Month-In-Review: April 2021
The U.S. economy continued to gain momentum at the start of the second quarter, boosting confidence and expectations for a robust recovery. With vast improvement in everything from housing and manufacturing, to hiring and consumer spending, first-quarter growth jumped an impressive 6.4% and expectations for Q2 rose to 10.4%. Inflation concerns, meanwhile, continued to creep higher in April, although Fed officials dismissed rising prices as “transitory,” while the economy recalibrates and Washington slows its implementation of further stimulus.
Market Activity and Commodities
· Equities – Equities posted strong gains in April after ending March higher. Beginning at 3,972.89, the S&P 500 advanced 5.2% in April, closing at 4,181.17, marking its third straight month of gains. The Dow, meanwhile, rose 2.7% in the fourth month of 2021 from 32,981.55 to 33,874.85, after reaching an all-time high on April 16. Additionally, the Nasdaq rose 5.4% in April, closing at 13,962.68.
· Treasuries – Treasury yields were mixed in April with longer-term yields declining and shorter-term yields largely unchanged. The 10-yr Treasury yield fell 11bps from 1.74% to 1.63% in March. The 2-yr Treasury yield, meanwhile, ended Q1 unchanged at 0.16%. Since the start of 2020, however, the 2-yr dropped 141bps and the 10-year declined 29bps.
· Oil
o (Apr 1) – Oil prices pushed higher after OPEC+ agreed to bring 2.1 million bpd back to the market from May to July, easing cuts to 5.8 million bpd at its April 1 meeting. Oil prices rose 3.9% to close at $62.65 a barrel.
National Growth and Outlook
· NFIB Small Business Optimism (Apr 13) – The NFIB Small Business Optimism Index rose from 95.8 to a reading of 98.2 in March, less than the expected rise to 98.5, according to Bloomberg, albeit a four-month high.
· Leading Index (Apr 22) – The Leading Index rose 1.3% in March, more than the 1.0% gain expected, and the largest increase since August’s 1.5% gain.
· Chicago Fed National Activity Index (Apr 22) – The Chicago Fed National Activity Index rose from -1.20, revised down from -1.09, to 1.71 in March, more than the expected rise to 1.25, according to Bloomberg, and a seven-month high. 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 March, 70 of the 85 monthly individual indicators made positive contributions, while 15 made negative contributions.
· GDP (Apr 29) – GDP rose 6.4% on an annualized basis in the first quarter, slightly less than the 6.7% gain expected, according to Bloomberg, albeit a two-quarter high. In the details, personal consumption rose 10.7%, a two-quarter high and following a 2.3% gain in Q4. Goods consumption jumped 23.6%, following a 1.4% decrease in Q4, thanks to a 41.4% gain in durable and a 14.4% increase in nondurable consumption. Services consumption, meanwhile, rose 4.6%, following a 4.3% increase the quarter prior. Gross private investment, on the other hand, declined 5.0% in Q1, a three-quarter low. Also, fixed investment rose 10.1% in the first quarter, while nonresidential investment, including office buildings and factories increased 9.9%, thanks to a 16.7% gain in equipment investment and a 10.1% increase in intellectual property investment. Structures investment, however, declined 4.8% in Q1, the sixth consecutive quarter of decline. Additionally, residential investment rose 10.8%, following a 36.6% gain in Q4. On the trade side, exports declined 1.1%, a three-quarter low, while imports gained 5.7%. Finally, government consumption rose 6.3%, following two consecutive quarters of decline. Federal spending increased 13.9%, and nondefense spending jumped 44.8%. National defense spending, however, declined 3.4%. Additionally, state and local spending rose 1.7%, following three consecutive quarters of decline.
Employment
· Jobless Claims
o (Apr 1) – Initial jobless claims unexpectedly rose 61k from 658k, revised down from 684k, to 719k in the week ending March 27, a two-week high. According to Bloomberg, jobless claims were expected to decline to 675k. Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, fell from 3.84M to 3.79M in the week ending March 20.
o (Apr 8) – Initial jobless claims unexpectedly rose 16k from 728k, revised up from 719k, to 744k in the week ending April 3, the second consecutive weekly increase. According to Bloomberg, jobless claims were expected to decline to 680k. Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, fell from 3.75M to 3.73M in the week ending March 27.
o (Apr 15) – Initial jobless claims fell 193k from 769k, revised up from 744k, to 576k in the week ending April 10, the lowest level since March 2020. According to Bloomberg, jobless claims were expected to decline to 700k. Continuing claims, however, or the total number of Americans claiming ongoing unemployment benefits, rose from 3.727M to 3.731M in the week ending April 3.
o (Apr 22) – Initial jobless claims unexpectedly fell 39k from 586k, revised up from 576k, to 547k in the week ending April 17, the second consecutive week of decline and a new pandemic low. According to Bloomberg, jobless claims were expected to increase to 610k. Continuing claims, meanwhile, or the total number of Americans claiming ongoing unemployment benefits, declined from 3.71M to 3.67M in the week ending April 10.
o (Apr 29) – Initial jobless claims fell 13k from 566k, revised up from 547k, to 553k in the week ending April 24, the third consecutive week of decline and a new pandemic low. According to Bloomberg, however, jobless claims were expected to decline to 540k. Continuing claims, on the other hand, or the total number of Americans claiming ongoing unemployment benefits, rose slightly from 3.651M to 3.660M in the week ending April 17.
