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Revised 3rd Quarter GDP, December Philadelphia Fed Manufacturing Index, November Leading Indicators, October Home Prices and Weekly Jobless Claims

KEY DATA: GDP: 3.2% (down 0.1 percentage point)/ Phila. Fed: +3.5 points/ LEI: +0.4%/ Home Prices (Over-Year): +6.6%/ Claims: +20,000

IN A NUTSHELL: “There seems to be no end to the strong data.”

WHAT IT MEANS: Another day of numbers, another round of strong data. The second revision to third quarter GDP showed basically the same growth rate that had been seen in the previous two iterations. That is really a surprise. There is normally a great set of changes as a broader sample of data come in. The changes were relatively modest, though there was a somewhat larger downward change to the gross domestic income measure. That seems to indicate that income growth is not quite as solid as the goods and services measure. Regardless, this was the second consecutive above-3% growth pace and it is consistent with the other data that are showing the economy is accelerating.

Will this strong growth continue? Even without the tax bill, there was every reason to think growth could hold up, at least for a while. The Philadelphia Fed’s early December reading of Mid-Atlantic manufacturing improved quite solidly. Importantly, confidence rose, most likely driven by a pick up in new orders. This area doesn’t have a lot of manufacturing, but the index does give us some insight into national trends and it is fair to say the sector is accelerating.

A second sign of strong future growth comes from the Conference Board’s Leading Economic Index, which rose again in November. The solid increase came on top of a huge, hurricane recovery increase posted in October. It is telling us that growth could accelerate over the next six months.

And then there is housing. The Federal Housing Finance Agency’s Home Price Index popped in October, mirroring the other home prices measures we have seen. The beleaguered Middle Atlantic region has finally joined the party, but the West Coast is where prices are simply soaring out of sight. In that area, we are probably in bubble mode.

Finally, there was a surge in unemployment claims last week. But that was on top of one of the lowest readings we have seen, so there is nothing to made of the jump. The labor market is tight.

MARKETS AND FED POLICY IMPLICATIONS: The year is ending on a high note. Growth is strong almost across the board. The impacts of the tax bill will not likely be seen before mid-year 2018 as the lower taxes show up in weekly paychecks, not all at once. Yes, some companies are giving out bonuses, but those only temporarily increase spending power. They look big, but for companies making billions, it is not a lot. Unless the bonuses are more widespread, they are not likely to do much for personal income. But raising the minimum wage does add to costs and income growth on a continuing basis. We need a lot more companies announcing that they are raising their minimum wage before we can conclude that spending will rise more solidly than it has been. Forecasts of 2018 growth are coming in and they range from about 2.5% to 3.5%. Oddly, I am pretty much in the middle, at 2.9%. I don’t usually wind up at consensus but that is where I am. In other words, next year is shaping up to be a really good one and it may even exceed the 2015 growth rate of 2.9%.

December 12-13 2017 FOMC Meeting

In a Nutshell: “The Committee decided to raise the target range for the federal funds rate to 1-1/4 to 1‑1/2 percent.”

 Decision: Fed funds rate maintained increased to 1.25% to 1.50%.

Not surprisingly, Federal Reserve Chair Janet Yellen went out with a bank, or a rather a rate hike. The FOMC announced that it was raising the target range for the federal funds to 1.25% to 1.50%. This constitutes the third rate hike this year, pretty much what most of us expected going into the year.

What was interesting in today’s releases was the sharp upward revision to the Fed’s expectations on economic growth next year. Instead of increasing at a 2.1% pace, which was the median forecast in September, the members now put it at 2.5%. That upward revision is in line with the projections of most economists when you factor in a tax bill. While the Committee didn’t specifically mention fiscal policy in its statement, Chair Yellen did say she thought a tax cut could be modestly positive next year. She didn’t think it would change the growth path afterward, which is also consistent with both the members’ forecasts and that of most private sector economists. There could be some greater growth, but echoing her view, it would be limited.

What was interesting is that the Fed believes that its rate policy will not only allow inflation to rise to its target of 2% in the medium term, nothing new there, but continue “supporting strong labor market conditions”. As one reporter pointed out, that could mean the Fed already thinks the labor market is strong enough and could become concerned if the unemployment rate goes lower. Strangely, despite the upping of growth and the lowering of their expected 2018 unemployment rate, the members have not altered their inflation forecast. One of the questions asked at her last press conference was whether Chair Yellen thought the unchanged inflation rate was inconsistent with lower unemployment rates and faster growth. Her answer was essentially that the Fed was unclear why the inflation rate had not accelerated lately, which to me means that a sudden spurt could create real concern. Finally, the so-called dot-plot called for about three rate hikes next year. That would be consistent with the forecast of decent (2.5%) growth but no major acceleration in inflation. Any deviation from either would likely mean more hikes.

