Nonpartisan CBO Disputes Claim that Physical Infrastructure Bill is Paid For
U.S. economy adds 943,000 new jobs as recovery picks up pace | wage inflation evident
In Today’s Digital Newspaper
Market Focus:
• Good jobs report leads to question why economy needs $4 trillion in more spending
• Wage inflation again ticks higher and expected to continue as unemployment rate drops
• Small-business owners report record high level of unfilled job openings in July
• Sen. Manchin raised alarms about inflation in letter to Fed Chairman Powell
• Coal is the new gold
• More than a third of Vietnam’s textile and garment producers idled by Covid outbreak
• China imposing new Covid-related restrictions on vessels arriving at some ports
• Ag demand update
• Daily export sales: 131,000 MT soybeans to China during 2021-2022 marketing year
• Soybeans and wheat higher overnight, corn faces light pressure
• Temp swings stressing Argentine wheat, but not enough to lower production prospects
• Two-thirds of France’s wheat crop has been harvested, well behind usual pace
• Russian wheat duty edges lower
• Kazak rail exports of grain ahead of year-ago, despite slow sales to China
• Slack demand continues at Chinese auctions of reserve corn
• Deere buys ag tech startup with goal of accelerating efforts to automate tractors
• Officials warn North Dakota producers to be on-watch for Anthrax
• Beef rally shows no sign of wavering
• Big down day for hogs on morning pork dive
Policy Focus:
• Centrist Republicans’ problem: big budget deficit hole for physical infrastructure bill
• USDA sends OMB final rule on Covid aid, adjustments to CFAP for review
Biden Administration Personnel:
• Senate committee favorably reports Hedlund for STB
China Update:
• Will Biden administration restart trade negotiations with China?
• Beijing plans to fine Meituan about $1 billion
• China takes more steps to control its hog supply
• China to release reserves of commodities ‘essential for livelihood’
Trade Policy:
• June U.S. agricultural trade sets records
Energy & Climate Change:
• Exxon Mobil may pledge to go carbon neutral by 2050
• Biden EO calls for half of all new vehicles sold in the U.S. by 2030 to be electric
• China currently produces 70% of car batteries
Livestock, Food & Beverage Industry Update:
• Anthrax found in North Dakota cattle herd
• USDA describes risk of FMD virus transmission by swine feed
• Sen. Rounds, others to offer legislation on Product of USA label
• Two new USDA cattle pricing reports begin Monday
Coronavirus Update:
• FDA could soon say who should get booster shots of Covid-19 vaccines, and when
• Amazon.com said it would delay corporate employees’ return to offices until next year
• CNN tells staff network fired three employees who came to work without getting vaccine
• United Airlines will require its U.S. employees to be vaccinated this fall
• Universities face student lawsuits over vaccine mandates
Politics & Elections:
• In key moment for 2022 midterms, census redistricting data will arrive next week
• Texas Gov. Greg Abbott called for a second special session to pass voting legislation
• Impeachment investigation of New York Gov. Andrew Cuomo nearing completion
Congress:
• Grassley warns against land idling programs in Senate floor speech
Other Items of Note:
• Cotton AWP moves lower
MARKET FOCUS
Equities today: Dow futures are signaling a higher open of around 100 points following an upbeat U.S. jobs report. Asian equities ended mixed to mostly lower as traders were awaiting US jobs figures due this morning. The Nikkei rose 91.92 points, 0.33%, at 27,820.04. The Hang Seng was down 25.29 points, 0.10%, at 26,179.40. European equities are firmer in early action after many bourses were in negative territory in the start of trade action. The Stoxx 600 was up less than 0.05% while most other markets were posting gains up to 0.3% with Italy’s market up 0.9%.
U.S. equities yesterday: The Dow closed up 271.58 points, 0.78%, at 35,064.25. The Nasdaq was 114.58 points higher, 0.78%, at 14,895.12. The S&P 500 moved up 26.44 points, 0.60%, at 4,429.10.