· Nonfarm Payrolls (Apr 2) – Nonfarm payrolls rose by 916k in March, surpassing the expected gain of 660k, according to Bloomberg, and the largest monthly gain since August. February payrolls were revised up from a 379k rise to a 468k increase, while January payrolls were revised higher from a 166k gain to a 233k rise. Thus, the overall change in nonfarm payrolls (March data + net revisions) was 1.07M. In the details, private payrolls rose by 780k in March, following a 558k gain in February. Goods-producing payrolls, meanwhile, increased 183k due to a 110k gain in construction payrolls, and a 53k increase in manufacturing payrolls. Also, service producing payrolls rose by 597k in March, following a 602k rise in February. Additionally, government payrolls increased 136k at the end of Q1, thanks to a 7k rise in federal employment.
· Participation Rate (Apr 2) – The civilian labor force rose by 347k, following a 50k rise in February. As a result, the participation rate ticked up from 61.4% to 61.5% in March, as expected, according to Bloomberg, and a three-month high.
· Unemployment Rate (Apr 2) – Household employment rose by 609k in March, following a 208k rise the month prior. With a 347k rise in the labor force, the unemployment rate declined from 6.2% to 6.0% in March, as expected, according to Bloomberg, and a one-year low.
· Average Hourly Earnings (Apr 2) – Average hourly earnings unexpectedly declined 0.1% in March, the weakest pace since June. According to Bloomberg, earnings were expected to rise 0.1% at the end of Q3. Year-over-year, wages rose 4.2% in March, down from a 5.2% gain in February.
· Average Weekly Hours (Apr 2) – The average workweek improved from 34.6 hours to 34.9 hours in March, a two-month high.
· JOLTS (Apr 6) – According to JOLTS – the Job Openings and Labor Turnover Survey – the number of job openings unexpectedly rose from 7.1M to 7.4M in February, a two-year high. According to Bloomberg, the number of job openings was expected to decline to 6.9M in February.
Consumer Activity and Confidence
· Vehicle Sales (Apr 1) – Total vehicle jumped 12.6% from 15.76m to a 17.75m unit pace in March, more than the expected rise to a 16.40m unit pace, according to Bloomberg, and the highest since December 2017. Year-over-year, vehicle sales surged 56.2%, the largest monthly increase since November 1971.
· Consumer Credit (Apr 7) – Consumer credit rose by $27.58b in February, more than the $2.800b expected rise, according to Bloomberg, and the largest gain since November 2017.
· Retail Sales (Apr 15) –Retail sales jumped 9.8% in March, surpassing the 5.8% increase expected, according to Bloomberg, and the largest increase since May. Year-over-year, retail sales surged 27.7% in March, following a 6.7% gain in February. Car sales rose 15.1% in March following a 3.5% decline the month prior, while gasoline stations sales gained 10.9%, following a 3.8% increase the month prior. Excluding autos, retail sales gained 8.4% in March and rose 19.4% over the past 12 months. Excluding autos and gasoline, retail sales increased 8.2% and rose 17.9% year-over-year. In the details, electronics sales rose 10.5%, furniture sales increased 5.9%, and non-store retailer sales gained 6.0%, a two-month high. Also, building materials sales increased 12.1%, health and personal care sales rose 5.7%, miscellaneous sales increased 9.0%, and clothing sales jumped 18.3%, following a 5.5% decline the month prior. Additionally, eating and drinking sales gained 13.4%, and food and beverage sales rose 0.7%, following a 0.3% decline the month prior. Also, sporting goods sales rose 23.5%, and general merchandise sales increased 9.0%, due to a 13.0% rise in department store sales.
· Consumer Confidence (Apr 27) – The Conference Board’s Consumer Confidence Index increased from 109.0 to 121.7 in April, surpassing the expected rise to 113.0, according to Bloomberg, and the highest reading since February of last year. In the details, present situation rose from 110.1 to 139.6, and consumer expectations gained from 108.3 to 109.8 in April, the highest reading since July 2019.