Lastly, I think Janet Yellen did a wonderful job as Fed Chair. There were more than a few times I disagreed with her positions, but her leadership was outstanding and she leaves the Fed with an economy that is growing solidly and a financial system that is much more stable than when she started. It is hard to quarrel with her results, especially given that fiscal policy was in a state of gridlock during her term and economic policy was squarely on the back of the Fed. Well Done!

(The next FOMC meeting is January 30-31, 2018.)

November NonManufacturing Activity and October Trade Deficit and Home Prices

KEY DATA: ISM (NonManufacturing): -2.7 points; Orders: -4.1 points/ Trade Deficit: $3.8 billion wider/ Exports: down 0.1 bil.; Imports: up $3.8 bil./ Home Prices (Over-Year): +7.0%

IN A NUTSHELL: “All segments of the economy are doing just fine, though the surge in housing prices is a concern.”

WHAT IT MEANS: In the week where we get the employment data, most other numbers don’t usually create a stir. Still, there are some critical data being released this week. The Institute for Supply Management’s Non-Manufacturing Index is one of them. This follows the services sector, agriculture, mining and construction, so it is most of the economy. Activity did decelerate a touch in November but the October level was the highest ever. The November number can be characterized as really, really strong. Orders are still growing solidly, even if somewhat slowly, order books are filling and hiring is still pretty good. When you combine the nonmanufacturing report with the previously released manufacturing numbers, it is clear the economy is moving ahead quite strongly.      

A growing economy tends to suck in goods from around the world and that is the case with the U.S. economy. Imports rose solidly in October, led by a surge in demand for oil, consumer goods and vehicles. Softness in capital goods imports raises questions about the strength of business investment. Meanwhile, exports were essentially flat. The burgeoning energy export sector was the one bright spot as sales of food products, vehicles, capital and consumer goods were all down. Adjusting for prices, the fourth quarter started off with a pretty big deficit that could restrain growth.

If you are looking to buy a home you probably know that prices are rising and CoreLogic’s October Home Price Index report confirmed that reality.  Prices were up 7% over the year, the fourth consecutive month of above 6% growth. You have to go back to June 2014, during the tail end of the post-recession surge, to find the last time prices have risen so fast for so long. With mortgage rates still very low, homes on the market in short supply and the economy in good shape, the sharp rise in prices is not surprising. As long as people simply don’t want to sell their homes, the number of listings will be limited and these price increases will not only be sustained but we will probably see them accelerate. That raises questions about a bubble forming. It hasn’t yet, but it is something to watch.

MARKETS AND FED POLICY IMPLICATIONS: Businesses are doing quite well. Activity is strong, profits are solid and optimism is high. Clearly, if we do not cut taxes right away, we are going to fall right into a recession. Okay, I am a cynic. I don’t think you cut taxes just to hype the stock market. I believe you reform the tax structure to make the economy more efficient. I will continue to argue that point especially since the tax bills that have been passed do little for efficiency and lots of big company stock prices. As Jim Cramer, of CNBC fame noted, “…it may not be good for the workers, but boy is it good for the stock market“. Worse, as most economists are pointing out, it may generate faster growth in 2018, but coming when there are labor shortages, the likelihood is that inflation will accelerate as will market rates and Fed rate hikes. So I will keep raising the warning. As for investors, it is all about the tax bills. That may change with Friday’s employment report. The consensus is for another strong number in the 200,000-range. I don’t think we will get anything near that. I have it more in the 160,000-range. We have a few days to debate that number.

October Housing Starts and Permits

KEY DATA: Starts: +13.7%; 1-Familly: 5.3%; Multi-Family: 36.8%; Permits: +5.9%; 1-Family: +1.9%; Multi-Family: +13.9%

IN A NUTSHELL: “With home construction back on track, one of the softer segments of the economy is picking up steam.”

