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  Executive Order and Presidential Memoranda Watch
Posted Under: Government • Trade • Spending
As President Trump begins his first 100 days in office, significant focus will be on the use of Executive Orders and Presidential Memoranda fulfilling campaign promises or moving his agenda forward.  While there are some differences between Executive Orders and Presidential Memoranda (including numbering, publication requirements, and cost estimate requirements), they are often used interchangeably and both Presidential actions represent executive branch powers. We are following the release of these Orders and Memoranda and plan to provide short summaries of what each action includes along with links to read the full text of each Presidential action.  

Presidential Memorandum Regarding the Hiring Freeze (1/23/2017) -  This is a freeze on filling existing open positions as well as new positions (military and cabinet appointments excluded) unless they are deemed necessary to meet national security or public safety responsibilities. This includes a prohibition on using contracts with non-government agencies to circumvent this freeze. The Directors of the Office of Management and Budget and the Office of Personnel Management are tasked with recommending a long-term plan in the next 90 days to reduce the size of the Federal workforce. The implementation of that plan will then replace the hiring freeze order.

Presidential Memorandum Regarding Withdrawal of the United States from the Trans-Pacific Partnership Negotiations and Agreement (1/23/2017) - The U.S. will withdrawal as a signatory of the TPP and withdrawal from TPP negotiations. Instead, bilateral trade negotiations that "promote American industry, protect American workers, and raise American wages" are to be pursued wherever possible.

Presidential Memorandum Regarding the Mexico City Policy (1/23/2017) - A restoration of the Mexico City Policy of 1984 that directs the United States Agency for International Development (USAID) to withhold USAID funds from non-governmental organizations that use non-USAID funds to provide advice, promote, or perform abortion.  This memorandum further directs the Secretary of State to take all necessary actions to ensure that U.S. taxpayer dollars are not used to fund organizations or programs that provide or support "coercive abortion or involuntary sterilization".

Memorandum for the Heads of Executive Departments and Agencies (1/20/2017) by Assistant to the President and Chief of Staff Reince Priebus – A request from the President to the heads of executive departments, in order to allow time for Presidential appointees or designees to have time to review new or pending regulations that:
  • Department or agency heads may delegate review and approval to persons appointed or designated by the President
  • Regulations sent to the Office of the Federal Register (OFR) but not yet published should be withdrawn from the OFR pending review and approval as described in the above bullet
  • Regulations published by the OFR but not yet in effect should have their effective date postponed by 60 days from the date of the memorandum (1/20/17) to allow for review. Where appropriate, further delay beyond 60 days should be proposed
  • Regulations that don't raise questions of law or policy need no further action taken. Where questions exist, the OMB Director should be notified for further action

Executive Order Minimizing the Economic Burden of the Patient Protection and Affordable Care Act Pending Repeal (1/20/2017) – Seeks prompt repeal of the Patient Protection and Affordable Care Act (ACA). Pending repeal, this Executive Order promotes actions to minimizes the economic and regulatory burdens and delay implementation of provisions and requirements of the ACA deemed to place a burden on individuals or states. This Executive Order also directs the heads of departments or agencies with responsibilities relating to the healthcare to "encourage the development of a free and open market in interstate commerce for the offering of healthcare services and health insurance, with the goal of achieving and preserving maximum options for patients and customers."

Posted on Tuesday, January 24, 2017 @ 1:07 PM • Post Link Share: 
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  Brian Wesbury on Fox with Neil Cavuto talking trade and President Trump
Posted Under: Trade • Video • TV • Fox Business
Posted on Tuesday, January 24, 2017 @ 12:10 PM • Post Link Share: 
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  Existing Home Sales Declined 2.8% in December
Posted Under: Data Watch • Home Sales • Housing


Implications:  Don't be fooled by today's soft headline number, existing home sales finished 2016 on a strong note, coming in for the full calendar year at the strongest sales pace in a decade.  Sales of previously-owned homes fell 2.8% in December to a 5.49 million annual rate, but are still up 0.7% from a year ago.  Home sales are volatile from month to month and we expect the general upward trend of the past several years to keep going.  That being said, tight supply and rising prices will continue to be headwinds heading into the new year.  Remarkably, sales in 2016 hit their highest level since 2006 even though inventories remain very low.  In fact, inventories are now at their lowest level since the National Association of Realtors® (NAR) began tracking supply in 1999.  The months' supply of existing homes – how long it would take to sell the current inventory at the most recent selling pace – is only 3.6 months.  According to the NAR, anything less than 5.0 months is considered tight supply.  Meanwhile, growing demand for housing has driven up median prices, which are up 4.0% from a year ago.  While this may temporarily price some lower-end buyers out of the market, it should ultimately help alleviate some of the supply constraints as "on the fence" sellers take advantage of higher prices and trade-up or trade-down to a new home.  In addition, look for a faster pace of home building in the next couple of years.  Although some analysts may be concerned about the impact of higher mortgage rates, it's important to recognize that rates are still low by historical standards, incomes are growing, and the appetite for homeownership is eventually going to move higher again.  In other news this morning, the Richmond Fed index, which measures mid-Atlantic factory sentiment, rose to +12 in January from +8 in December, signaling further expansion in the manufacturing sector. We expect the national ISM will continue to show expansion as well.