· University of Michigan Consumer Sentiment
o (Apr 30) – The University of Michigan Consumer Sentiment Index rose from 84.9 to 88.3 in the final April print, more than the expected rise to 87.5, according to Bloomberg, and the highest reading since March 2020. In the details, consumer expectations increased three points to a reading of 82.7, and consumers’ assessment of current conditions rose from 93.0 in the March report to 97.2 in the final April reading, a thirteen-month high.
Inflation
· PPI (Apr 9) – The PPI rose 1.0% in March, double the 0.5% gain expected, according to Bloomberg, and a two-month high. Year-over-year, producer prices increased 4.2% in March, the most since September 2011. Food prices rose 0.5% following a 1.3% gain in February, while energy prices increased 5.9% at the end of the first quarter. Excluding food and energy costs, the core PPI rose 0.7%, more than the 0.2% gain expected, and a two-month high. Year-over-year, the core PPI increased 3.1%, the most since February 2011. Additionally, services costs rose 0.7%, thanks to a 1.0% gain in trade costs, a 1.5% increase in transportation and warehousing costs, and a 0.4% rise in other costs.
· CPI (Apr 13) – The CPI rose 0.6% in March, a tenth of a percentage point more than expected, according to Bloomberg, and the largest increase since August 2012. Year-over-year, consumer prices rose 2.6%, the most since August 2018. Food prices rose 0.1%, and energy prices jumped 5.0% in March, following a 3.9% gain in February. Excluding food and energy costs, the core CPI rose 0.3%, more than the 0.2% gain expected, according to Bloomberg, and a seven-month high. Year-over-year, the core CPI increased 1.6%, a three-month high. In the details, commodities prices rose 0.9%, and medical care prices increased 0.1%. Also, transportation prices rose 2.7% and recreation prices gained 0.4% in March, following a 0.6% gain the month prior. Additionally, housing prices increased 0.3%, thanks to a 0.2% rise in the OER. On the weaker side, education and communication costs decreased 0.1%, and apparel prices fell 0.3% in March, the second consecutive month of decline.
· PCE (Apr 30) – The PCE rose 0.5% in March, in line with expectations, according to Bloomberg, and a nine-month high. Year-over-year, headline inflation increased 2.3%, the most since August 2018. Excluding food and energy, the core PCE rose 0.4% in March, a tenth of a percentage point more than expected, according to Bloomberg. Year-over-year, core inflation increased 1.8%, the most since February 2020.
Manufacturing and Production Activity
· ISM Manufacturing (Apr 1) – The ISM Manufacturing Index jumped from 60.8 to a reading of 64.7 in March, more than the expected rise to 61.5, according to Bloomberg, and the highest reading in more than 37 years. In the details, backlog of orders rose from 64.0, to 67.5, supplier deliveries increased from 72.0 to 76.6, a near 47-year high, and employment rose from 54.4 to 59.6, the highest reading since February 2018. Additionally, new orders gained from 64.8 to 68.0, imports rose from 56.1 to 56.7, a two-month high, and production improved from 63.2 to a reading of 68.1 in March. On the weaker side, prices paid declined from 86.0 to 85.6, and exports fell from 57.2 to 54.5.
· ISM Services (Apr 5) – The ISM Services Index rose from 55.3 to a reading of 63.7 in March, more than the expected rise to 59.0, according to Bloomberg, and the highest reading since records began in 1997. In the details, prices paid rose from 71.8 to 74.0, supplier deliveries gained from 60.8 to 61.0, new orders rose from 51.9 to 67.2, imports inched higher from 50.5 to 50.7, and employment gained from 52.7 to 57.2, the highest reading since May 2019. On the weaker side, backlog of orders declined five points to 50.2, and exports dropped from 57.6 to 55.5 in March, a two-month low.
· Empire Manufacturing (Apr 15) – The Empire Manufacturing Index rose from 17.4 to 26.3 in April, more than the expected rise to 20.0, according to Bloomberg, and the highest reading since October 2017. In the details, prices paid gained 10.3 points to 74.7, the highest reading since July 2008, the average workweek expanded from 10.9 to 12.7, and shipments increased from 21.1 to 25.0 in April. Additionally, employment gained from 9.4 to 13.9, and new orders jumped from 9.1 to 26.9 in April
· Philly Fed Business Outlook Survey (Apr 15) – The Philly Fed Index unexpectedly rose from 44.5 to a reading of 50.2 in April, the highest reading since April 1973. According to Bloomberg, the index was expected to decline to 41.5 at the start of the second quarter. In the details, inventories rose from 14.4 to 17.3. employment gained from 27.4 to an all-time high of 30.8, and shipments rose from 22.0 to 25 in April, a two-month high. On the weaker side, delivery time fell from 28.2 to 27.8, prices paid dipped from 72.6 to 69.1, and new orders declined from 38.2 to 36.0 in April, a two-month low.