WHAT IT MEANS: Home construction had been in a funk for a number of months, but that seems to be changing. Indeed, residential investment, as it is called in the GDP report, restrained growth in the second and third quarters. However, builders have suddenly found reasons to put shovels in the ground. Housing starts soared to the second highest pace in over a decade in October. Much of the increase came from the ever-volatile multi-family segment, which surged by 37%. While the single-family component didn’t rise nearly as much, the gain was still quite good. Geographically, there were some discrepancies and oddities.   In the Midwest and South, all segments were up solid. But in the Northeast, single-family starts tanked but multi-family construction more than tripled. And in the Midwest, total activity decline as single-family starts fell sharply.

Looking outward, the rise in permit requests indicate that home construction should remain firm, though it is doubtful that future gains will look anything close to what we saw in October. Even with the surge in construction, the number of permits requested by not yet used still rose. Indeed, permit requests were slightly higher in October than starts. It is likely that housing will add to growth in the fourth quarter.

MARKETS AND FED POLICY IMPLICATIONS: I keep hearing from our learned members of Congress that we desperately need a tax cut because growth is terrible and we people are desperate for jobs. Either I am living in a parallel universe or they are just blowing smoke, but that is just not the case. This isn’t 2009. The economy is moving ahead solidly and as I constantly point out, the issue isn’t available jobs it’s qualified workers. But, of course, in Washington, letting facts get in the way of a good political speech would be tantamount to treason, so we will have to keep listening to the babble. Interestingly, since the tax cuts go largely to upper income households, who will not spend nearly as much of the after-tax income gains as lower and middle-income families, that could wind up being a benefit. The increase in consumer demand will be muted. And from reports coming out of meetings that administration officials have had with business leaders, not a whole lot of the tax cuts cuts will go to new investment. Paying down debt seems to be the usage of choice. I suspect that a lot of the increased profits will, as usual, be used to raise dividends, buy back stock and expand merger and acquisition efforts. So maybe my concerns about the economy picking up too much steam given the lack of workers is overblown. But think about this: The deficit will rise even more than expected if the retained taxes don’t go to new economic activity while at the same time, the Fed is shrinking its balance sheet. That seems to argue for rising supply, falling prices and increasing interest rates. That cannot be great for the economy or equities. Just a thought.

October Industrial Production and Import/Export Prices, November Philadelphia Fed Survey and Home Builders Index and Weekly Jobless Claims

KEY DATA: IP: +0.9%; Manufacturing” +1.3%/ Import Prices: +0.2%; Export Prices: 0%/ Philadelphia Fed (Manufacturing): -5.2 points/ NAHB: +2 points/ Claims: +10,000

IN A NUTSHELL: “With manufacturing surging, housing solid and inflation near target levels, it is clear the economy can withstand additional rate hikes.”

WHAT IT MEANS: While everyone seems to be focusing on the tax bill as it relates to business spending, I am more concerned that a major tax cut could create enough of a sugar high to cause inflation to accelerate. That could cause the Fed to move next year more often than expected. My worry is based on the already tight labor market and what looks like continued solid economic growth. Industrial production jumped in October led by surges in the vehicle, petroleum, chemicals, computers, apparel and furniture sectors. Put simply, most of manufacturing, whether it was durables or nondurables, was up sharply. This was a broad based increase that really does grab your attention.

Reinforcing the industrial production report was the Philadelphia Fed’s survey of manufacturers. Yes, the index did recede, but it is still high. More importantly, the components were strong as orders rose faster and hiring remained solid, though not as strong as it had been. Looking forward, confidence about not just future activity, but hiring and just about everything else, was up.

On the housing front, the National Association of Home Builders’ index increased to its second highest level in over twelve years. Only this year’s March index was higher. Builders seem to have regained their confidence, though I hope it is not irrational. I don’t think that will be the case. CoreLogic reported that home equity wealth reached its highest level in history. Homeowners have the ability to move, if they want to.

As for inflation, pressures ebbed a bit in October. Import prices rose but not significantly. There is pressure on in the petroleum and related sectors as well as metals. On the export side, farmers got a big gain in prices but that was just about it.

 Jobless claims were up last week, but the level remains extraordinarily low.

MARKETS AND FED POLICY IMPLICATIONS: The economy is in good shape. The issue is neither growth nor jobs. Growth is solid and firms cannot find workers. So you need to ask what will happen if the economy surges as a result of tax cuts being implemented. Where will the added production come from if firms cannot get the workers already and productivity is in the tank? Maybe inflation doesn’t accelerate, but being an economist, I still think that markets actually work. So remember the old saying: “Be careful what you wish for, you just may get it”. The Fed needs to normalize its balance sheet and interest rates and faster growth and inflation are just the tickets they need to do so as rapidly as they want to.

