Biden Takes Victory Lap After BIF Win; White House to Celebrate in Signing Ceremony

USDA Supply/Demand reports Tuesday: Federal Reserve officials will speak this week

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November 07, 2021 04:14 PM

USDA Supply/Demand reports Tuesday: Federal Reserve officials will speak this week

Washington Focus

The Senate is in recess and the House will not convene. Both chambers return Nov. 15.

President Joe Biden is taking a victory lap after the House late Friday passed, 228-206, the around $1 trillion traditional infrastructure bill, even though Democrats did not have enough votes to pass it, getting to the end zone only after 13 House Republicans went against GOP leadership suggestions and voted for the measure. Link to details of the bill. Link to White House fact sheet.

The infrastructure bill contains $550 billion in new spending over five years to improve roads, bridges and rail, expand electric vehicle charging stations, expand broadband, and remove lead pipes. The bill authorizes $273.2 billion over five years from the Highway Trust Fund for highways and $69.9 billion for transit. The main source of money for the trust fund, the federal gasoline tax, hasn’t increased since 1993. While the measure wouldn’t change its rate, it would transfer $90 billion to the trust fund for highways and $28 billion for transit. The bill provides $110 billion in new spending for roads, bridges, and major projects, and about $39 billion for transit. It also includes $66 billion in spending on rail and Amtrak, as well as $7.5 billion to build out a network of electric vehicle chargers, and another $7.5 billion for low or zero-emission buses and ferries. Ports, waterways, and airports would get $42 billion in new funding. Bottom line: About a fifth of the new spending is earmarked for building and repairing roads. The Congressional Budget Office estimated in 2016 that for every dollar of capital investment by the federal government, annual private-sector output rises about 5 cents. But there is a risk that the government will pay for projects that might not have a big payoff, said Marc Scribner, a transportation expert at the Reason Foundation, a libertarian think tank.

The following graphic, from the New York Times, is in billions of dollars:

Signing ahead. Biden said he planned to enact the measure at a signing ceremony “soon” but acknowledged it wouldn’t be during the weekend, noting he wants lawmakers who helped get the bill across the finish line to attend, including Republicans. Biden signaled Saturday that he would sign the infrastructure bill at a ceremony as soon as this coming week and also visit U.S. ports to tout the package — the president will visit the Port of Baltimore on Wednesday. Biden will embark on an “infrastructure week” tour over the next few weeks, doing events around the country to tout the coming investments, according to a White House official. Transportation Secretary Pete Buttigieg, Energy Secretary Jennifer Granholm, Interior Secretary Deb Haaland, Environmental Protection Agency Administrator Michael Regan, Commerce Secretary Gina Raimondo, and other cabinet members, most likely including USDA Secretary Tom Vilsack, will be part of the tour.

Jobs impact. The White House projects that the investments will add, on average, about 2 million jobs per year over the coming decade. The president predicted that the U.S. would start to see the impacts of the infrastructure bill “within the next two to three months as we get shovels into the ground.”

Paying for it. The five-year spending package will be paid for by tapping $210 billion in unspent Covid-19 relief and $53 billion in unemployment insurance aid, which some states have halted, along with an array of smaller pots of money, like petroleum reserve sales and spectrum auctions for 5G services. However, it will add $256 billion in projected deficits over 10 years, according to the Congressional Budget Office.

Update on the Build Back Better (BBB) proposal. House Majority Leader Steny Hoyer (D-Md.) said the legislation would be passed before the Nov. 25 Thanksgiving holiday. In their statement, moderates said they would allow for a vote no later than the week of Nov. 15. But that could delay final action into December, when Congress must grapple with a Dec. 3 gov’t funding deadline and raising the debt ceiling, both of which will spark conflict with Republicans.

Meanwhile, the Senate is nearly certain to change the BBB legislation, meaning the House would have to vote again, which is why many observers predict a December timeframe on the final fate of the BBB measure.