· Industrial Production (Apr 15) – Industrial production rose 1.4% in March, less than the 2.5% gain expected, albeit an eight-month high.
· Capacity Utilization (Apr 15) – Capacity utilization increased from 73.4% to 74.4% in March, less than the rise to 75.6% expected, according to Bloomberg, still, however, a two-month high.
· Kansas City Fed Manufacturing (Apr 22) – The Kansas City Fed Index rose from 26 to a reading of 31 in March, surpassing the rise to 28 expected, according to Bloomberg, and a new record high.
· Durable Goods (Apr 26) – Durable goods orders rose 0.5% in March, less than the 2.3% increase expected, according to Bloomberg, albeit a two-month high. Year-over-year, headline orders rose 25.6% at the end of Q1, the most since September 2010. Transportation orders fell 1.7%, following a 2.0% decrease the month prior, and despite a 5.5% gain in vehicles and parts orders. Excluding transportation, durable goods orders rose 1.6% in March and rose 15.0% over the past 12 months. In other details, primary metals orders rose 1.2%, and fabricated metals orders gained 3.6%. Additionally, machinery orders increased 1.0%, and computers and electronics orders rose 0.5% in March, a five-month high. On the weaker side, electrical equipment orders dropped 1.5%, following a 0.9% gain the month prior.
· Capital Goods (Apr 26) – Capital goods orders fell 3.5% in March. Nondefense capital goods orders, meanwhile, decreased 4.7% in the third month of 2021, following a 5.5% increase in February. Capital goods orders excluding aircraft and defense – a proxy for business investment – rose 0.9% in March, a three-month high. Year-over-year, business investment increased 13.4%.
· Dallas Fed Manufacturing (Apr 26) – The Dallas Fed Manufacturing Outlook Index rose from 28.9 to a reading of 37.8 in April, more than the expected rise to 30.0, according to Bloomberg, and the highest reading since June 2018.
· Richmond Fed Manufacturing (Apr 27) – The Richmond Fed Index unexpectedly remained at a reading of 17 in April for the second consecutive month. According to Bloomberg, the index was expected to rise to 22 at the start of Q2.
· Chicago PMI (Apr 30) – The Chicago PMI jumped from 66.3 to 72.1 in April, more than the expected rise to 65.0 according to Bloomberg and the highest reading since December 1983. In the details, prices paid, new orders, employment, production and order backlogs rose at a faster pace, signaling expansion.
Housing Market Activity
· Construction Spending (Apr 1) – Construction spending declined 0.8% in February, less than the 1.0% drop expected, according to Bloomberg, and following a 1.2% gain the month prior. Year-over-year, construction spending increased 5.3%, a three-month low.
· NAHB Housing Market Index (Apr 15) – The NAHB Housing Market Index rose from 82 to a reading of 83 in April, in line with expectations, and a two-month high.
· Building Permits (Apr 16) – Building permits increased 2.7% in March from 1,720k, revised up from 1,682k, to a 1,766k unit pace, a two-month high. According to Bloomberg, building permits were expected to rise 1.7% in the third month of the year. Single family permits rose 4.6%, while multi-family permits decreased 1.2% in March, the second consecutive month of decline. Year-over-year, building permits increased 30.2% in March, up from a 19.6% annual gain in February.
· Housing Starts (Apr 16) – Housing starts jumped 19.4% in March, pulling the annual pace up from 1,457k, revised up from 1,421k, to 1,739k, the highest since June 2006. According to Bloomberg, starts were expected to increase 13.5% at the end of Q1. Single family starts rose 15.3%, while multi-family starts gained 30.8%. Year-over-year, housing starts increased 37.0% in March, following a 7.0% decline in February. On a regional basis, starts rose in three of the four regions of the country in March: starts gained 64.0% in the Northeast, 122.8% in the Midwest and 13.5% in the South. Starts fell, however, 13.6% in the West.
· Existing Home Sales (Apr 22) – Existing home sales dropped 3.7% from 6.24m to 6.01m in March, a seven-month low. According to Bloomberg, existing home sales were expected to decline 1.8% at the end of Q1. Single family sales fell 4.3%, while multi-family sales rose 1.4%. Year-over-year, existing home sales rose 12.3% in March, following a 9.5% increase in February. With a decline in sales, the months’ supply of existing homes rose slightly from 2.0 to 2.1 months, a four-month high. From a price standpoint, the median cost of a previously owned home rose 17.2% in March from a year earlier to $329k, an all-time high.