On tap today:
• U.S. nonfarm payrolls are expected to increase by 845,000 in July and the unemployment rate is forecast to fall to 5.7% from 5.9% a month earlier. (8:30 a.m. ET) Update: The economy added 943,000 new jobs in July, the Bureau of Labor Statistics reported Friday, bringing the jobs recovery to its fastest pace in over a year. The unemployment rate fell from 5.9% to a new pandemic-era low of 5.4. Nearly 6 million fewer workers are employed than before the pandemic struck. Average hourly earnings also increased more than expected, rising 0.36% for the month. The surveys for the jobs report don’t fully reflect the growing threat posed by the fast-spreading Delta variant, as they were conducted in the middle of the month. Leisure and hospitality businesses, which were hit hard by lockdowns last year, recovered further, adding 380,000 jobs. That included 253,000 in food and drinking establishments, along with hiring gains in lodging and in arts, entertainment and recreation. Employment in professional and business services jumped by 60,000, a sign that the white-collar sector is on the upswing. President Biden will ddeliver remarks at 10:30 a.m. ET on the July jobs report.
• Canada's employers are expected to add 165,000 jobs in July. (8:30 a.m. ET)
• U.S. wholesale inventories for June are expected to increase 0.8% from a month earlier. (10 a.m. ET)
• Baker Hughes rig count is out at 1 p.m. ET.
• U.S. consumer credit for June is out at 3 p.m. ET.
• CFTC Commitments of Traders report, 3:30 p.m. ET.
Clear sign the labor market remains tight: Small-business owners reported a record high level of unfilled job openings in July. The National Federation of Independent Business said 49% of the owners it polled had an open position but couldn't find a worker to staff it. “Small business owners struggled to find qualified workers for their open positions, which has impaired business activity in the busy summer months,” said NFIB Chief Economist Bill Dunkelberg. “Owners are raising compensation to the highest levels in 48 years to attract needed employees.”
Sen. Joe Manchin (D-W.Va.) raised alarms about inflation in a letter to Fed Chairman Jerome Powell on Thursday, calling on the central bank to start reversing the emergency support it has provided during the coronavirus pandemic. “With the recession over and our strong economic recovery well underway, I am increasingly alarmed that the Fed continues to inject record amounts of stimulus into our economy,” he wrote. Manchin said he was concerned easy money policies and additional spending legislation in Congress could exacerbate recent spikes in inflation.
Fed speakers this week have floated the idea that the FOMC could be ready to start tapering in September. “There's no reason you'd want to go slow on the tapering to prolong this. You want to get it done and get it over with,” Fed Governor Christopher Waller says. Tapering would likely push Treasury yields higher, removing a key reason for the path of least resistance for stocks still being up and to the right, even at record levels.
Market perspectives:
• Outside markets: The U.S. dollar index was firmer ahead of the U.S. jobs report (see update above) as both the euro and British pound were weaker versus the greenback. The yield on the 10-year U.S. Treasury note was higher, trading above 1.25%, tracking a firmer tone in global government bond yields. Gold and silver futures were under pressure ahead of the jobs report, with gold around $1,800 per troy ounce and silver around $25.10 per troy ounce.
• Crude oil prices have moved higher ahead of U.S. trading, with U.S. crude around $69.90 per barrel and Brent around $72.10 per barrel. Crude was firmer in Asian trade, with U.S. crude up eight cents at $69.17 per barrel while Brent crude was up eight cents at $71.37 per barrel.
• Coal is the new gold, the Wall Street Journal reports (link). Prices for thermal coal, the variety burned to generate electricity, have shot to decade highs as supplies struggle to keep pace with demand from China and elsewhere. Analysts expect prices to stay elevated because concerns about the fuel’s contribution to climate change have made it increasingly difficult for miners to obtain permits or funding to dig more thermal coal out of the ground.
• Ag demand: Bangladesh issued a tender to buy 50,000 MT of wheat. The Taiwan Flour Millers’ Association bought an estimated 48,000 MT of milling wheat to be sourced from the U.S. in a tender that closed Friday.