The BBB/reconciliation bill currently provides an expansion of spending on social programs and measures to address climate change along with higher taxes on companies and the wealthy. It now totals more than $1.75 trillion, down from an earlier $3.5 trillion. But current language has no changes to stepped-up basis, no changes to current estate tax exemptions, and no changes to capital gain taxes. President Biden and Democratic leaders say the BBB is fully paid for, but many say that is not correct. Outside estimates indicate that Democrats could come up about $300 billion short. The Penn Wharton Budget Model released estimates that said the legislation would increase spending by $1.87 trillion over the 10-year budget window while increasing revenues by only $1.56 trillion. That’s both more spending ($1.75 trillion) and much less in taxes ($2 trillion) than the White House projects. And that’s before the House restored a program for four weeks of paid family leave. Penn Wharton estimates that it would reduce economic growth by 0.1% by 2050 and add 2% to the federal debt. But what opponents to BBB note is that Penn Wharton says that if all the provisions of the bill (except green energy tax cuts) are made permanent, new spending would increase by $3.98 trillion, while the tax revenue would stay at $1.55 trillion, over 10 years. That’s more than twice what the White House is trying to get Americans to believe. Penn Wharton says this level of spending would increase the federal debt 25.2% and reduce GDP 2.8% versus current law by 2050. Bottom line: Democrats openly admit their strategy is to pass new entitlements like national childcare, disguise their cost by pretending to phase the programs out inside the 10-year budget window, but assume they will become permanent as they most always do. Republicans and others say this means the real cost of the BBB is $4 trillion.

Calendar note: This is one of those “odd” weeks where there is a U.S. gov’t holiday, but most markets remain open Thursday (Veterans’ Day) except for the bond market which the Securities Industry and Financial Markets Association has recommended be closed that day. Veterans Day arrives Thursday which affects the release of several reports, including moving the weekly Jobless Claims updates to Wednesday and moving the natural gas update from the Energy Information Administration (EIA) to Wednesday from its normal Thursday release. And the weekly Export Sales report from USDA will be released Friday, Nov. 12.

Economic Reports for the Week

Fedspeak will be watched closely after last week’s Federal Reserve announcement that it will wind down its bond buying efforts. Federal Reserve Chairman Jerome Powell, Boston Federal Reserve Bank President Kenneth Montgomery, Federal Reserve Bank of Philadelphia President Patrick, and Chicago Federal Reserve Bank President Charles Evans are all on the schedule to give talks.

Key economic reports: Investors will be awaiting the latest data on prices for consumers and producers. The figures will be parsed in the ongoing debate over inflation, and whether recent cost increases across industries will last or recede as pandemic impacts ease.

Monday, Nov. 8

Fed speakers: Vice Chair of the Federal Reserve Richard Clarida on flexible average inflation targeting. Fed Chairman Jerome Powell gives opening remarks at diversity conference. Philadelphia Federal Reserve Bank President Patrick Harker at Economic Club of New York event. Michelle Bowman on the housing market. Federal Reserve Bank of Chicago President Charles Evans speaks virtually on current economic conditions and monetary policy before the “OESA 2021 Automotive Supplier Conference: Beyond Disruption.” Federal Reserve Bank of Boston Interim President Kenneth Montgomery gives welcome remarks before virtual “The Implications of High Leverage for Financial Instability Risk, Real Economic Activity, and Appropriate Policy Responses” conference hosted by the Federal Reserve Bank of Boston.

Tuesday, Nov. 9

Bureau of Labor Statistics (BLS) reports the producer price index for October. Expectations are for a 0.6% month-over-month rise. The core PPI, which excludes volatile food and energy prices, is seen gaining 0.4%. This compares with increases of 0.5% and 0.2%, respectively, in September.
National Federation of Independent Business releases its Small Business Optimism Index for October. Economists forecast a 98.5 reading, slightly less than the September number.
Fed speakers: St. Louis Fed President Jim Bullard takes part in UBS panel discussion. Fed Chair Powell speaks at diversity conference. Charles Daly takes part in virtual discussion.

Wednesday, Nov. 10

Jobless Claims
MBA Mortgage Applications
BLS releases the consumer price index for October. Consensus estimate is for a 6% year-over-year gain, compared with a 5.4% jump in September. The core CPI is expected to increase at a 4.4% clip, faster than September’s 4% growth rate.

Thursday, Nov. 11

Fed Balance Sheet
Money Supply

Friday, Nov. 12

University of Michigan releases its Consumer Sentiment index for October. Consensus estimate is for a 72.5 reading, slightly higher than September’s.
BLS releases the Job Openings and Labor Turnover Survey. Economists forecast 10 million job openings on the last business day of September, about 400,000 fewer than in August, but still a historically elevated level.
Federal Reserve Bank of New York President John Williams speaks before the virtual “Heterogeneity in Macroeconomics: Implications for Policy” conference hosted by the Federal Reserve Bank of New York.

Key USDA & international Ag & Energy Reports and Events

Tuesday brings USDA’s monthly updates on supply and demand.

Monday, Nov. 8

Ag reports and events:

Export Inspections
Crop Progress