· New Home Sales (Apr 23) – New home sales rose 20.7% in March from 846k, revised up from 775k, to a 1.02m unit pace, the highest since August 2006. According to Bloomberg, home sales were expected to rise 14.2% at the end of Q1. Year-over-year, sales rose 66.8% following an 18.2% increase in February. With a rise in sales, the months’ supply of new homes declined from 4.4 to 3.6 months, a two-month low. And, from a price standpoint, the median cost of a newly constructed home fell 4.4% in March from the month prior to $331k. Year-over-year, however, new home prices increased 0.8% following a 4.2% increase the month prior.
· S&P/CS 20 City Index (Apr 27) – The S&P Case-Shiller 20 City Home Price Index increased 1.17% in February, more than the 1.10% gain expected, according to Bloomberg, albeit down from the 1.25% increase at the start of the year. Year-over-year, home prices rose 11.94%, the most since March 2014.
· Pending Home Sales (Apr 29) – Pending home sales rose 1.9% in March, falling short of the 4.4% increase expected, according to Bloomberg, albeit the largest increase since August. Year-over-year, pending home sales jumped 25.3%, the strongest pace in 11 years.
Trade and Currency
· U.S. Dollar
o (Apr 15) –The dollar rose following strong economic data that showed retail sales jumping 9.8% in March and initial jobless claims declining from 769k to 596k. The dollar traded up 0.03% to 91.633.
· Trade (Apr 7) – The U.S. trade balance widened 4.8% from -$67.8b to -$71.1b in February, a record high. According to Bloomberg, the trade balance was expected to widen to -$70.5b. Total imports decreased 0.7% to $258.3b, while exports fell 2.6% to $187.3b.
· Import Prices (Apr 14) – Import prices rose 1.2% in March, more than the 0.9% increase expected, according to Bloomberg, albeit a three-month low. Year-over-year, import prices gained 6.9%, the most since January 2012.
Monetary Policy, Reports, and Commentary
· Atlanta Fed GDPNow Forecast
o (Apr 30) – In its initial forecast for the second quarter, the Atlanta Fed's GDPNow estimate predicts a 10.4% rise in U.S. growth April to June. Couple with a 6.4% rise in Q1, growth at a 10.4% pace would place economic output at a new record high, surpassing the peak seen during the fourth quarter of 2019.
· Fed Speak
o (Apr 7) – According to Dallas Fed President Robert Kaplan, despite the Fed’s forecast for continued low rates, now may be the time to ease off the gas. Speaking in a WSJ interview, Kaplan revealed that he was forecasting a rate hike next year: “I believe that as we're making progress toward meeting our goals, I think it would be much healthier — the economy would be much healthier — if we wean off these extraordinary measures.”
o (Apr 12) – Federal Reserve Chairman Jerome Powell appeared on CBS’s 60 Minutes, offering an update on the economy, the recovery and policy. Powell last appeared on the show 11 months prior just as the pandemic was taking hold and the U.S. economy was sinking into recession. The message this time was much different. Pointing to the latest growth in payrolls and improvement in the unemployment rate as well as gains in other sectors of the economy, the Chairman posed optimism that the U.S. economy was on the mend. The economy seems to be at an "inflection point" with "strong growth" and employment prospects starting "right now," he said. Powell went on to say, “We feel like we're at a place where the economy's about to start growing much more quickly and job creation coming in much more quickly.” At the same time he applauded the improvement, however, Powell was quick to acknowledge the uneven nature of the rebound and the ground yet to recapture before returning to pre-pandemic levels: “What you're seeing is some parts of the economy are doing very well, have fully recovered, have even more than fully recovered in some cases. And some parts haven't recovered very much at all yet.” “It's going to take some time" for the part of the economy hurt most by the pandemic — such as restaurants, hotels, and travel — to recover completely and for all of those jobs to return, he said. When asked about future policy initiatives and potential pressure from rising prices, Powell reiterated the Fed’s new framework, which will afford additional patience. In the past, Mr. Powell recalled, the Fed has used economic models to predict inflation and then raise rates before inflation happens. Powell explained, however, that the Fed has “updated our understanding of the economy and therefore, our policy framework to the way the economy has evolved.” The traditional inverse relationship between unemployment and inflation is more fluid in the current economy, giving the Fed the opportunity to wait and see inflation rise rather than adjust policy in anticipation of a backup in prices. In fact, even if inflation hits 2%, Powell continued, the Fed can still be patient because the target is 2% on average or on a sustained basis.
o (Apr 16) – Cleveland Fed President Loretta Mester spoke at a videoconference hosted by Swarthmore College. Following her prepared remarks, she took questions from the press. Regarding inflation, Mester reiterated the party line of dismissiveness. “I’m not too concerned about inflation moving too high at this point,” Mester said. “As the supply chains get fixed — and that may take several months — we’re going to see supply pick back up, and then I think we’re going to see inflation stabilize.”