• Daily export sales: 131,000 MT soybeans to China during 2021-2022 marketing year.
• More than a third of Vietnam’s textile and garment producers have been idled by the country’s latest coronavirus outbreak.
• China is imposing new Covid-related restrictions on vessels arriving at some ports, threatening new delays in supply chains.
• NWS weather: Heavy rainfall and the chance for flash flooding continues for portions of the Southeast along a persistent frontal boundary... ...Showers and severe storms expected from the Northern Plains to the Midwest today and Saturday... ...Hot in the Plains, poor air quality due to wildfire smoke continues in the Midwest and Intermountain West.
Items in Pro Farmer's First Thing Today include:
• Soybeans and wheat higher overnight, corn faces light pressure
• Temp swings stressing Argentine wheat, but not enough to lower production prospects
• Two-thirds of France’s wheat crop has been harvested, well behind usual pace
• Russian wheat duty edges lower
• Kazak rail exports of grain ahead of year-ago, despite slow sales to China
• Slack demand continues at Chinese auctions of reserve corn
• Deere buys ag tech startup with goal of accelerating efforts to automate tractors
• Officials warn North Dakota producers to be on-watch for Anthrax
• Beef rally shows no sign of wavering
• Big down day for hogs on morning pork dive
POLICY FOCUS
— Centrist Republicans initially voting for physical infrastructure bill have a problem: a big budget deficit hole. The Congressional Budget Office (CBO), Congress’s nonpartisan scorekeeper, delivered a major blow to the fate of the 2,702-page infrastructure package in the Senate. In an analysis posted Thursday afternoon as senators were trying to complete work on the $550 billion bill (HR 3684), the CBO said the measure would result in $256 billion in higher deficits over the next decade. Reason: announced spending offsets either didn't materialize or had to be tweaked as negotiators finalized the bill. Negotiators had argued the cost of the legislation for new roads and bridges would be fully paid for by new revenue and saving measures. A lot less pay in the pay fors. Oops. Fiscal watchdogs have warned that lawmakers have used budgetary gimmicks to obscure the true cost.
It could have been worse because the Highway Trust Fund program authorizations don't score under CBO guidelines; if they had, the deficit impact of the measure would have been much greater. Over a decade, CBO said contract authority for Highway Trust Fund surface transportation programs — which are funded by motor fuels and other sales taxes — would be $196.5 billion higher than current baseline spending. That figure assumes that funding totals in the last year of the bill's authorization would continue indefinitely.
Some of the factors behind the huge deficit:
- Lawmakers got no credit for spurring additional economic growth and job creation from CBO, after claiming a $56 billion revenue bump.
- No $53 billion credit was given in lower estimated unemployment insurance payments due to states cutting off benefits early; that's already baked into the CBO's updated baseline.
- Instead of some $205 billion in redirected pandemic relief aid being used to cover some costs, the budget scorekeepers tallied up about $35.2 billion in rescissions of unspent funds. But since much of that wasn't going to be spent anyway, CBO said only $13.8 billion would count as actual savings.
- The bill's provision to extend by seven years the Federal Communications Commission's authority to auction blocks of government-owned spectrum would net just $10.2 billion over a decade, shy of earlier forecasts.
Some revenue raisers for the measure included:
- The nonpartisan Joint Committee on Taxation — another congressional body that scores proposed tax changes — found that the bill’s tax measures would raise approximately $51 billion over 10 years.
- The largest two new funding measures included about $28 billion from new information requirements for cryptocurrencies and $15 billion in fees on Superfund sites.
Comments: Some apologists say CBO made Congress pay for things twice, once under the Covid package and again when repurposed for this bill. They say the bill is paid for when that is taken into consideration. Negotiators had said they expected the analysis from the CBO to differ from their own, noting some of the measures being used to cover the cost of the bill, including repurposing Covid-19 aid, wouldn’t count the same way toward CBO’s official estimate. And a White House official, speaking on the condition of anonymity to reflect internal dynamics, said there was agreement within the bipartisan group to not judge the cost of the measure by the CBO score.
