Trump Ices out Musk in Tax-cut Bill Feud: 'Not Even Thinking of him'

Source: Bloomberg

This week, the Bureau of Labor Statistics, which is responsible for gathering and publishing America’s most important economic numbers (think things like CPI, PPI and Non-Farm-Payrolls) said it was “reducing sample in areas across the country,” noting that its “current resources can no longer support the collection effort.”

The reduction is specifically in CPI, but it’s indicative of the wider trend described by Beach. It’s exactly the kind of thing that Beach, a former BLS commissioner, was worried about. Separately, the Wall Street Journal reported that economists are also starting to question the quality of US economic data, with some of them spotting some interesting quirks.

In April’s CPI, for instance, UBS economist Alan Detmeister calculated that 29% of price inputs had been made using different-cell imputation, which the BLS deploys when it’s unable to directly observe a particular price. Imputing figures involves estimating a number based on comparable items, which means there’s an element of judgment involved. According to Detmeister, 29% of price inputs in the April CPI report were made using imputation, a proportion which the WSJ says is almost twice as high as usual.

Things like CPI are incredibly important. Trillions of dollars worth of inflation-protected US government bonds (TIPs) are linked to them. Social Security payouts are based on them. And the Federal Reserve has repeatedly emphasized its own “data dependency” when it comes to figuring out the path of monetary policy.

But what if the data’s not great?

The BLS’s economic surveys have already been suffering from low response rates, which we’ve discussed with Beach and in this space before. That means headline or average numbers might not be totally reflective of reality. Reduced sample sizes are only expected to create more volatility in sub-indices, according to the BLS.

And speaking America’s economic data, it is of course Jobs Day, which means we have a live example of BLS statistics to think about. While the headline number came in higher than expected, previous months were revised lower — a pattern which has been repeating itself for a while now and which has prompted a lot of head-scratching.

Why can’t the BLS get payrolls right?

Steven Englander over at Standard Chartered (and recent Odd Lots guest) has one theory. He argues that a lack of data means the BLS has been systematically overestimating the US labor market — by a lot. He estimates that the US added only 40,000 new jobs (seasonally-adjusted) between March and December 2024, compared to the 1.4 million reported in the official NFP figures.

The issue, Englander says, has to do with the BLS’s birth-death adjustment — which estimates the net number of jobs created or destroyed by new business creations (‘births’) and losses from closing businesses (‘deaths’). Because NFP is reported on a monthly basis, the BLS ends up largely estimating the birth-death figure based on a model. It can’t directly survey openings/closures because it takes time for new businesses to actually be captured in Current Employment Statistics.More complete data on openings/closures does exist — but always with a lag. The BLS uses the Quarterly Census of Employment and Wages (QCEW) for its revisions. But there’s also the the Business Employment Dynamics (BED), which the bureau does not currently use. Both of these — QCEW and BED — take a while to come out, much longer than the monthly cadence with which the BLS publishes its initial NFP numbers.

And so, when the initial NFP estimate gets compared with the more comprehensive and longer-term CQEW data, you get revisions. Big ones. Based on BED data (which is more up to date than QCEW) at the moment, Englander estimates that:

To fix the issue, the BLS could try to survey actual closing and opening firms. But of course, that would mean additional resources — and lots of them (since you need to call up repeatedly to make sure the firms are actually closed, and not just failing to respond). Based on this week’s news, it doesn’t seem like the BLS is getting additional staffing anytime soon. Maybe the US could devise a better database for tracking businesses creation/destruction?? But again, large-scale government projects for the purposes of creating more transparency aren’t exactly popular right now either.

So in the meantime, traders, investors, economists, Social Security recipients, or just anyone who wants to know what’s going on in this country, are left to grapple with whatever data they can get and make their own judgments of its accuracy. The risk for the Fed is that it ends up having fewer and fewer reliable data sets to base its decisions on, or starts favoring certain data sets over others because of all these quality issues.

While we’re talking about data and data quality, today we got the jobs report and it was… okay. It was not terrible, and it was not amazing. More on all that in a second.

What is true is that we saw further downward revisions to prior months’ data. As Tracy notes above, March and April job creation numbers were revised down a combined 95,000. This has become such a persistent thing that it’s really not crazy at all to assume that today’s headline beat (139,000 vs. 126,000 expected) will end up as a miss once it’s revised.