· March 16-17 FOMC Meeting Minutes (Apr 7)
o As expected, the March FOMC meeting minutes reiterated the Committee’s commitment to ongoing accommodation with rates steady at near zero levels well into the future. There was no indication of a plan for even the eventual removal of policy support should growth or inflation surpass expectations. There was no mention of taper either. The focus, again as expected, was on the here and now with the Committee acknowledging improvement, but emphasizing the lingering risks and additional improvement still needed. As the Chairman said before, the recovery is “far from complete,” sentiment which reinforces the Fed’s ongoing commitment to accommodation.
· April 28 FOMC Meeting
o As expected, the Federal Reserve opted to keep policy unchanged. The U.S. central bank announced its decision to keep interest rates anchored near zero as they have been since March of last year with monthly asset purchases steady at $120 billion per month. In the statement, the Fed acknowledged the recent improvements in the domestic economy as well as the recent backup in prices. At the same time, the Committee emphasized the still incomplete nature of the recovery and an ongoing commitment to continue to provide support: “Amid progress on vaccinations and strong policy support, indicators of economic activity and employment have strengthened. The sectors most adversely affected by the pandemic remain weak but have shown improvement. Inflation has risen, largely reflecting transitory factors.” The Fed has been clear in its intentions to continue to provide extraordinary accommodation as the economy still struggles to return to the central bank’s goal of stable prices and full employment. While vast improvement has occurred, much of the recent uptick in prices and activity is likely to prove transitory or temporary. To warrant a policy adjustment, the Committee maintains “substantial further progress” must be made and sustained. The Chairman has also been clear the Committee will offer ample notification to the market before any rollback of policy is initiated. At this point, however, not only are policy makers not in favor of adjusting policy, the Fed isn’t even outlining a timeline for raising rates in the future.
Domestic News and Activity
· Politics and the Biden Administration
o (Apr 1) – During a speech in Pittsburgh, President Biden unveiled his roughly $2 trillion American Jobs Plan. The package, as he explained it, focuses on rebuilding the nation's crumbling infrastructure and shifts to greener energy over the next eight years. The President emphasized his proposal would create hundreds of thousands of jobs, while tackling the climate crisis and reducing emissions. While specifics are still forthcoming and likely to change during negotiations, as it stands the proposal also includes building or retrofitting more than 2 million homes or housing units, replacing every lead pipe in the country and ensuring that all Americans have access to affordable, reliable and high-speed broadband. It also calls for investments in manufacturing, transportation, research and development, bolstering caregiving for aging and disabled Americans and building new public schools and upgrading existing buildings. To pay for the expenditures, the President has proposed raising the corporate income tax rate to 28%, up from 21%. The rate had been as high as 35% before former President Donald Trump and Congressional Republicans cut taxes in 2017. Biden also said he would work to eliminate tax breaks for fossil fuels, which was one of his core campaign promises, as well as make it harder for U.S. companies to acquire or merge with a foreign business to avoid paying U.S. taxes by claiming to be a foreign company, and increase the minimum tax on U.S. corporations to 21%. The White House said this tax hike and additional provisions would raise more than $2 trillion over the next 15 years. “It's not a plan that tinkers around the edges," Biden said. "It's a once-in-a-generation investment in America, unlike anything we've seen or done since we built the Interstate Highway System and the Space Race decades ago." “It's big, yes. It's bold, yes. And we can get it done," he added.
o (Apr 7) – In her first major speech on international monetary policy, Treasury Secretary Janet Yellen advocated for the adoption of a global minimum corporate tax to avoid a "race to the bottom.” Speaking in a virtual speech to the Chicago Council on Global Affairs, Yellen said, “It is important to work with other countries to end the pressures of tax competition and corporate tax base erosion... to make sure the global economy thrives based on a more level playing field in the taxation of multinational corporations." While there has been discussion of a minimum corporate tax rate for years, a consensus has not yet been reached on the international stage. As the WSJ pointed out, some countries remain opposed to the notion unless they can claim a bigger stake in the profits of U.S. tech companies. There also remains debate over whether to tax companies based on the location of their income or the location of their headquarters, the appropriate level and potential enforcement mechanisms.
o (Apr 8) – President Biden said he is willing to negotiate on the proposed corporate tax rate increase to 28% that's intended to help pay for his $2.3T infrastructure plan. But even as the White House receives some pushback over potential sources of revenue, Republicans continue to push back even harder against the sheer size and scope for the “infrastructure plan,” which includes broadband networks, childcare initiatives and raising wages for health care workers, among the many non-infrastructure related components. In fact, of the $2.3T proposed, less than 30% is only intended to be directly allocated to traditional infrastructure projects such as fixing roads and bridges.