The coming vote will test whether the 17 Republicans who joined all 50 Democrats on the first procedural vote on the bill last week will continue to support it. While the support of the 17 Republicans appears solid despite the CBO score, additional Republicans have indicated the official score would inform whether they ultimately support the bill.
Last month, CBO projected that the federal budget deficit for this fiscal year will reach about $3 trillion. That would be nearly $130 billion less than the 2020 deficit but triple the 2019 shortfall.
Bottom line: So, what will those centrist Republicans do? When you look at the list, most of them are spenders. And as noted, some are already taking shots at CBO scoring rules. A final vote could come by the end of this weekend because senators want to go on their summer recess, perhaps to spend their own money. Others note the possibility for a cloture vote on Saturday and a vote on final passage early next week.
— USDA sends OMB final rule on Covid aid, adjustments to CFAP for review. USDA has now sent the Office of Management and Budget (OMB) a final rule for aid to farmers that was provided for in the Consolidated Appropriations Act of 2021 that was signed into law in December 2020. USDA said it would issue new rules to make the aid payments and would also “revise the Coronavirus Food Assistance Program (CFAP) regulations to provide additional assistance.”
It is not clear what the scope of the final rule and the regulations for CFAP will entail. Given review times of regulations at OMB, it would suggest that any additional aid and/or changes to CFAP will not likely be announced until sometime in September at the earliest.
BIDEN ADMINISTRATION PERSONNEL
— Senate committee favorably reports Hedlund for STB. The Senate Commerce Committee on Aug. 4 favorably reported the nomination of Karen Hedlund to serve on the Surface Transportation Board (STB) to the full Senate for consideration.
CHINA UPDATE
— Will Biden administration restart trade negotiations with China? Nearly three dozen of the nation’s most influential business groups — representing retailers, chip makers, farmers and others — are calling on the Biden administration to restart negotiations with China and cut tariffs on imports, saying they are a drag on the U.S. economy. The tariffs were kept in place in part to ensure that China fulfills obligations under its 2020 Phase 1 trade pact with the U.S. The groups say that Beijing had met “important benchmarks and commitments” in the agreement.
— Beijing plans to fine Meituan about $1 billion. China's antitrust regulator is planning to impose the penalty on the food-delivery giant for allegedly abusing its dominant market position, according to people familiar with the matter, the Wall Street Journal reports (link). Beijing’s recent crackdown is just the start of a push to realign the relationship between private business and the state. Its far-reaching ambitions promise serious and often unpredictable consequences, adding risk for people who have plowed billions of dollars into China’s fast-growing tech companies, the WSJ notes.
— China takes more steps to control its hog supply. Chinese authorities today released guidelines on advancing sustainable, healthy development of its hog industry. The country hopes to maintain a self-sufficiency rate of 95% over the next five to ten years, but while the hog supply has gradually been restored after African swine fever, the wild swings in production capacity that have long been an issue for the country’s hog industry have not yet been fundamentally solved. The guidelines called for strengthening monitoring and early warning to maintain a reasonable level of pig production capacity and for control of abnormal changes in production and sales. The country plans to maintain a breeding sow herd of about 43 million head through 2025, with a minimum sow inventory of 40 million head. Beijing will advise hog producers to restock sows or get rid of less productive ones when the sow herd changes more than 5% from the previous year. China has pushed local authorities to register pig farms with more than 500 animals and monitor their output and operation. Larger farms that experience monthly sow herd drops of more than a 10th from the previous year of live hog farms with losses for more than three consecutive months can receive spot subsidies.
— China to release reserves of commodities ‘essential for livelihood’. China will release reserves of commodities “essential for livelihood” in a timely, targeted manner, the country’s National Development and Reform Commission (NDRC) announced today. This comes after devastating flooding for Henan province, a key ag region, and a resurgence in Covid-19 infections. The state planner also said it would work to ensure prices do not spike higher and said the country will strengthen market supervision and crack down on fabricating and spreading price increase information, hoarding and collusion to drive up prices. An official with Yangzhou Micipal Development and Reform Commission told Reuters that in eastern Jiangsu province, an area hard-hit by Covid-19, vegetable prices shot 50% higher on July 27, with prices for pork, seafood and eggs also shooting higher.
