Category Archives: Economic Indicators

Fourth Quarter ’17 GDP and December Durable Goods Orders

KEY DATA: GDP: +2.6%; Consumption: +3.8%; Imports: 13.9%; Consumer Prices: +2.8%/ Orders: +2.9%; Excluding Aircraft: +1.4%; Capital Spending: -0.3%

IN A NUTSHELL: “The economy expanded at a solid pace last year and with orders rising and tax cuts kicking in, we should see better growth this year.”

WHAT IT MEANS: So, how did the economy do in 2017? Pretty well. Fourth quarter GDP growth came in a little less than expected, but the headline number hides the true strength. Consumers, businesses and even the government spent money like crazy. Demand for durable consumer goods surged by double-digits as did residential construction. Businesses poured tons of cash into capital goods and technology. So, why did the economy not break the 3% pace as it had in the previous two quarters? Well, you have to get the goods from somewhere and it looks like we got a lot of it from two sources: foreign companies and warehouses. Imports surged and inventories shrunk. Together, those two components reduced growth by 1.8 percentage points. A measure of internal demand, sales to domestic purchasers, was up significantly. As for prices, they rose sharply, especially for consumer products. That is something the Fed is going to have to watch carefully.

Orders for big-ticket items accelerated in December. Durable goods orders jumped, led by sharply rising aircraft demand. Excluding aircraft, the increases were not spread widely across the economy. Demand for metals, machinery and vehicles rose, but orders for electrical equipment, communications equipment computers were off. And the measure that most closely mirrors business capital spending also declined. So, this was a decent, but not great report.

MARKETS AND FED POLICY IMPLICATIONS: The GDP numbers point to an economy that is in very good shape. But they also show how hard it will be to expand by 3% or more for any extended period. The 2.25% pace posted in 2017 was the same as was averaged the previous seven years. There was no acceleration. Yes, it was faster than the 1.5% in 2016, but also less than the 2.9% in 2015. Looking forward, there are some concerns. A lot of the additional purchases came from foreign companies and that is not going to change much in the next few years. The capacity to meet sharply rising demand is just not there. Yes, industrial production should strengthen, but we will also have to get a lot of the rising demand from the rest of the world. So, expect imports to grow rapidly and the trade deficit to widen. There is doubt about the ability of households to continue spending like crazy. Yes, tax cuts will help. However, the minimal savings on the part of low and moderate-income households raises questions about the use of their fatter paychecks. Will they use the money to buy more goods and services or pay down debt and rebuild balance sheets? Given that most of the tax cuts will go to upper income households, who tend to invest, the prospects of a rise in consumer demand anywhere near what we saw in the last quarter are not great. It will take an awful lot of business capital spending to offset those factors and right now, we haven’t heard that companies are making plans to spend a large amount of their windfall profits on building new plants, warehouses or investing in technology. There will be an increase, but how much is just not certain. Then there is the rising rate of consumer inflation. It is not at a threatening level yet, but the falling dollar, increasing energy costs and surging imports imply inflation will accelerate further this year. And that is before we get into the need to pay more for workers. The economy is moving ahead solidly and this year growth should be a lot better, probably around 3%. But unless there is a massive increase in productive capacity and/or a sudden surge in labor supply, much of the new growth will not be met domestically. That means overall economic activity could have an upper bound, which when approached, could translate into higher prices rather than stronger growth. And if that happens, Jerome Powell will have to make some really tough decisions about interest rates.

December Existing Home Sales and November Home Prices

KEY DATA: Sales: -3.6%; Annual: +1.1%; Median Prices (Over-Year): +5.8%; FHFA Prices (Over-Year): +6.5%

IN A NUTSHELL: “Sales of existing homes continue to lag, but that may be due to the incredibly low level of supply.”

WHAT IT MEANS: The housing market is in good shape, especially if you are a seller. Yes, according to the National Association of Realtors, existing home sales fell in December and for all of 2017, the gain was modest. But the sales number is misleading, at least to an extent. The inventory of homes for sale is extraordinarily low. Also, the months supply, which is the number of months at the given sales place needed to clear the market, dropped to its lowest level since 1999, when the number was created. If you cannot find the home you want, you don’t buy a home and with few houses on the market, that is the case for many buyers. With demand outstripping supply, prices rose solidly over the year. Regionally, every part of the nation posted a decline in December. For all of 2017, compared to 2016, sales were flat in the Northeast and Midwest and were up modestly in the South and West.