October Retail Sales, Consumer Prices and Real Income

KEY DATA: Sales: +0.2%; Less Vehicles: +0.1%/ CPI: +0.1%; Less Food and energy: +0.2%/ Real Earnings: -0.1%

IN A NUTSHELL: “Prices may not be rising sharply, but they are increasing enough to restrain purchasing power and household spending.”

WHAT IT MEANS: We are starting to get the first set of fourth quarter numbers and right now they are not anything to write home about. Retail sales rose modestly in October and much of the gain came from sales of vehicles. Until we know about the extent of the flood replacement purchases, the vehicle component has to be viewed with caution. Once the replacement process is over, demand could tumble. The spending report was a bit misleading. For some strange reason, sales on the Internet were actually down. Also, falling gasoline prices reduced sales in that component. Meanwhile, in addition to the strong vehicle demand, people spent a lot of money on clothing, sporting goods, health care and furniture. And, they ate like crazy as spending at restaurants and supermarkets jumped.

On the inflation front, consumer costs didn’t increase a whole lot in October. Declines in gasoline prices, clothing and new vehicles offset increases in shelter, medical and used vehicles prices. Food costs were down in almost every category, including cupcakes. The breadth of the decline was odd and needs to be watched. It could mean they will be up next month. Excluding food and energy, the so-called core index, household prices increase a little faster. Since October 2016, the overall Consumer Price Index is up 2.0% while the core rose 1.8%, both pretty much at the Fed’s target.

Despite the modest rise in prices, household spending power declined in October. Real earnings, which adjusts for inflation, fell as wages were flat. Over-the-year, they are up only 0.4%. Need I say it again? Yes. It is hard to sustain strong economic growth if households don’t have the money to spend and right now, they don’t. They are maintaining their consumption levels by reducing their savings pace and that is not good news for future growth.

MARKETS AND FED POLICY IMPLICATIONS: There simply is not enough information to determine if we will once again se a growth rate near or even above 3% in the fourth quarter. The consumer is going to have to do a lot better if growth is going to be strong in the final quarter of the year and there is little reason to be confident that will be the case. Wage gains are moribund, energy pressures continue to build and labor shortages point to modest job increases. The one good thing we have going is that there is now a worldwide expansion. Almost all regions of the global economy are actually in phase and growing. That should help exports. Businesses are likely to wait and see what the tax bill actually contains, especially since some of the tax breaks may be put off for a year. Investors are becoming more cautious about the tax plans as they keep changing. As for the Fed, there is every reason to think that another rate hike will occur at the December 12-13 meeting. The economy has enough strength that there is no reason to slow the normalization process.

September Industrial Production and Import and Export Prices

KEY DATA: IP: +0.3%; Manufacturing: +0.1%/ Import Prices: +0.7%; Fuel: +3.9%; Export Prices: +0.8%; Farm: -0.7%

IN A NUTSHELL: “Some say manufacturing is rebounding, but output is still lagging.”

WHAT IT MEANS: If you look at the surveys from the regional Federal Reserve banks and the national and local associations, you would think that manufacturing is booming. But according the Federal Reserve Board, output really is going nowhere. Industrial production rose solidly in September, led by a rebound in utilities and mining. But manufacturing production hardly budged. For the quarter, manufacturing output fell, not a sign of a strong sector, hurricanes notwithstanding. There were some really wide variations in activity. For example, the vehicle sector responded to the need to replace all those hurricane-soaked vehicles and assembly rates improved. But the rise wasn’t huge as a number of makers had excess inventory that they managed to unload. There were some really good increases in a variety of other durable goods industries, including machinery, electrical equipment and appliances, metals, computers and wood products. On the other hand, most categories in the nondurable segment slowed production. This included petroleum, chemicals, apparel and printing. That weakness almost totally offset the strength in durables and it cannot be blamed strictly on hurricanes.

On the inflation front, import prices surged in September led by a jump in energy costs. Let’s hear it for hurricanes that didn’t touch the rest of the world but led to price increases anyway. But the increase in the cost of foreign products was not just due to the spike in petroleum. Food prices soared and vehicle and capital goods costs moved upward, though modestly. On the export side, petroleum led the way but the wild swings in agricultural export prices continued. In September, they were in the down side of the yo-yo.