o (Apr 9) – Tax policy was at the forefront of debate in New York City as Governor Andrew Cuomo increased taxes on its most affluent residents. According to CNN, the $212B state budget includes more aid for schools, tenants and small businesses. It also allocates billions to other progressive efforts such as renewable energy and nonprofit arts, as well as workers who don't qualify for federal aid because of their immigration status. As a result, marginal income tax rates could push as high as 52%, suggesting the wealthiest residents of the Big Apple would become a minority partner with the government.
o (Apr 14) – The Johnson & Johnson vaccine was suspended in the U.S. while the company reviewed incidents of rare blood clots. According to the Centers for Disease Control and Prevention (CDC) and the Food and Drug Administration (FDA), with more than 6.8M doses administered, there were six reported cases of blood clots in women between the ages of 18 and 48 after receiving the Johnson & Johnson vaccine. Despite some producer problems, President Biden reassured the American public there was ample production to ensure vaccines for everyone. Speaking to reporters, President Biden said, “There is enough vaccine that is basically 100% unquestionable for every single solitary American.” Thus far, more than 192M vaccine doses have been administered in the U.S. with more than 122M Americans, or 37% of the population, receiving one dose, and more than 75M Americans fully vaccinated, or 23% of the population.
o (Apr 19) – More than 209M vaccines had been administered in the U.S., with the country averaging 3.3M doses. 131M Americans, or 40% of the population, had received at least one dose, while more than 84M Americans are now fully vaccinated, or 25% of the population.
o (Apr 20) – President Biden’s infrastructure proposal faced barriers from some in the Democratic party. According to Bloomberg News, removing the cap on State and Local Tax (SALT) deductions must be part of any tax change, including the proposed corporate tax hike intended to pay for the President’s infrastructure spending.
o (Apr 22) – President Biden pledged to cut U.S. greenhouse gas emissions by at least half by 2030. The President’s commitment, however, was broad in nature with few details of how such an ambitious plan would be implemented in such a short period of time. Nevertheless, the President’s goal represents a near-doubling of the U.S. commitment under the 2015 Paris climate agreement when President Obama agreed to slash emissions by 26-28%, compared with 2005 levels. The President emphasized his proposal would create hundreds of thousands of jobs, while tackling the climate crisis and reducing emissions. While specifics are still forthcoming and likely to change during negotiations, as it stands, the proposal also includes building or retrofitting more than 2 million homes or housing units, replacing every lead pipe in the country and ensuring that all Americans have access to affordable, reliable and high-speed broadband. According to reports, more than 400 businesses and investors signed an open letter that backed cutting U.S. greenhouse gas emissions by at least 50% below 2005 levels by 2030.
o (Apr 23) – According to Dr. Ozlem Tureci, the scientist who helped develop the Pfizer/BioNTech vaccine, people who got vaccinated against COVID-19 will likely need a third shot as the immune response against the virus diminishes. Should booster shots be required, or annual coronavirus vaccinations like the seasonal flu shot, the government would likely need to make plans with drugmakers for additional supplies, as well as an enhanced vaccine distribution network. Since the start of the pandemic, more than 31.93 million COVID-19 cases have been reported in the U.S., and a total of 570,346 deaths according to data from Johns Hopkins University. By contrast, 219M vaccines had been administered in the U.S. with more than 137M Americans, or 41% of the population, having had received at least one dose, and more than 89M, or 27% of the population, fully vaccinated.
o (Apr 27) – The U.S. Census Bureau announced the total population of the United States has topped 331 million people. Growing 7.4% over the past ten years, according to the Census Bureau, this marks the country's second slowest population growth rate in U.S. history. Furthermore, the census showed population shifts from states in the Midwest and Northeast to those in the South and West, shifting the political makeup of Congress. Texas, for example, gained two seats in the redistricting process, while Colorado, Florida, Montana, North Carolina and Oregon each gained one seat in Congress. California, Illinois, Michigan, New York, Ohio, Pennsylvania and West Virginia, on the other hand, lost congressional seats ahead of the 2022 midterm elections.
o (Apr 27) – The Biden administration will ship doses of the COVID-19 vaccine to India after facing harsh criticism. According to reports, India expects to secure the biggest chunk of the 60 million AstraZeneca COVID-19 vaccine doses that the United States will share globally.
o (Apr 27) – In the U.S., the total number of COVID-19 cases has topped 32 million since the pandemic began. The seven-day moving average of new cases was 58,164, according to a WSJ analysis of Johns Hopkins data, while the 14-day average was 62,807. The U.S. death toll topped 572,600. Vaccinations, meanwhile, continued to be administered throughout the U.S. with 42.5% of the U.S. population having had received at least one dose, and with 28.9% of the U.S. population now fully vaccinated.