The Federal Housing Finance Agency’s index of home prices rose again in November, though the gain was limited. Home prices in the West continue to surge but are not rising very quickly on the East Coast. Over the year, housing costs are up significantly. Indeed, nationally, home prices have increased at an average pace of 6.2% for the past six years.

MARKETS AND FED POLICY IMPLICATIONS: With baby-boomers retiring and Millennials entering the home buying years, you would think that housing sales would be growing more rapidly. But demand is going unmet because households are just not moving and putting their houses up for sale. Equity values in many parts of the nation have climbed above their housing-bubble peaks, so it is hard to blame under-water properties for the lack of inventory. What will induce people to sell is unclear and that raises some concerns. To the extent that housing costs are reflected in consumer inflation, the rapidly rising home prices will continue to drive the consumer price indices up faster. Indeed, shelter is one of the fastest growing segments of the Consumer Price Index. That gets piled on top of the rise in energy costs, which is likely to continue given that growth should be strong this year. And if Treasury Secretary Mnuchin’s hopes come true and the dollar weakens, we could see import prices rise faster. Jerome Powell has been confirmed as the next Fed Chair and while he doesn’t face the difficult issues his last two predecessors confronted, it doesn’t mean he comes in with no potential problems on the horizon. Expansionary fiscal policy in a time of solid growth and low unemployment has not been tried. Add that to building underlying inflationary pressures and the new Fed Chair’s job might turn out to be a lot more daunting than people currently think. I am sure Mr. Powell hoped to be Chair. Well, he got it. I wish him luck. He will need it.

December Housing Starts and Permits, January Philadelphia Fed Manufacturing Survey and Weekly Jobless Claims

KEY DATA: Starts: -8.2%; 1-Family: -11.8%; Permits: -0.1%; 1-Family: +1.8%/ Phila. Fed (Manufacturing): -5.7 points/ Claims: -41,000

IN A NUTSHELL: “It has been a tough winter and the weather may have been a major factor in the construction slowdown.”

WHAT IT MEANS: I am already tired of winter and it is still the middle of January. Ugh! But there are only 27 days until the Phillies start spring training, so there is something to look forward to – my annual father/son trip to Clearwater. Builders across the nation had trouble coping with the weather in December. Housing starts plummeted, led by a double-digit drop in single-family construction. Every region posted a fall off in building activity. But the decline is likely to be temporary, as permits were largely flat and they increased for the key single-family segment. Over the last three months of 2017, permit requests ran over 4% higher than starts, so there is a lot of potential activity in the pipeline. If we ever get some good weather, those permits will be used.

While the economy seems to be accelerating, manufacturing activity is not gaining a lot of traction. Yesterday we saw that manufacturing production rose minimally in December. Today, the Philadelphia Fed’s survey of manufacturers indicated that there was not pick up in the first half of January. Activity was still decent, but the trend has been down, not up in the Middle Atlantic region. The details also supported the headline number. New orders expanded much less quickly, inventories built and order books thinned. Optimism about the future was also down. The only good elements of the report were the labor market numbers. Hiring held up and the workweek expanded. Employment expectations also remained solid.

Last week I said the jobless claims data were surprisingly soft and we needed to watch them. Well, never mind. New claims for unemployment insurance fell to one of their lowest levels ever. These data are seasonally adjusted on a weekly basis and that is really impossible to do. What we are probably just seeing is volatility due to weather and other factors that the adjustment factors are not built to account for. The labor market is tight and that is all that needs to be said.  

MARKETS AND FED POLICY IMPLICATIONS: In 2005, I was in Phoenix for a presentation to a venture capital company on the real estate market. I read in the Phoenix newspaper that housing prices in the region had risen over 20% over the year and that realtors believed that prices could increase that much or more over the next year. It was at that point that I started writing about housing bubbles. I admit, I had no idea how bad things would get, but that experience was something I have not forgotten. Consider the current environment. Stock indices were up 20% to 25% last year and have surged to start off this year. The Dow is up over 30% in a little over a year and has already jumped about 5.5% in just the first two weeks of this year. The S&P 500 has surged nearly 5% so far this year. And what are people saying? There is no reason to think that we cannot get another 20% plus increase this year. Sound familiar? Are there bubbles in the equity markets? In the immortal words of Alan Greenspan, “… it was very difficult to definitively identify a bubble until after the fact — that is, when it’s bursting confirmed its existence.” Apparently, we will have to wait until this bubble bursts, if it does, to confirm we are in an equity bubble. And along those lines, it is worthwhile to repeat a quote attributed to George Santayana: “Those who cannot remember the past are condemned to repeat it”. Just something to think about.

