Confirmation Divide

Judge Amy Coney Barrett was confirmed to the Supreme Court yesterday along party lines. In a 52-48 Senate vote, every Republican, save Senator Susan Collins from Maine, voted in favor of the 48-year-old conservative mother of seven, exacerbating the political divide in Washington. Barrett took her oath at the White House last night and reportedly can begin work today after taking a second oath in a private ceremony.

With Barrett’s confirmation, the bench now has a conservative lean of 6 to 3. Because of this “imbalance,” Democrats strongly opposed Barrett’s confirmation which could have policy implications for years to come. Following her confirmation, some Democratic representatives have voiced support for “packing” the Court in the case of a Blue sweep come November, a fringe notion of increasing the number of justices from nine to 15 as a way of redirecting the swing of the Court to a left-wing agenda.

Following the confirmation of Judge Amy Coney Barrett, Senators left D.C., essentially eliminating any hopes of a stimulus package before next week’s election. According to her spokesperson, Speaker of the House Nancy Pelosi remains optimistic, although with the election one week away and still sizable differences over key variables, the passage of a potential fifth-round aid package is virtually impossible near term.

Equities plunged in yesterday’s session, with the Dow sliding 650 points to record its worst week since September. Overnight, with little hopes of a stimulus package from Washington any time soon, U.S. stock index futures were virtually flat.

This morning, equities are down 0.4%, with the Dow currently trading at 27,566.19 as of 10:37am ET.

Treasury yields are trading lower with the 10-year UST down 2bps, currently trading at 0.78% as of 10:38am ET.

Speaking of the election, both President Trump and former Vice President Joe Biden are making a final push to engage and energize voters. Trump will hold a rally in Michigan, while Biden heads to Georgia today, although many analysts suggest there are few swing voters up for grabs in this election cycle. According to Bloomberg data, almost 65 million ballots have already been cast, about 47% of the 2016 total.

Yesterday, the Chicago Fed National Activity Index declined from 1.11, revised up from 0.79, to 0.27 in September, a five-month low. According to Bloomberg, the index was expected to decline to 0.73. The Chicago Fed National Index draws on 85 economic indicators; a reading below zero indicates below-trend growth in the national economy and a sign of easing pressures on future inflation. In September, 50 of the 85 monthly individual indicators made positive contributions, while 35 made negative contributions.

Also yesterday, new home sales unexpectedly dropped 3.5% from 994k, revised down from 1,011k, to a 959k unit pace in September, a three-month low. According to Bloomberg, home sales were expected to rise 1.4% at the end of Q3. Year-over-year, however, sales jumped 32% following a 41% increase in August. The months’ supply of new homes rose from 3.4 to 3.6 months, a two-month high. And, from a price standpoint, the median cost of a newly constructed home rose 1.4% in September from the month prior to $327k. Year-over-year, new home prices increased 3.5% following a 1.4% decline the month prior.

Finally yesterday, the Dallas Fed Manufacturing Activity Index unexpectedly rose from 13.6 to a reading of 19.8 in October, a two-year high. According to Bloomberg, the index was expected to decline to 13.5 at the start of Q4.

This morning, durable goods orders rose 1.9% in September, surpassing the 0.4% gain expected, according to Bloomberg, and marking the fifth consecutive month of a positive reading. August orders, however, were revised down a tenth of a percentage point to a 0.4% increase. Year-over-year, however, headline orders fell 0.4% at the end of Q3, the seventh consecutive month of decline.

Transportation orders gained 4.1%, following a 0.9% decline the month prior, thanks to a 1.5% gain in vehicles and parts orders. Excluding transportation, durable goods orders rose 0.8% in September and rose 3.6% over the past 12 months.

Capital goods orders rose 4.7% in September. Nondefense capital goods orders, meanwhile, increased 10.4% at the end of Q3, following an 8.0% gain in August. Capital goods orders excluding aircraft and defense – a proxy for business investment – rose 1.0% in September, down from the 2.1% gain the month prior. Year-over-year, however, business investment increased 5.9% in September.

In other details, computers and electronics orders rose 0.6%, primary metals orders gained 4.0%, and fabricated metals orders increased 1.2%, a two-month high. On the weaker side, electrical equipment orders fell 2.0%, a five-month low, and machinery orders declined 0.3% in September, following a 1.9% gain in August.

Also this morning, the S&P Case-Shiller 20 City Home Price Index increased 0.47% in August, slightly less than 0.50% rise expected, according to Bloomberg, and following an upwardly revised 0.75% gain in July. Year-over-year, home prices rose 5.18%, the most since August 2018.

Also this morning, the FHFA House Price Index rose a record 1.5% in August. According to Bloomberg, the index was expected to increase 0.7% in the second month of Q3.

Additionally, the Consumer Confidence Index unexpectedly declined from 101.8 to 100.9 in October, a two-month low. According to Bloomberg, the index was expected to rise to 102.0 at the start of Q3. In the details, present situation improved from 98.9 to 104.6, while consumer expectations declined from 102.9 to 98.4, a two-month low.

Finally this morning, the Richmond Fed Index unexpectedly rose from 21 to an all-time high of 29 in October. According to Bloomberg, the index was expected to decline to a reading of 18 at the start of Q3.

Tomorrow, wholesale inventories are expected to rise 0.4% in September.

On Thursday, initial jobless claims are expected to decline 14k to 773k in the week ending October 24.

Also on Thursday, third-quarter GDP is expected to rise 32.0%, the fastest pace in decades as the economy reversed course from a forced economic shutdown in Q2. While recovering from the low, low levels of March and April with a surge in consumer spending after months of pent-up demand, going into the end of the year, as caseloads increase and local governments respond with further restrictions, growth is likely to again slow. In fact, depending on the depth and duration of the anticipated flare-up, growth could potentially turn back into negative territory by year-end if businesses are once again forced to close their doors. 

Finally on Friday, personal income is expected to rise 0.4% in September following a 2.7% drop the month prior, and personal spending is expected to rise 1.0% for the second consecutive month. Also, the PCE is expected to rise 0.2% in September and 1.5% over the past 12 months, and the core PCE is expected to increase 0.2% in September and 1.7% year-over-year.

-Lindsey Piegza, Ph.D., Chief Economist