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Posted on Tuesday, January 24, 2017 @ 11:27 AM • Post Link Share: 
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  American Carnage?
Posted Under: Bullish • Employment • GDP • Markets • Monday Morning Outlook • Stocks

A memorable part of President Trump's inaugural speech pointed to mothers and children trapped in poverty, rusted-out factories, a flawed school system, and crime and gangs and drugs.  He described these problems as "American carnage" and stated emphatically that it "stops right here and stops right now."   

You'd have to go all the way back to President Carter's "malaise" speech in July 1979, as gas lines were forming during the energy crisis, to find a sitting president so stark.

The difference is that Carter had already been president for 30 months, and in part, was taking responsibility.  Donald Trump, on the other hand, is just taking office and is blaming it on his predecessors.  No wonder some members of the establishment called it the worst inaugural speech ever.

All of this points to the oldest debate in political and economic history.  The debate between wealth creation and redistribution, which is really a debate about whether government or markets control the "commanding heights" of the economy.  One reason American politics are so divisive is that government has become so big.  Those who benefit from it fight hard to keep it while those who want to slim it down have to fight even harder to make cuts.

We're economists, so we want to focus on the "carnage" in the economy and what that means for investors.  Part of this relates back to Frédéric Bastiat's comments about what is "seen and unseen."

The U.S. economy has grown at a regretfully slow 2.1% pace in the past seven-and-a-half years.  Rising corporate profits have pushed the S&P 500 Index up 236%.  The US has created 15.6 million jobs since the low point after the Panic of 2008.  That's the "seen" and it's not really "carnage."  Companies have embraced new technologies, and employees and investors have benefited.

The "unseen" is what could have been.  It's the lost incomes, it's the jobs "not" created, it's the businesses not started.  It's the fact that it is harder to get ahead when the economy is not growing rapidly.  Part of President Trump's election victory was because he tapped into this pain.

Many economists explain this away by telling people that the economy can't get better and that people ought to get used to slower growth.  President Trump does not believe this.

And that's why another portion of Trump's speech gives us hope: "For too long, a small group in our nation's Capital has reaped the rewards of government while the people have borne the cost.  Washington flourished – but the people did not share in its wealth." 

This line points a finger at the lobbyists, lawyers, and bureaucrats, who have made a living by getting the government to dole out special favors for them or their clients. 

And we think President Trump is on the right track.  The "carnage" he sees is linked to these government-linked groups.  Wherever markets have not been allowed to work freely the carnage is the worst.  The more government involves itself in a market, the higher the prices and the lower the quality.  Just look at many public schools in inner-cities.

That's why we're encouraged by reports that the Trump Administration will forcefully cut government spending and regulations, which should widen the zone where markets dominate.   

Meanwhile, we're discouraged by talk of tariffs.  Trade laws could be better, but excessively high corporate tax rates and excessive regulation hurt.  In addition, rapid productivity growth has undermined manufacturing job growth, just like what happened in the farm sector over the past century-plus.

Cutting government spending, reducing tax rates, and loosening regulations would not fix poverty or fill and polish rusted-out factories overnight.  But they would reduce the amount of "American carnage" by boosting the creative side of creative destruction.    

