- Senators will meet with Biden today after a framework agreement on a bipartisan infrastructure plan
- U.S. Q1 GDP expected unrevised
- U.S. unemployment claims expected to show continued improvement in the U.S. labor market
- 7-year T-note auction
Senators will meet with Biden today after a framework agreement on a bipartisan infrastructure plan — Politico first reported yesterday evening that the group of bipartisan Senators and White House officials agreed on the framework of a bipartisan infrastructure plan. Politico said that the Senators will meet with President Biden today.
The deal remains focused on $579 billion of new spending. The sticking point has always been the pay-fors. There were no details last night on whether the two sides have a hard agreement on pay-fors or whether they simply plan to try to fill in the blanks later. The Washington Post last night report reported that Senator Collins said some details are “still to be worked out.”
Even if there is an agreement in principle between 21 Senators and the White House, that doesn’t mean the bill will pass Congress. The bill would require at least 10 Republican Senators to vote in favor of the infrastructure bill, and their current support could quickly fade once the details are hashed out. Moreover, some Democratic legislators suspect that Republican support for a bipartisan plan is simply a ruse to slow them down.
In addition, some progressive Democratic Senators have said they will not support the bipartisan agreement because it doesn’t contain nearly as spending as they believe is necessary or any clean energy spending. Progressive Democratic Senators also fear that if they sign on to the bipartisan plan, there will be no additional infrastructure spending passed through budget reconciliation. These Democratic Senators have every reason to sabotage the bipartisan bill by withholding their support and ending the bill.
In any case, the Senate later today will leave for its 2-week Fourth of July recess. Congress will be back in session for only about four weeks in July and early August before leaving for their month-long August recess. That makes it likely that the infrastructure legislative process will extend into September and October, and maybe later.
When Congress returns from its August recess, the first order of business will be to pass a spending bill for the new fiscal year that begins on October 1. Without a spending bill, the U.S. government will be partially shut down on October 1. That seems unlikely to happen since Democrats are in full control of Washington and would receive all the blame for a government shutdown.
The Democrats also need to figure out how to either raise or suspend the debt ceiling before the Treasury is threatened with a sovereign debt default. The debt ceiling will be reinstated on July 31. The Treasury will be able to use its usual emergency procedures to conserve cash for some number of weeks. However, Treasury Secretary Yellen said yesterday that the Treasury could hit its X-date as soon as August when it would run out of cash and start defaulting on its obligations.
Ms. Yellen said yesterday that, “Failing to increase the debt limit would have absolutely catastrophic economic consequences. It would precipitate a financial crisis. It would threaten the jobs and savings of Americans — and at a time when we’re still recovering from the Covid pandemic.”
U.S. Q1 GDP expected unrevised — The consensus is for today’s Q1 GDP to be left unrevised at +6.4% (q/q annualized). Q1 personal consumption is expected to be revised slightly higher to +11.4% from the last report of +11.3%.
Q1 was over a long time ago and the market is mainly looking ahead to next month’s Q2 GDP report, which is expected to be stellar at +10.0%. GDP growth is then expected to remain strong at +7.0% in Q3 and +5.0% in Q4. The consensus is for calendar-year 2021 GDP growth of +6.6%, which would more than recover the -3.5% decline seen in 2020. U.S. GDP is then expected to remain strong at +4.1% in 2022, before downshifting to a more normal long-term growth rate of +2.3% in 2023.
The current surge in U.S. GDP is due to the massive stimulus from the federal government as well as the Fed’s extremely stimulative monetary policy. Moreover, the Biden administration is pushing for another $4 trillion of spending with its $2.25 trillion American Jobs Plan and its $1.8 trillion American Family Plan.
U.S. unemployment claims expected to show continued improvement in the U.S. labor market — Today’s unemployment claims report is expected to show continued improvement in the U.S. labor market. The consensus is for today’s initial unemployment claims report to show a -32,000 decline to 380,000, reversing most of last week’s +37,000 rise to 412,000. Today’s continuing claims report is expected to show a decline of -58,000 to 3.460 million following last week’s small +1,000 rise to 3.518 million. Initial unemployment claims are still up by +196,000 from the pre-pandemic level, while continuing claims are up by +1.81 million from the pre-pandemic level.
7-year T-note auction — The Treasury today will conclude this week’s $209 billion T-note package by selling $62 billion of 7-year T-notes. The markets will be a little nervous about today’s auction since demand has been spotty for recent 7-year auctions. The 7-year T-note yield yesterday closed at 1.24%, which is the lower half of the narrow range seen since March.
The 12-auction averages for the 7-year are as follows: 2.34 bid cover ratio, $13 million of non-competitive bids, 5.6 bp tail to the median yield, 50.6 bp tail to the low yield, 46% taken at the high yield, and 60.0% taken by indirect bidders (mildly below the median of 61.2% for all recent Treasury coupon auctions).
