Which Trump Agenda Items Are Companies Talking About With Wall Street?
Hamilton Place Strategies, a public affairs consulting firm, analyzed transcripts of earnings calls by publicly traded U.S. companies over the last three quarters. They found that tax reform was the policy issue companies discussed most on those calls with Wall Street analysts — but that mentions of the subject dropped by 38 percent from the fourth quarter of 2016 to the second quarter of 2017. Overall, the percentage of earnings calls mentioning government or policy issues fell from 41 percent to 16 percent. Health-care reform saw the largest increase.
Does this mean that businesses have given up on tax reform this year? Perhaps. More likely, it's simply the result of a lack of action on the tax overhaul. Hamilton Place notes that mentions of tax policy peaked in February just after the Senate Finance Committee advanced Treasury Secretary Steven Mnuchin's nomination and have spiked after other tax-related announcements. So mentions of tax reform on earnings calls could surge again the fall.
One other note about what businesses have been discussing: Calls mentioning President Trump fell by 84 percent from January to late August.
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Chart of the Day: GDP Growth Before and After the Tax Bill
President Trump and the rest of the GOP are celebrating the recent burst in economic growth in the wake of the tax cuts, with the president claiming that it’s unprecedented and defies what the experts were predicting just a year ago. But Rex Nutting of MarketWatch points out that elevated growth rates over a few quarters have been seen plenty of times in recent years, and the extra growth generated by the Republican tax cuts was predicted by most economists, including those at the Congressional Budget Office, whose revised projections are shown below.
Are States Ready for the Next Downturn?
The Great Recession hit state budgets hard, but nearly half are now prepared to weather the next modest downturn. Moody’s Analytics says that 23 states have enough reserves to meet budget shortfalls in a moderate economic contraction, up from just 16 last year, Bloomberg reports. Another 10 states are close. The map below shows which states are within 1 percent of their funding needs for their rainy day funds (in green) and which states are falling short.
Chart of the Day: Evolving Price of the F-35
The 2019 National Defense Authorization Act signed in August included 77 F-35 Lightning II jets for the Defense Department, but Congress decided to bump up that number in the defense spending bill finalized this week, for a total of 93 in the next fiscal year – 16 more than requested by the Pentagon. Here’s a look from Forbes at the evolving per unit cost of the stealth jet, which is expected to eventually fall to roughly $80 million when full-rate production begins in the next few years.
Wages Are Finally Going Up, Sort of
Average hourly earnings last month rose by 2.9 percent from a year earlier, the Labor Department said Friday — the fastest wage growth since the recession ended in 2009. The economy added 201,000 jobs in August, marking the 95th straight month of gains, while the unemployment rate held steady at 3.9 percent.
Analysts noted, though, that the welcome wage gains merely kept pace with a leading measure of inflation, meaning that pay increases are largely or entirely being canceled out by higher prices. “The last time unemployment was this low, during the dot-com boom, wage growth was significantly faster — well above 3.5 percent,” The Washington Post’s Heather Long wrote. The White House Council of Economic Advisers this week issued a report arguing that wage gains over the past year have been better than they appear in official statistics.
Quote of the Day: Time to Raise Taxes?
“Tax revenue as a percentage of gross domestic product is expected to be 16.5 percent next year. The long-term average in a full-employment economy is 18.5 percent of GDP; if revenue were at that level for the coming decade, debt would be $3.2 trillion lower and the 10-year fiscal gap would be halved. Returning to past revenue levels, however, will be inadequate over time, because an aging population will increase Medicare and Social Security costs. This need not pose a problem: Revenue was roughly 19 percent of GDP in the late 1990s, and economic conditions were excellent.”
– Former U.S. Treasury Secretary Richard E. Rubin, writing in The Washington Post