The pandemic and resultant economic damage remain the compelling factors shaping US macroeconomic policy. Two events at the close of the pre-Labor Day week feed into this reality rather than materially changing it. Despite an unusually active August news cycle with more than the customary share of eye-catching headlines, our Washington fiscal policy outlook for the remainder of this year is unaltered.
Employment numbers this morning and claims data from yesterday point to a labor market and broader economy still on the mend. Markets digested the disappointing jobs report which wasn’t all bad, especially on revisions. Nothing in these reports would cause supporters of the Biden administration’s FY22 reconciliation plan or the Senate infrastructure bill to become opponents. Taken together, the pending legislation provides multi-year targeted stimulus, and is part of the president’s fiscal realignment agenda broadly supported by his party.
Senator Manchin’s (D-W.Va.) previously signaled declaration of a “strategic pause” to, in his view, right size the American Jobs and Families Plan is consistent with the senator’s summer-long position that the Administration’s budget request is too much. He and Senator Sinema (D-AZ) reiterated this point immediately after early August adoption of the Senate Budget Committee’s FY22 budget resolution. Their positions point to negotiations not disintegration.
We’re on record that Congress seems poised to enact $2.5-3 trillion of spending during the upcoming quarter. Additional infrastructure spending of $500 billion and $2-2.5 trillion from reconciliation remains our back-of-the-envelope estimate. Added to the $2 trillion enacted in March’s American Rescue Plan combines near-term and longer run fiscal stimulus of nearly $5 trillion in one calendar year.
Nothing this week changes the practical or political imperatives of Bidenomics. Employment levels, especially when disaggregated by race, age, and gender are unlikely to cause anyone in the bicameral caucuses of Democrats to pull away from the president’s plan. Any House Democrat frustrated by topline reductions imposed by Senate counterparts are unlikely to vote against the final reconciliation bill given the dollar magnitude and programmatic reach of pending legislation. Speaker Pelosi’s handling of votes late last month bear out sufficient support among all factions of her caucus.
We haven’t seen anything yet this summer that is outside the bounds of normal legislating. Few presidents ever get everything they want from the first branch, and yet the pandemic and underlying economic drag it still poses underpins support from proponents of infrastructure and the FY22 budget package. Furthermore, neither economic nor Afghanistan developments this summer increase odds of government shutdown or default. Risks to our outlook are possible but to date they remain conversation items not tangible risks.
