it is likely that survey evidence will respond to the news flow and not to the economic realities.

It is also an interesting question as to whether the ongoing labor market tightness is now acting as a constraint on economic activity and therefore could turn out being a very serious obstacle for President Trump reaching his goal of growing the U.S. economy at above 3 percent over the longer term.

If you cannot get the workers, you cannot make or build things. In construction for example, 80- to 85 percent of the workers are skilled or semi-skilled.

Finding the labor that is needed for this higher-functioning U.S. economy is already a challenge and it is certainly not an overstatement saying this situation is bound of getting even more tense in the foreseeable future.

Over the past decade, the population aged 25 to 54, known as the prime age, has been growing at only 0.1 percent annually.

By the way, when the U.S. had consistent 3 percent economic growth in the 1980s, the prime-age population was expanding at 2.2 percent annually.

Without faster growth in workers, the labor force will need to churn out goods and services much more productively than it is performing today to give the economy room to grow at a 3 percent-a-year rate over an extended period.

Let’s also not overlook the fact that the trend is quite the opposite.

Workers’ output per hour in the nonfarm business sector has been increasing by only 0.7 percent a year since 2010.

During Q1, labor productivity actually contracted by 0.6 percent (q/q) and expanded by 1.1 percent y/y.

President Trump will need a “productivity growth miracle” that will allow him to meet his objective of over 3 percent economic growth.

Yes, miracles do exist, but they are rather rare…

Over in Europe, in the euro area, GDP increased by 0.5 percent q/q and by 1.7 percent y/y. Greece stands out as the only state that contracted by 0.5 percent y/y.

Etienne "Hans" Parisis is a bank economist who has advised global billionaires and governments on the financial markets and international investments.

© 2023 Newsmax Finance. All rights reserved.

Time is an expensive commodity in the world of politics, especially in a country like the United States that has a 2-year political cycle.
Political, Noise, Wastes, Time, Investors, Midterm, Elections
Tuesday, 16 May 2017 11:51 AM
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