Brian S. Wesbury - Chief Economist
Robert Stein, CFA – Deputy Chief Economist

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Posted on Monday, January 23, 2017 @ 11:11 AM • Post Link Share: 
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  M2 and C&I Loan Growth
Posted Under: Government • Fed Reserve


Source: St. Louis Federal Reserve FRED Database

Posted on Monday, January 23, 2017 @ 7:48 AM • Post Link Share: 
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  Housing Starts Increased 11.3% in December
Posted Under: Data Watch • Home Starts • Housing


Implications:  After plummeting in November, housing starts rebounded sharply in December, increasing 11.3% to a 1.226 million annual rate.  Construction in the multi-family sector, which is normally very volatile continued its recent hyper-volatility, surging 57.3% in December after dropping 39.4% in November.  Meanwhile, single-family starts declined 4% in December, but we wouldn't worry about that.  Single-family starts are still up 3.9% from a year ago and permits to build single-family homes are up 10.7% from a year ago, hitting the highest level since 2007.  The trend in home construction will continue to be up.  Based on population growth and "scrappage," housing starts should eventually rise to about 1.5 million units per year, so much of the recovery in home building is still ahead of us.  In addition, despite December data, the "mix" of construction has been generally shifting toward single-family building.  When the housing recovery started, multi-family construction led the way.  But the share of all housing starts that are multi-family appears to have peaked in 2015, when 35.7% of all starts were multi-family, the largest since the mid-1980s, when the last wave of Baby Boomers was growing up and moving to cities.  In 2016, the multi-family share of starts fell to 32.9%.  The shift in the mix of homes toward single-family is a positive sign because, on average, each single-family home contributes to GDP about twice the amount of a multi-family unit.  In other recent housing news, the NAHB index, which measures sentiment among home builders, dropped slightly to a still-high 67 in January, after posting its highest reading in 11 years in December.  More jobs, faster wage growth, and, for at least the time being, optimism about more market-friendly policies from a Trump Administration, are encouraging both prospective home buyers and builders.  In other news this morning, initial unemployment claims fell 15,000 last week to 234,000.  Continuing claims dropped 47,000 to 2.046 million. These figures suggest solid job growth in January.  Also today, the Philly Fed index, a measure of sentiment among East Coast manufacturers, rose to +23.6 in January from +19.7 in December, signaling optimism in the factory sector.

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Posted on Thursday, January 19, 2017 @ 10:52 AM • Post Link Share: 
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  Industrial Production Increased 0.8% in December
Posted Under: Data Watch • Industrial Production - Cap Utilization


Implications:  Industrial production surged in December, posting its largest monthly gain since 2014, completely reversing the November decline.  Not surprisingly, the strength in December came from the highly volatile utility and auto sectors, which were also the main culprits behind the November drop.  After unseasonably warm weather in November, utility output posted its largest one-month jump since 1989 as demand for home heating and electric power ramped up in response to more normal December conditions.  Meanwhile, manufacturing rose 0.2% in December, due entirely to a jump in auto production which rose 1.8% in December and is now up 6.6% over the past year.  "Core" industrial production, which is manufacturing excluding autos, remained unchanged in December.  Although it's down 0.3% versus a year ago, it's up at a 1.2% annual rate during the past three months, a lagged effect of the rebound in oil prices since earlier this year.  The rebound in energy prices is also having a direct effect on mining, which despite remaining unchanged in December is up at a 12% annual rate in the past three months.  Further, oil and gas-well drilling posted its seventh consecutive gain in December, jumping 9.4%, and is now up at a massive 150% annual rate in the past three months.  Based on other commodity prices, we think oil prices are in the "fair value" range, which should keep mining in recovery after the problems of the past two years.  Although weak overseas economies will continue to be a headwind for production, we expect solid growth in the year ahead.  In other recent news, the Empire State index, a measure of manufacturing sentiment in New York, fell to +6.5 in January from +7.6 in December, signaling continued improvement in the factory sector, though at a slightly slower pace.

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Posted on Wednesday, January 18, 2017 @ 10:52 AM • Post Link Share: 
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  The Consumer Price Index Increased 0.3% in December
Posted Under: CPI • Data Watch • Inflation


Implications:  A fitting reading on consumer prices for the final month of 2016, as December's 0.3% rise in prices pushed the twelve-month increase above the Fed's 2.0% target for the first time in more than two years.  That is a significant pickup from the 0.7% increase we saw in 2015, and we expect 2017 will continue to see prices move gradually higher.  Year-to-year prices have been steadily on the rise over recent months as energy prices, up 1.5% in December and rising at a 27.4% annual rate in the past three months, have turned into a tailwind after serving as a headwind for much of the past two-and-a-half years.  Energy prices will likely average at modestly higher prices than 2016, but even stripping out energy and food prices – the latter of which have now been unchanged for six consecutive months – shows inflation up 2.2% in the past year, just a tad higher than the 2.1% gain in 2015.  The "core" measure was once again led higher by housing prices in December.  Owners' equivalent rent, which makes up about ¼ of the CPI, rose 0.3% in December, is up 3.6% in the past year – the largest annual rise going back to 2007 - and will be a key source of higher inflation in the year ahead.  On the earnings front, today's report shows real average hourly earnings rising 0.1% in December.  Real earnings rose a modest 0.8% in 2016, a slower pace than the 1.9% gain in 2015, but given continued employment gains this should move higher over the next year.  With prices - both including and excluding food & energy costs – rising at or above the Fed's 2% target and continuing a steady climb higher, paired with continued strength in employment, we expect the Fed to raise rates three (and possibly four) times in 2017.