December Industrial Production, January Home Builders Index and 4th Quarter Workforce Vitality Index

KEY DATA: IP: +0.9%; Manufacturing: +0.1%/ NAHB: down 2 points/ Vitality Index (Over-Year): +4.0%

IN A NUTSHELL: “The energy-sector rebound is helping accelerate the economy.”

WHAT IT MEANS: In 2015, the economy expanded at a very strong 2.9%. But conditions faded in 2016, with growth coming in at a tepid 1.5%. What was one of the biggest reasons for the slowdown? The collapse of energy prices and the energy sector!   Well, conditions changed last year and the energy sector is now leading the way again. Industrial production surged in December, and for the year as a whole, but not because of manufacturing. Manufacturing activity ticked up minimally in the last month of the year. There was no consistency in the sector, with almost as many industries posting large declines as those showing solid gains. For the year, manufacturing was up a solid, but not spectacular 2.4%. On the other hand, the mining sector surged in December and was up double-digits over the year. The large rise was driven by a 40% rise in oil and gas drilling for the year. With energy prices continuing to increase, I expect that the energy industry will help lead the way again this year.  However, the vehicle sector, which was largely stagnant in 2017, may see both lower sales and output.

Homebuilders have been ecstatic about conditions lately and that really didn’t change despite a decline in the National Association of Home Builders’ Index in January.   The level is very high and has rarely been seen except at the peak of both the and housing bubbles. I am not saying that we are in another bubble, just that you have to have really good economic conditions for developers to feel this euphoric.

ADP’s Workforce Vitality Index was up again in the fourth quarter, which should surprise no one. This report is worth following because it is one of the more comprehensive reports on wage gains we have. It breaks down wage changes by region, industry, age of worker, tenure in job, company size, by full-time vs. part-time and whether workers switched jobs or held them. Obviously, it is too extensive to easily summarize, but it can be said that wage gains are accelerating, especially in the resource and mining and hospitality and leisure industries. Job switchers are doing better than job holders and that has led to a further rise in the turnover rate. It is now over 50% in leisure and hospitality. If firms want to hire stable workers, they should look to those over 55, not those under 35. Of course, that is not what they do, but that is a topic for another commentary.

MARKETS AND FED POLICY IMPLICATIONS: Today’s reports really don’t change much for anyone. We are in earnings season. Investors are either going to love a lot, or a love a lot more, the earnings report. It will likely take a lot of terrible reports to get the animal instincts under control. And the data are not so strong as to cause any of the Fed members to rethink their views on rate hikes. Sometime this month the Senate will confirm Jerome Powell as the next Fed Chair, but that is a formality. Right now, doing something that is largely noncontroversial is not something most Senators want to do. Instead, they will focus on how to keep the government running. The supposedly World’s Greatest Deliberative Body has devolved into a Tower of Partisan Babel, so what will happen is anyone’s guess.

November Consumer Spending and Income, Durable Goods Orders, New Home Sales and December Consumer Sentiment

KEY DATA: Consumption: +0.6%; Disposable Income: +0.4%; Prices: +0.2%/ Orders: +1.3%; Excluding Aircraft: +0.5%/ Home Sales: +17.5%/ Sentiment: -2.6 points

IN A NUTSHELL: “The economy may be booming along but households are just not so certain about the future.”

WHAT IT MEANS: It’s a data dump day and we sure got a lot of them – and almost everyone was really good. First, it looks like consumers hit the stores and websites really hard in November as consumption rose solidly. This was not a month where soaring vehicle sales drove things. Indeed, durable goods spending was flat. Demand for nondurables and services soared, though. Can households keep it up? I am not sure. Disposable income did increase solidly, driven by a good but not great rise in wages and salaries. But what troubles me, and it has for several months now, is the savings rate. It fell again, dropping to 2.9%. Except during the insane housing craze, this rate was never seen. That raises real questions about the sustainability of consumer spending, even with tax cuts coming next year. As for prices, they rose moderately, but excluding food and energy they were up just a touch. Over the year, the increase remains below the Fed’s 2% target.