Now again, you glance at the numbers and it’s not a total disaster or anything. Private payrolls grew 140,000. The unemployment rate held steady at 4.2%. Average hourly earnings grew 0.4% in the month.

On the other hand, again, it wasn’t all great. There were those downward revisions. Payroll growth is clearly slowing. Even the unemployment rate is softening. As Mike Konczal observes, the last three months went from 4.15% to 4.19% to 4.24%. Each of these round to 4.2%. So there is a softening that doesn’t show up in the main figure.

Now look, I’m not trying to make a big deal about decimal points here. Going from 4.15% to 4.24% isn’t that big of a deal. What matters though is the interaction of the data and the Fed.

The Fed finds itself in a little bit of a bind, because while momentum is decelerating the trade war is making it cautious about cutting. It doesn’t want to bake in higher inflation, and higher inflation expectations, and risk a second spike in overall inflation.

And so what I worry about is that when the Fed looks at the data, it gets out of its bind by taking the ‘glass half full’ view of the data. If there’s no stress on the labor market, then it doesn’t have to worry about employment vs. tariff-induced inflation. It can just focus on inflation. And since this would be the easiest path, this might the environment they ‘see.’ And maybe that’s the right way to see it, but if there is a real loss of momentum, the Fed could find itself offside at some point, and only start cutting once a recession is baked in.

Remember, this is the insight behind the Sahm Rule. All major slowdowns start with a small slowdown, and so if you’re going to cut off major slowdowns, you have to take small slowdowns seriously. But right now, the Fed is incentivized to not see signs of a small slowdown, because reacting to it could undermine the fight against tariff-induced inflation.

Speaking of trade, today we caught up with Gene Seroka, Executive Director of the Port of Los Angeles. We talked about what he’s seeing at the ports right now, and he confirmed that port traffic and job-listings for dock workers are both down.

Source: Bloomberg Europe

The Transportation Department paved the way for looser U.S fuel economy standards on Friday by declaring that former President Joe Biden's administration exceeded its authority by assuming high uptake of electric vehicles in calculating rules.

The department made the declaration as it published a final "Resetting the Corporate Average Fuel Economy Program" (CAFE) rule. A future separate rule from the administration of President Donald Trump will revise the fuel economy requirements.

"We are making vehicles more affordable and easier to manufacture in the United States. The previous administration illegally used CAFE standards as an electric vehicle mandate," said Transportation Secretary Sean Duffy in a statement.

The department's National Highway Traffic Safety Administration (NHTSA), in writing its rule last year under Biden, had "assumed significant numbers of EVs would continue to be produced regardless of the standards set by the agency, in turn increasing the level of standards that could be considered maximum feasible," it said Friday.

Duffy in January signed an order directing NHTSA to rescind fuel economy standards issued under Biden for the 2022-2031 model years that had aimed to drastically reduce fuel use for cars and trucks.

Late Thursday, Senate Republicans proposed eliminating fines for failures to meet CAFE rules as part of a wide-ranging tax bill - the latest move aimed at making it easier for automakers to build gas-powered vehicles.

Last year, Chrysler-parent Stellantispaid $190.7 million in civil penalties for failing to meet U.S. fuel economy requirements for 2019 and 2020 after paying nearly $400 million for penalties from 2016 through 2019. GMpreviously paid $128.2 million in penalties for 2016 and 2017.

Stellantis said it supported the Senate Republican proposal "to provide relief while DOT develops its proposal to reset the CAFE standards... The standards are out of sync with the current market reality and immediate relief is necessary to preserve affordability and freedom of choice."

GM declined to comment.

NHTSA in June 2024 under Biden said it would hike CAFE requirements to about 50.4 miles per gallon (4.67 liters per 100 km) by 2031 from 39.1 mpg currently for light-duty vehicles.

The agency last year said the rule for passenger cars and trucks would reduce gasoline consumption by 64 billion gallons and cut emissions by 659 million metric tons, cutting fuel costs with net benefits it estimated at $35.2 billion.

Source: Reuters

President Donald Trump urged the Federal Reserve (Fed) to cut interest rates by a full percentage point, intensifying his pressure campaign against Chair Jerome Powell.

“‘Too Late’ at the Fed is a disaster!” Trump posted Friday on social media, using a derisive nickname for Powell. “Despite him, our Country is doing great. Go for a full point, Rocket Fuel!”