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Posted on Wednesday, January 18, 2017 @ 10:44 AM • Post Link Share: 
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  Another Plow Horse Quarter
Posted Under: Autos • GDP • Monday Morning Outlook • Retail Sales

Animal spirits are back!  

Confidence surveys have soared since the election.  The Conference Board's future expectations measure hit the highest level since 2003.  The NFIB small business confidence index rose at its fastest pace ever.  Other surveys are up, too.

But, it will take much more than animal spirits to lift economic growth from its sluggish pace of the past several years. Since mid-2009, real GDP has grown just 2.1% at an annual rate.  We've been calling it a Plow Horse Economy, and have yet to find a better metaphor.  But we didn't predict plow horse growth because of weak confidence numbers, we believed our thoroughbred high-tech economy has been weighed down by an overweight, overbearing jockey called Government.

To truly revive the economy on a lasting basis, we need better policies, not just more confidence.  The new White House promises comprehensive corporate tax reform, a rollback of Obamacare, and more freedom to build energy infrastructure. These policies would lift growth and generate real, lasting, gains in confidence, too.
For the time being, though, we're stuck with the Plow Horse.  Although we get some data later this week that may make us tweak our forecast – like the CPI and Industrial Production – it looks like real GDP grew at about a 2.2% annual rate in the last quarter of 2016, almost exactly the average 2.1% pace since mid-2009.  

Here's how we get to our 2.2% forecast.

Consumption:  Auto sales skyrocketed in Q4, growing at a 12.7% annual rate, while retail sales outside the auto sector rose at a 5.5% pace.  But services grew much more slowly, so it looks like "real" (inflation-adjusted) personal consumption of goods and services, combined, grew at a 2.5% annual rate in Q4, contributing 1.7 points to the real GDP growth rate (2.5 times the consumption share of GDP, which is 69%, equals 1.7).

Business Investment:  Business equipment investment grew at around a 4% annual rate in Q4 while commercial construction was flat.  R&D probably grew near its trend of 5%.  Combined, we estimate business investment grew at a 3.3% rate, which should add 0.1 points to the real GDP growth rate (3.3 times the 13% business investment share of GDP equals 0.4).

Home Building:  Looks like residential construction rebounded in Q4 after declining in both Q2 and Q3, growing at about a 5% annual rate.  Expect an acceleration in 2017 despite higher mortgage rates, as more jobs and higher incomes offset the effects of higher rates.  In the meantime, a 5% growth rate will add 0.2 points to the real GDP growth rate.  (5.0 times the home building share of GDP, which is 4%, equals 0.2).

Government:  Military spending grew in Q4, but slowly, while public construction projects appear to have grown faster than usual.  On net, we're estimating that real government purchases rose at a 1.1% rate in Q4, which would add 0.2 percentage points to real GDP growth (1.1 times the government purchase share of GDP, which is 18%, equals 0.2).

Trade:  The third quarter included a slowdown in imports at West Coast ports due to the bankruptcy of a major international shipper.  As a result, trade added substantially to real GDP in Q3.  The end of that import problem will have the opposite effect on GDP in Q4.  At this point, the government only has trade data through November, it looks like the "real" trade deficit in goods has grown rapidly in Q4.  As a result, we're forecasting that net exports subtract 1.1 points from the real GDP growth rate.

Inventories:  At present, we have even less information on inventories than we do on trade, but what we have suggests companies are restocking shelves and showrooms in Q4.  We're forecasting inventories add about 0.8 points to Q4 real GDP.

Put it all together, and we get a forecast of 2.2% for Q4, right in-line with the Plow Horse trend that we will hopefully leave behind in the next couple of years. 

Brian S. Wesbury - Chief Economist
Robert Stein, CFA – Deputy Chief Economist

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Posted on Tuesday, January 17, 2017 @ 10:37 AM • Post Link Share: 
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  M2 and C&I Loan Growth
Posted Under: Government • Fed Reserve


Source: St. Louis Federal Reserve FRED Database

Posted on Tuesday, January 17, 2017 @ 8:07 AM • Post Link Share: 
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These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
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