Democrats Continue to Wrestle with Reconciliation, Infrastructure Bills and Each Other

Congress passed a funding bill last week that provides money through December 3 and avoids a temporary shutdown, but that was the easy part. The bigger lift is Biden’s reconciliation and infrastructure bills, along with the debt ceiling drama. Honesty compels us to say legislators have a couple more weeks to wrestle with the debt ceiling so the focus this week will be on the pair of bills that have created a divide within congressional Democrats. House Democratic progressives continue to demand that the larger $3.5 trillion reconciliation bill be voted first, or at least be agreed to, before the smaller and less contentious roads and bridges bill.  The bigger bill contains more of their priorities in social safety net and spending programs, along with climate change initiatives.

The price tag on the reconciliation bill continues to cause heartburn with moderate Democratic Senators Manchin (WV) and Sinema (AZ). We continue to believe headway will be made by the Democrats on Biden’s legislative agenda, but the longer this drags on the less certain that becomes.  Away from DC dithering, the September jobs report on Friday will be the only one before the November FOMC meeting so it may have some potential tapering impact. We think it won’t except for a huge miss, and even then the die may already be cast for a November tapering.


Treasuries

Treasury Curve Today Week Change
3 Month 0.03% Unchanged
6 Month 0.05% +0.01%
1 Year 0.07% Unchanged
2 Year 0.27% -0.01%
3 Year 0.49% -0.07%
5 Year 0.94% -0.04%
10 Year 1.49% -0.01%
30 Year 2.06% +0.05%

Short-Term Rates

Fed Funds 0.25%
Prime Rate 3.25%
3 Mo LIBOR 0.13%
6 Mo LIBOR 0.16%
12 Mo LIBOR 0.23%
Swap Rates  
3 Year 0.637%
5 Year 1.033%
10 Year 1.503%

 

Economic Calendar

Date Statistic For Briefing Forecast Market Expects Prior
Oct 4 Factory Orders Aug 1.0% 1.0% 0.4%
Oct 5 Trade Balance Aug -$70.5b -$70.5b -$70.1b
Oct 5 ISM Services Index Sep 60.0 60.0 61.7
Oct 6 ADP Employment Sep 450k 430k 374k
Oct 7 Langer Consumer Comfort Oct NA NA 54.7
Oct 8 Change in Nonfarm Payrolls Sep 488k 470k 235k
Oct 8 Unemployment Rate Sep 5.1% 5.1% 5.2%
Oct 8 Labor Force Participation Sep NA NA 61.7%
Oct 8 Average Hourly Earnings Sep 0.4% 0.4% 0.6%

 


Top 5 Events for the Week

October 4 – 8, 2021

1.  Developments on Reconciliation, Infrastructure Bills and Debt Ceiling Discussions— All Week

Congress did manage to pass a government funding bill last week that provides money through December 3 and thus avoid a temporary shutdown, but that admittedly was the easy part. The much bigger lift continues to be the fate of President Biden’s reconciliation and infrastructure bills, along with the debt ceiling drama. Honesty compels us to say they probably have a couple more weeks to wrestle with the debt ceiling so the focus this week will be on the pair of bills that have created a divide within congressional Democrats. House Democratic progressives continue to demand that the larger $3.5 trillion reconciliation bill be voted first, or at least be agreed to, before the smaller and less contentious roads and bridges bill.  The bigger bill contains more of the progressives priorities in social safety net and spending programs, along with climate change initiatives. The price tag on the reconciliation bill continues to cause consternation with Democratic Senators Manchin (WV) and Sinema (AZ).

One thing that should be mentioned that barely does in the reporting is that the bill’s spending is over ten years and is mostly paid for with taxes, so the handwringing over its size and the fiscal deficit impact are a bit disingenuous in our view.   That being said, Manchin at least has offered a $1.5 trillion level that he would entertain. Sinema, however, continues to be an enigma as to what she wants. We continue to believe some headway will be made by the Democrats on Biden’s legislative agenda, but the longer this drags on the less certain that becomes.

2.  September Employment Report- Friday

While a tapering announcement at the next Fed meeting is all but a fait accompli, the September jobs numbers will be the only report before that meeting to inform Fed members on how well the maximum employment mandate is being met. With 7 million or so jobs still missing from pre-pandemic payrolls there is still a lot of ground to make up.  The September expectation is for a gain of 470 thousand jobs versus the disappointing 235 thousand in August with the unemployment rate dropping from 5.2% to 5.1%.  The broader underemployment rate continued lower in August dipping to 8.8% but it was as low as  6.8% in December 2019 and somewhere close to that is what the Fed will be looking to get back to before hailing the recovery as complete.

3. September ISM Services – Tuesday

Markets have been waiting for a hand-off of from the goods side of the economy to the services side and the latest GDP numbers did show some of that occurring but the Delta variant slowed some of that but with recent virus numbers starting to decline, perhaps we’ll see that start to occur in the September numbers.  If the September print comes as expected it will show a healthy services-side but with little evidence of a bounce. The expectation is for a 60.0 read versus 61.7 in August indicating some slight slippage but still a solid number. The all-time high reading of 63.7 was set in March.

4. September ADP Employment Change Report—Wednesday

The ADP Employment Change Report always provides a bit of a heads-up on the subsequent BLS Employment Report but it has struggled mightily during the pandemic to be a true harbinger of what’s to come in the official numbers. That being said, the expectation is that ADP will report 430 thousand private sector jobs created in September versus 374 thousand in August. Recall from above the BLS is expected to report an identical 450 thousand private sector jobs versus 243 thousand in August. While ADP overstated the BLS private sector job gains in August if that is the case again then the September BLS could have another mediocre jobs report in store for us.

5. October Consumer Comfort Index -Friday

Consumer confidence has become a central concern since the University of Michigan August number come in at a decade low print and the Conference Board’s Consumer Confidence disappointed to the downside last week. Given that consumer confidence readings are becoming key in trying to divine the course of the consumer in the fourth quarter we provide you a weekly indicator of said confidence.  It’s the Langer Consumer Comfort Index and  it follows a similar format to the ISM numbers in that 50 is the dividing line between improving and declining sentiment. The prior week’s number was 54.7 which was the lowest since early August. It was as low as 35 in May 2020. Bloomberg doesn’t publish estimates so this will be another wait and see report. It’s hard to say which way it will go. Arguing for a rebound is the recent decline in virus cases while the governmental disfunction could just as well put consumers in a sour mood.

Source: Bloomberg

Yield Universe

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Published: 10/01/21 Author: Thomas R. Fitzgerald