o (Apr 28) – President Biden addressed a joint session of Congress for the first time since taking office. At the heart of his comments was the unveiling of the "American Families Plan," the second stage of a near $4T investment proposal. The proposal is being referred to as an investment in “human infrastructure,” such as health care and education. According to reports, the plan would include, among other items, taxpayer funded preschool, minimum wage requirements for all pre-kindergarten teachers, an expansion of the Child Tax Credit through 2025, paid family and medical leave and taxpayer funded community college. Unlike the American Jobs Plan, which would be funded by a corporate tax hike, however, the American Families Plan would be paid for by raising taxes on individuals, most notably a near doubling of the capital gains tax rate on the wealthiest of Americans. The top income tax bracket for households earning more than $400,000 is also expected to return to 39.6%. During his speech, Biden overwhelmingly focused on jobs. In fact, according to CNN, the President used the word jobs nearly 50 times during his 65 minutes of remarks. During his remarks, the President made the case for more government, suggesting big government is good government. Biden pushed for immigration reform, gun control and called for further police reform. He also noted that the economy has turned a corner in the COVID crisis, a fact exemplified by a further rollback of CDC guidance as well as state and local restrictions. As of late, 14 states have removed their mask mandates or reduced restrictions for gatherings or dinning out. For example, NYC mayor Bill de Blasio indicated the city will reopen 100% by July 1.
o (Apr 30) – Reacting to President Biden’s infrastructure proposal, former President Trump issued a warning of the potential negative implications of taxing the investor class and corporate America. Speaking to Fox Business, he said, “This will be the largest tax increase in the history of our country. And when you say it won’t affect the middle class, the middle class has 401ks and when you look at the capital gains tax it’s going to have a massive impact on the middle class. It’s also going to have a massive impact on companies leaving our country. They all came back, with me the countries were pouring back into our country.”
International News and Activity
· European Union
o (Apr 22) – The European Central Bank (ECB) left policy unchanged with the main refinancing rate at 0%, the deposit rate at -0.50%, and the marginal lending facility rate at 0.25%. The ECB also opted to keep its purchase program unchanged at 1.85 trillion euros ($2.2 trillion) until March 2022. Elevated COVID case numbers, a relatively slower vaccine rollout, and more recently, strains on the banking system have left the region in need of further accommodation for some time. While some expected ECB President Christine Lagarde to indicate a timeline for unwinding support, less in this case may be more with the economic, health and financial situation abroad still very fluid, to say the least.
o (Apr 30) – In contrast to a strong report in the U.S., the euro area slid into a double-dip recession at the start of the year. According to Eurostat, output fell 0.6% in Q1 with a 1.7% dip in Germany. Only France, the region’s second-largest economy, managed to expand, albeit minimally up 0.4%. With growth still lagging, experts do not expect the region to recapture lost ground until mid-2022. Additionally, as we are seeing in the U.S., euro area inflation has picked up, rising 1.6% in April the fastest pace in two years.
· The U.K.
o (Apr 23) – Retail sales in the U.K. jumped 5.4% in March, a nine-month high, suggesting an economic rebound may be underway. According to economists polled by Reuters, retail sales in the U.K. were expected to rise 1.5% at the end of Q1.
· China
o (Apr 16) – The Chinese economy reported a record growth rate of 18.3% year-on-year. According to reports, however, the recovery was fueled by government stimulus. Now, as China eventually removes the stimulus, including easy money policies, growth could be more difficult to maintain.
· Canada
o (Apr 14) – The vaccination process has been much slower in Canada, allowing case numbers to remain elevated. According to the New York Times, Canada’s vaccine rollout has been slower than expected due to limited availability of the vaccine. Canada has no domestic vaccine production, a reminder of the importance of domestic manufacturing capabilities from a national security standpoint. According to reports, Prime Minister Trudeau promised to build vaccine production facilities in Canada, but they will not be completed until Q3.
o (Apr 21) – The Bank of Canada announced that it will reduce the rate of its asset purchases, while keeping rates steady at 0.25%. According to reports, the move came as the central bank has amassed nearly 50% of the country’s outstanding debt. Thus, the move is less a reflection of improving economic conditions and more a reflection of arguably an overly large or aggressive purchase program. According to April’s statement, the central bank will reduce purchases by 25% from C$4 billion to C$3 billion ($2.4 billion).
· India
o (Apr 27) – India continued to face an upward battle against the coronavirus. The surge in India began in March and brought the country’s total infections to more than 17.6 million since the start of the pandemic, as new coronavirus cases stayed above 300,000 for a sixth day in a row. The nation’s death toll topped 197,000, but public-health experts say the figures are likely higher.
-Lindsey Piegza, Ph.D., Chief Economist