While the size of Trump’s rate-cut demand — a full percentage point — was unusual, his call for the central bank to lower rates is not new. The president, who first nominated Powell to the job in 2017, has regularly complained that the Fed chief has been too reluctant to cut borrowing costs. Trump pushed Powell to lower rates in a White House meeting last month.

Fed officials are scheduled to meet June 17-18 in Washington and are widely expected to leave their benchmark rate unchanged, as they have done all year. Many policymakers have said they want to wait for more clarity over how Trump’s policies on trade, immigration and taxation will affect the economy before they alter rates.

It would be highly unusual for the Fed to lower its benchmark rate by a full percentage point at one meeting outside of a severe economic downturn or financial crisis. Officials last cut rates by a full point in March 2020, when the US economy was cratering as the Covid-19 pandemic prompted widespread shutdowns and layoffs, triggering a deep recession.

The Fed targets 2% inflation over time, and adjusts interest rates with the goal of maintaining both stable prices and maximum employment — the two responsibilities assigned to it by Congress. Lowering rates too quickly could stoke inflationary pressures, while holding them at high levels for too long could restrain the economy more than desired.

Trump posted his call after new data showed US job growth moderated in May, but was still better than expected, and the unemployment rate held at a low 4.2%. In a separate statement, the White House touted the “BOOMING economy”, including job gains, increasing wages and tame inflation.

Fed policymakers in recent weeks have described the labor market as on stable footing, which they’ve said provides further cause for them to keep borrowing costs steady for now — especially with inflation still above their target.

Borrowing costs

Trump, in a subsequent message, accused Powell of “costing our Country a fortune” by keeping rates at their current level, saying they have increased borrowing costs for the federal government that “should be MUCH LOWER!!!”

“If ‘Too Late’ at the Fed would CUT, we would greatly reduce interest rates, long and short, on debt that is coming due. Biden went mostly short term. There is virtually no inflation (anymore), but if it should come back, RAISE ‘RATE’ TO COUNTER. Very Simple!!!” he posted.

US borrowing costs have swelled in recent years as the Fed lifted interest rates to combat historically high inflation. The average interest rate on US Treasuries outstanding is currently around 3.36%, well above levels the government enjoyed before the Fed started ramping up rates.

Last fiscal year, the government’s interest costs on debt were the equivalent of 3.06% as a share of gross domestic product, the highest ratio since 1996.

Trump and congressional Republicans have vowed to rein in government spending and lower deficits, but the tax bill they are advancing would likely do the opposite, according to several estimates.

The nonpartisan Congressional Budget Office said Thursday that added interest costs from the bill would come to US$551 billion (RM2.33 trillion) over a decade. CBO estimates didn’t account for other potential effects, such as any boost to growth. The agency separately has estimated interest costs would shrink if high tariffs stay in place, reducing borrowing needs.

Source: Theedgemarkets

China has issued temporary export licenses to rare-earth suppliers for the top three U.S. automakers, according to a report from Reuters, citing two sources familiar with the situation. The move comes as supply chain disruptions begin to emerge due to Beijing’s restrictions on the export of these materials.

The licenses, valid for a period of six months, have been granted to suppliers of General Motors (NYSE:GM), Ford, and Jeep-maker Stellantis (NYSE:STLA). However, the specifics about the quantity or items included in the approval remain unclear, as the sources chose to remain anonymous due to the information not being public.

China’s decision to limit exports of a wide array of rare earths and related magnets since April has complicated supply chains crucial to automakers, aerospace manufacturers, semiconductor companies, and military contractors globally. China’s control over the critical mineral industry, which is essential for the green energy transition, is seen as a significant leverage point for Beijing in its trade conflict with U.S. President Donald Trump.

Source: Reuters

The U.S. Federal Reserve should cut interest rates by a full percentage point, President Donald Trump said on Friday as he reiterated his view that Fed Chair Jerome Powell has been too slow to lower borrowing costs.

"Europe has had 10 rate cuts, we have had none. Despite (Powell), our Country is doing great. Go for a full point," Trump wrote in a social media post. Central banks typically limit rate moves to quarter point changes.

Trump said the Fed could always raise rates again if cuts led to inflation.

The president has repeatedly berated Powell for not cutting rates as he desires. The two men met face-to-face for the first time last week, with Trump telling Powell he was making a "mistake" by not lowering rates.

The Fed in May left the policy rate in the 4.25%-4.50% range, where it has been since December, and policymakers have since signaled they may leave it there for another few months as they wait for more clarity on Trump's tariff policy.

Source: Yahoo Finance