MARKETS AND FED POLICY IMPLICATIONS: The debate continues over whether the Fed will raise rates one more time this year, likely in December. I say think will and I hope to earn my second cheesesteak in two years. Different person, but hopefully same outcome. The economy is in decent shape and it looks like third quarter growth could come in somewhere around 2.5%. If it is less than that it was likely due to a swing in vehicle inventories as hurricane replacements were pretty high in September. It will be interesting to see what happens with wages in the two reports we will get before the December meeting. While Fed members, and most everyone else, are baffled by the modest rise in wages and tame inflation, it is beginning to look like there may be a bit of a wage break out starting. The GDP report, when coupled with what is likely to be seen as some modest acceleration in inflation should provide ample support for Janet Yellen to go out with a bang – or a rate hike. The increase would happen even if she is not reappointed, which looks doubtful. Fed Chairs usually only consider not participating at their very last meeting. That is probably January 30-31, 2018.

September Producer Prices, Weekly Jobless Claims and Fed Minutes

KEY DATA: PPI: +0.4%; Energy: +3.4%; Goods less Energy: +0.2%; Services: +0.4%/ Claims: -15,000

IN A NUTSHELL: “While the hurricane-driven energy price increase may fade, there still are some cost pressures building in a variety sectors of the economy.”

WHAT IT MEANS: If the Fed is to raise interest rates this year, it will have to defend the move by saying that inflation is on the path toward its target of 2%. Well, the members got some ammunition from the September Producer Price Index. Wholesale costs jumped, led by a surge in gasoline prices. Hurricane Harvey disrupted supply and that led to a rapid rise in prices. About half the increase has already been unwound. But there were other pressures outside energy. In particular, services prices were up in just about every major category except construction. Trade services, transportation and wholesaling all posted significant increases. On the goods side, the situation was mixed. Food prices were largely flat but a surge in crude food prices points to an increase in the future. Consumer durable goods prices, including vehicles, were up. Cleaning and polishing products were up while electronic components and accessories fell. Overall, though, finished goods costs rose moderately, enough to create an acceleration in the year-over-year gain, which is what the Fed watches.

The effects of the hurricanes are beginning to fade from the jobless claims data and the total fell sharply last week. It is now back down to where it was pre-hurricanes. The hurricanes hurt some professions but helped others. But going forward, it is clear that if you have building trades skills and you can move, the hurricane devastated areas have jobs.

The Fed released the “minutes”, actually a sanitized summary, of its September 19-20 FOMC meeting. The important takeaway for many was the intense debate over why inflation remains muted despite the low unemployment rate. There is uncertainty over what is driving inflation and therefore what level of unemployment can be sustained without triggering a sharp rise in prices. Nevertheless, there was a clear hint that the Committee was leaning toward another rate hike in December. The statement read: “…many participants thought that another increase in the target range later this year was likely to be warranted if the medium-term outlook remained broadly unchanged.” While not everyone agreed, it appears that enough are behind moving in December that there is a decent probability it will happen.

MARKETS AND FED POLICY IMPLICATIONS: Inflation is not surging but it is also not fading. The report today shows enough broad based price increases that if the FOMC does want to move in December, it has a basis for doing so. Still, we have to see what comes of prices now that the temporary gasoline supply problems have dissipated. And as I always say, the path from wholesale to retail prices is not straight and often dead-ends.   So don’t assume that non-energy consumer prices will rise significantly faster anytime soon. As for investors, it’s the start of earnings season. While future inflation and potential rate hikes may sometime become important, I suspect that for now, it’s all about profits.

September Employment Report

KEY DATA: Payrolls: -33,000; Private Sector: -40,000; Revisions: -38,000; Restaurants: -105,000; Unemployment Rate: 4.2% (down 0.2 percentage point); Wages: +0.5%

IN A NUTSHELL: “The hurricanes  messed up an awful lot, including the economic data.”

WHAT IT MEANS: Yesterday I warned that the jobs number could be worse than expected and it was. Indeed, a decline was a surprise though not a shock. But the economy is not backpedaling. Really, did the restaurant sector collapse? Yes, they closed because of the hurricanes and some of them may never reopen, but most will be back up and running. Otherwise, the report was fairly normal. There were job increases in health care, transportation, construction, finance, insurance, professional services and government. Manufacturing employment eased, but this sector does bounce around a lot. And retail continued to shrink, but that was not a surprise. In other words, most of the data in the report point to nothing amiss in the labor market other than the hurricanes.