After investing like crazy businesses took a wait and see attitude in November. Private sector capital spending fell slightly. Nevertheless, it was still 5.1% above the November 2016 level, which clearly indicates that the investment slump is over. The tax bill will only add to the spending, though it is hard to know when and by how much.

All week we have been getting really good housing numbers. Today we got a great one. New home sales, which had been floundering, skyrocketed in November to the highest level since July 2007. The increases were strong in every region but it was the West where the gain was really outsized: Sales rose by 31% there. The supply of homes is exceedingly low and that should trigger even more construction.

Despite all the great economic data, the passage of a tax bill and the exuberant spending, consumer sentiment fell in December. Though the University of Michigan’s index eased, it remained at a very high level. Respondents are very happy about current conditions. It is the future they are somewhat less confident about.

MARKETS AND FED POLICY IMPLICATIONS: The run of strong economic numbers clearly indicates the economy is in great shape. There are few major imbalances, save the issue with consumer spending. Keep in mind, the tax cuts are heavily loaded toward the top end of the income ladder, with lower income households getting little and middle income families seeing only moderate cuts. Yet that may work to the economy’s advantage. Without any major windfall, most of the tax breaks that go to the lower and middle-income groups should be spent. That could support spending even if wage gains don’t accelerate significantly. While some large firms have announced bonuses and/or wage increases, small and most mid-sized businesses don’t have the wherewithal to do that. Between seventy-five and eighty percent of all private sector jobs are in small to mid-sized businesses. That means the bonus/minimum wage announcements make for good PR but not necessarily strong income gains for workers. And it is wage increases that really matter. Let’s hope the added growth that should derive from the tax cuts will force companies of all sizes to increase worker incomes. If that happens, the economy could really boom.

Happy Holidays!

November Existing Home Sales

KEY DATA: Sales: +5.6%; Inventory (Over-Year): -9.7%; Median Prices (Over-Year): +5.8%

IN A NUTSHELL: “Strong sales and a scarcity of inventory are causing home prices to soar.”

WHAT IT MEANS: Yesterday we saw that new home sales were on the rise and today we got a similar result from the existing home data. The National Association of Realtors reported that home sales jumped in November after increasing solidly in October. The sales pace was the highest since December 2006. Sales were strong in three of the four regions with only the West posting a small decline. The robust sales pace is exceeding the number of homes being brought onto the market. As a result, inventories have fallen to levels that are almost half what they should be, given the sales pace. That has caused prices to surge. There is little doubt that prices will continue to increase sharply as there are no signs people are changing their minds about selling their homes.

MARKETS AND FED POLICY IMPLICATIONS: This was a really strong report that indicates the housing market has pretty much wiped out all the losses, in terms of both sales and prices, which occurred as a result of the housing bubble bursting. But that doesn’t mean there are no issues. The percent of homes bought by first time buyers is falling as the rising prices make it harder afford even an entry-level house. The tax bill, if it increases growth even a little bit, could lead to higher inflation and rising interest rates. This would also pressure the market. And the reduced deductibility of state and local taxes and mortgage interest could pressure prices in high cost states. Nevertheless, it is a good sign that the demand is strong and likely to support further sales gains as well as additional home construction. As for investors, now that the tax bill is done, they will have to actually see better growth or the valuations that may have been made on the basis of a stronger economy could prove to be questionable. Remember, once the corporate tax cuts are recognized, firms have to increase earnings from that higher level. And that will only happen if they actually expand their top line. Taxes hit the bottom line. That said, there is little doubt that firms will reward their investors by using lots of the newfound profits to increase dividends, buy back stock and expand merger and acquisition activity. Those should bolster stock prices, at least for a while.

November Housing Starts and Permits

KEY DATA: Starts: +3.3%; 1-Family: +5.3%; Multi-Family: -1.6%; Permits: -1.4%; 1-Family: +1.4%; Multi-Family: -6.4%

IN A NUTSHELL: “Home construction is picking up steam and should boost growth this quarter.”

WHAT IT MEANS: For the past two quarters, a softening in home construction has restrained overall economic growth. It looks like that is changing. Housing starts rose in November, led by a surge in single-family activity. Multi-family activity ebbed, but this is an extremely volatile segment of the market and it was up sharply in October. So far this quarter, starts are running nearly 9% above the third quarter average, with both single-family and multi-family construction doing quite well. Looking at the November report, there were the usual oddities. Construction soared by double-digits in the West and South but dropped sharply in the Midwest and fell apart in the Northeast (it was down almost 40%). That just shows how wildly the numbers can swing and why you cannot look at just one month of data. Looking forward, the single-family segment is in for even more increases as permits hit a level not seen since September 2007. Total permit requests over the past two months were still running hotter than starts, indicating construction could be strong in December.  

