All Things in Moderation

Vital Statistics:

Stocks are higher this morning as China begins to restart industrial production. Bonds and MBS are down.

Jerome Powell goes to the Hill today for his semi-annual Humphrey Hawkins testimony. The Fed is closely monitoring the Coronavirus issue with respect to global growth. With this being an election year, the questioning will probably be more focused on political posturing (what would you do about income inequality? what would you do about affordable housing?) than anything else. I doubt there will be anything market-moving in the testimony, but you never know.

Small Business started the year off strong, according to the NFIB Small Business Optimism Index. “2020 is off to an explosive start for the small business economy, with owners expecting increased sales, earnings, and higher wages for employees,” said NFIB Chief Economist William Dunkelberg. “Small businesses continue to build on the solid foundation of supportive federal tax policies and a deregulatory environment that allows owners to put an increased focus on operating and growing their businesses.” Labor continues to be an issue: “Finding qualified labor continues to eclipse taxes or regulations as a top business problem. Small business owners will likely continue offering improved compensation to attract and retain qualified workers in this highly competitive labor market,” Dunkelberg concluded. “Compensation levels will hold firm unless the economy weakens substantially as owners do not want to lose the workers that they already have.”

Speaking of the labor market, Goldman Sachs Chief Economist Jan Hatzius sees the unemployment rate falling to 3.25% this year. That would be the lowest since 1953. But first, the Boeing and Coronavirus issues need to recede into the rear-view mirror.

The Trump Administration released its 2021 budget, which cut social programs and increased defense spending. Some housing related programs were hit, such as the Housing Trust Fund and the Capital Magnet Fund, which are funded by a 4 basis point charge on Fannie and Freddie origination. The Community Development Block Grants would be eliminated. As a general rule, these proposed budgets are not meant to become law (one of Obama’s budgets received exactly zero votes) – but are more statements of priorities. It also cuts Medicare and Medicaid, which means it would get no support from Democrats.

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