The unemployment rate declined sharply, but even here we have to sit back and wonder what happened. There were outside changes in most of the components of the unemployment number and that raises questions about whether the drop was overstated. The government indicated the hurricanes didn’t affect the rate, but I am not so sure.

Finally, there was a significant rise in the average hourly wage rate. I would like to say that we are finally seeing the tight labor market show up in wages, but I am not so sure. There was a large decline in low wage employment and that might have affected the average to the upside.

MARKETS AND FED POLICY IMPLICATIONS: Sometimes you have to just sit back and relax and this is one of those times. The decline in the number of jobs was a direct result of the hurricanes and next month we are likely to see things turn around, probably with a vengeance. Actually, this was a decent report. If you back out the weather-related issues, you probably get a number that is about trend. That implies the October increase could be above 300,000. As for the unemployment rate decline, that too needs to be viewed with some caution. The government indicated the number was not affected by the storms but the details of the report were way out of the ordinary. Basically, this report should be filed away as a wait and see what happens with the October numbers. And then you average them out. Will the market react to the worse than expected jobs number or better than expected unemployment rate? It shouldn’t. But what it should be concerned about is the wage gain, though that too may have been a creation of the temporary shut down of all those restaurants that forced a lot of lower paid workers off the payrolls. Otherwise, the best thing to say about this report is: Have a great weekend!

August Spending and Income and September Consumer Confidence

KEY DATA: Consumption: +0.1%; Disposable Income: +0.1%; Prices: +0.2%/ Confidence: -1.7 points

IN A NUTSHELL: “Sluggish consumer spending points to a weak third quarter growth number.”

WHAT IT MEANS: This week we received the final (for now) revision to third quarter GDP growth and the slight rise came from improved household consumption. It looks like the economy slowed sharply this quarter, in no small part because of a softening in consumer demand. Consumption ticked up in August, but when it was adjusted for inflation, it was actually down. Weakness in durable goods sales, basically motor vehicles, offset some increases in nondurables and services demand. The hurricanes were no helpful. But the uncertainty about consumers is not limited to the wrath of Mother Nature. Disposable personal income, while rising modestly, was also off when inflation was taken into account. It is hard to spend more when your purchasing power declines. Wage and salary growth pretty much disappeared and that does not bode well for future retail sales. Another warning sign is the savings rate, which edged downward again. Savings have declined five out of the last six months. On the inflation front, prices rose moderately overall but minimally when food and energy were excluded. The year-over-year increases in both the headline and core numbers are below 1.5%. Given the Fed’s target is 2%, there is a lot of room for prices to rise before the Fed has to worry about inflation.

Despite the chaos in Washington, the failure to reform the ACA and horrible hurricanes, consumer confidence remained pretty high in September. The University of Michigan’s Consumer Sentiment index did decline, but the level is strong. For most people, the hurricanes hit somewhere else and while there was concern for those who were hit by the storms, the impacts were not felt directly by most Americans. Thus, confidence did not tank.

MARKETS AND FED POLICY IMPLICATIONS: It looks like the economy fell back to its normal growth rate, or even lower, in the third quarter. We don’t have the September numbers, but given the hurricanes, it is likely that consumer spending will come in at half the 3.3% pace posted in the spring. But eyes are now turning to tax reform/tax cuts and the administration’s proposal has already come under intense fire since there are lots of winners and losers. That is always the case with any changes in policy. But the major issue is the impact on the deficit. Working backwards, the supporters have come up with a growth rate that implies the plan will pay for itself. If you believe that, I have both a Broadway show that I am producing and a bridge I am selling and you can have as much of each as you like. But it is not just bogus growth estimates that create risks to the plan. It provides significant tax breaks for upper income households, something the administration pledged not to do. By eliminating the state and local tax break, it creates the likelihood that upper-middle-income households will see their taxes rise not fall. And if the past is any example of how the money will be spent, don’t expect the repatriation of foreign earnings to lead to a lot of new capital spending. You can argue for or against all of the changes in the plan but they will create major disagreements. The one good thing is that the battle for tax reform/tax cuts has begun, though I suspect we will wind up with some cuts and not a lot of reform.