Yesterday, the National Association of Home Builders’ index was released and it indicated that developers are near giddy. The index is now above every reading we saw during the housing bubble. Indeed, the last time it was above the November level was in July 1999, 18.5 years ago! In other words, housing is in great shape, at least if you don’t live in high-tax, high-value areas. The tax bill doesn’t do any favors to homebuilders or homeowners in those areas.

MARKETS AND FED POLICY IMPLICATIONS: The data keep saying the economy is in good shape and soon, a potentially massive fiscal stimulus will hit the economy. How long it will take for the tax cuts to hit household wallets is unclear, but businesses will have the all-clear as soon as the bill is signed. But there are still lost of questions. For example, how much will actually be spent, how long will it take to see the additional spending, will labor shortages cause firms to raise wages to meet the growing demand and if so, will prices and therefore interest rates rise? Normally, expansionary fiscal policy is used when the economy is weak and needs to be kick started. This is not the case now. Alan Greenspan let the tech bubble build until it blew up and then he and his successor, Ben Bernanke watched the housing bubble burst and flatten the world economy. Will we see something similar from the next Fed Chair Jerome Powell? Stay tuned.

November Industrial Production and December New York Manufacturing Activity

KEY DATA: IP: +0.2%; Manufacturing: +0.2%/ NY Fed: -1.4 points; Orders: -1.2 points; Expectations: -3.3 points; Order Expectations: -12.6 points

IN A NUTSHELL: “The manufacturing sector is in pretty good shape, driven by consumers who are spending like crazy.”

WHAT IT MEANS: Yesterday, the November retail sales numbers were released and they showed that households really did like all those amazing Black Friday, Small Business Saturday and Cyber Monday deals. The only sector that posted a decline was vehicles, but that came after a huge October sales pace. Manufacturers are scurrying to keep up with the demand. Okay, output didn’t rise a whole lot in November, but once again, that came after a massive rise in October. When you average the two months together, and averaging does make sense since these data are volatile, output rose quite strongly. Indeed, so far this quarter, manufacturing production has increased at a 6.4% annualized pace, compared to the third quarter. In other words, the sector is on fire, though I need to point out that the rebound from the hurricanes did play a role. The details of the November report show that additional output gains could be forthcoming. Most of the increase in production was in durable goods manufacturing, and the gain was modest. Nondurables were flat. Given how strong retail demand was in November, there may have to be some catching up.

A less closely watched report, the New York Fed’s Empire State Manufacturing Index, posted a small decline in early December. Now let’s be real here, there is not a whole lot of manufacturing in the New York Fed’s district, so don’t jump to any conclusions. Still, the level is still high. If there was a red flag in the report it was the decline in expectations. Respondents were a little less certain about future business activity. Confidence is still high, but there was some concern that the rapid order growth could slow.  

MARKETS AND FED POLICY IMPLICATIONS: The economy is in good shape, which I seem to say in every report I write. A tax bill will add fuel to the fire. The question the new Fed Chair, Jerome Powell, will have to struggle with when he takes over in February, is how big a conflagration will the added demand create. Former Fed Chair Bernanke blew it badly in his first year by failing to understand the extent of the housing bubble and how it could impact the entire economy. He spent the rest of his tenure trying to clean up the mess he, at least in part, helped create. Will the new Fed Chair be willing to risk things based on a belief that the economy has enough slack to grow more rapidly without creating any threatening bubbles? We will find out soon enough. Since Fed policy acts with a lag, he may not have a lot of time to find out. But that is just conjecture and as long as a tax bill is passed, investors will keep singing, “happy days are here again”.

November Consumer Prices and Real Income

KEY DATA: CPI: +0.4%; Over-Year: 2.2%; Less Food and Energy: +0.1% Over-Year: +1.7%/ Real Hourly Earnings: -0.2%; Over-Year: +0.2%

IN A NUTSHELL: “The continuing erosion of consumer spending power raises serious questions about future economic growth.”

WHAT IT MEANS: For the economy to continue to accelerate, consumers must step up to the plate and that is in question. Household spending power can only increase if the gains in income are not offset by the rise in prices. That means we have to look at both wages and inflation. On the inflation front, a jump in energy costs helped power another sharp rise in consumer prices in November. The surge in sales led to a jump in both new and used vehicle prices, while the cost of medical commodities also rose sharply. Food costs, thankfully, are going nowhere, though there continues to be pricing pressure for cakes and cupcakes. I am actually thinking of switching to fresh fruits and vegetables, whose costs are falling. (Not really.) In addition, apparel prices are plummeting, which is helping offset the rise in energy costs as you can put on warm clothes instead of raising the thermostat. Housing prices continue to rise at a moderate pace.

The greater than expected increase in consumer prices took a toll on household spending power. Hourly wages rose half as fast as inflation resulting in a decline in real, or inflation-adjusted income. Over the year, real wages rose minimally. Even if you adjust for the increase in hours worked, weekly earnings increased by less than one percent. In other words, people don’t have a lot more spending power today than they did a year ago. The solid gains in consumption were funded, at least in part, by a decline in the savings rate. That can continue only so long.

MARKETS AND FED POLICY IMPLICATIONS: The FOMC will release its statement soon and it will likely say that there was an increase in the funds rate. Given the direction and level of inflation, there is every reason for the Fed to hike rates. But the real threat to the economy is the continued, almost inexplicable lack of wage increases. As long as that continues, questions have to be raised about the capacity of the economy to grow. Yes, lower tax rates will incent some additional spending by businesses, but it is likely to be on labor-saving capital projects. Firms, if they can help it, are just not willing to pay their workers more. There are lots of anecdotal stories of firms bidding for key workers but the trend is not yet widespread enough to move the data. If we don’t get better wage gains, firms will have to be cautious in spending on capacity-increasing projects, regardless of their improved bottom lines. And companies who sell to the U.S. consumer have to question whether it makes sense to expand capacity in light of the lack of spending power growth. The tax cuts will help to some extent, but with most of the household tax cuts going to upper income households, the impact on overall spending may be disappointing. That, of course, will not derail investors as they know that the bigger companies who are listed on exchanges will, for the most part, make out like bandits.

November Supply Managers’ Manufacturing Index and October Construction

KEY DATA: ISM (Manufacturing): -0.5 percentage point; Orders: +0.6 percentage point/ Construction: +1.4%; Public: +3.9%

IN A NUTSHELL: “Manufacturing continues to surge and with government construction picking up, it looks like fourth quarter growth will be quite solid.”

WHAT IT MEANS: Can we get another quarter of 3% growth? The recent data point to that possibility. The Institute for Supply Management’s Manufacturing Index edged down in November, but that is hardly a concern. The index level remains high so a modest decline is not anything of consequence. Production soared and with new orders continuing to expand strongly and order books fattening, the output gains should continue. As a result, firms are hiring solidly.   Basically, there was little in this report that would point to a manufacturing slowdown.

Construction activity jumped in October, which really should not have surprised anyone. There is a lot of both public and private rebuilding that has to be done to repair the mess made by the hurricanes that hit Houston and Florida. Just about every component of the report was up strongly but the eye-opener was the surge in public sector activity. That points to a rise in government spending, if as expected, these gains will be sustained. On the private side, a pop in office construction points to growing confidence that the expansion will continue and that firms are willing to build for future employment needs.    

MARKETS AND FED POLICY IMPLICATIONS: Most of the data we have been getting indicate the economy is in really good shape. It looks like November vehicle sales may have been somewhat sluggish, but some issues with some data may delay the final reading. The vehicle numbers are important because they were artificially high in September and October due to hurricane replacements. A slowdown was expected, but given the robust October sales pace, we could still see vehicles add to growth this quarter. But for traders, it is all about the tax bill. Regardless of what is passed and its impact or lack thereof on long-term growth, it will create a 2018 sugar high. And since investors worry about the next quarter, the passage of a tax cut bill should be greeted joyously, even if the likelihood of that happening is already being priced in. The Fed is meeting on December 12,13 and at this point, it would be a shock if there weren’t a rate hike. That would occur even if the November jobs number, which is released next Friday, were weak. I expect that to be the case. If tax cuts hype the economy and inflation starts accelerating, more will be coming next year. Assuming a tax bill is passed, my belief is that new Fed Chair Powell will steer four more hikes through the FOMC if there is any rise in inflation. Without accelerating inflation, we should still expect three more increases next year.