TRADE POLICY
— June U.S. agricultural trade sets records. The level of U.S. agricultural exports in June fell to $12.99 billion, down from $14.66 billion in May and the lowest export total since September 2020 when it was $12.31 billion. U.S. agricultural imports surged to $14.97 billion, up from $14.56 billion in May and setting a record for agricultural imports.
The situation resulted in agriculture registering a trade deficit for the month of $1.98 billion, also a record based on USDA data going back to the 1970s. This marked the first monthly agricultural trade deficit since August 2020. In fiscal year (FY) 2020, there was a monthly deficit seven out of the 12 months, including six straight months over the March-August period.
FY 2021 has now been a year marked with records on the agricultural trade front, as U.S. agricultural exports hit a new record in December of $16.51 billion.
Outlook for remainder of FY 2021: For all of FY 2021, USDA is forecasting exports to be at $164 billion against imports of $141.8 billion for a surplus of $22.2 billion. Based on the June data, US agricultural exports have reached $134.58 billion so far in FY 2022, with imports at $120.74 billion. To meet USDA’s current forecast levels, U.S. agricultural exports for the remaining three months of FY 2021 would have to be $9.81 billion and imports only $7.02 billion.
September 2010 was the last time that US agricultural exports were below $10 billion, and that month also saw U.S. agricultural imports near $7 billion at $6.9 billion. With the economic recovery a key factor that has boosted demand for agricultural imports and imports overall, it would be highly unlikely imports would plummet to that level over the next three months. It would also seem unlikely that US agricultural exports would fall below $10 billion.
The situation suggests that USDA will be revising their forecasts for FY 2021 U.S. agricultural trade later this month (Aug. 26), almost certainly boosting agricultural imports and potentially raising the export forecast. U.S. agricultural exports have averaged $14.95 billion so far in FY 2021 while imports have averaged $13.42 billion. If those levels were maintained for the rest of FY 2021, that would push U.S. agricultural exports to $179.43 billion and imports to $161 billion. However, it still would appear U.S. agriculture will be able to maintain an agricultural trade surplus for FY 2021 even with the surge in imports.
ENERGY & CLIMATE CHANGE
— Exxon Mobil may pledge to go carbon neutral by 2050. Executives have previously called such pronouncements meaningless, and pushed back against government climate policy, but the Wall Street Journal reports (link) that the company is now considering a “net zero” pledge.
— President Biden as expected signed an executive order yesterday calling for half of all new vehicles sold in the U.S. by 2030 to be electric. “They’re a vision of the future that is now beginning to happen, a future of the automobile industry that is electric,” he said at the White House, standing before an array of electric vehicles. The plan would set a new standard for a fleetwide average of 52 miles per gallon by 2026.
Perspective: The shift to electric cars will take time. Manufacturers and suppliers need to transform factories, charging stations need to be built and consumers need to be persuaded to buy. In June, less than 4% of new cars sold in the U.S. were pure electric vehicles or plug-in hybrids, a quarter of the share of electric sales in Europe. Biden’s order envisions building a nationwide network of charging stations, providing financial incentives, and instituting new fuel-efficiency rules, moves akin to those made in Europe and China. China currently makes about 70% of all electric-vehicle batteries.
LIVESTOCK, FOOD & BEVERAGE INDUSTRY
— Anthrax found in North Dakota cattle herd. Anthrax was reported in cattle in a Kidder County, North Dakota beef herd earlier this week. State ag officials are warning producers to monitor their herds and check with veterinarians to see if they should begin vaccinating their cattle. While anthrax is a reportable disease, it is not clear the situation will prompt any trade restrictions. The spread is usually caused by grazing as it is a bacterium that survives in the soil and typically is activated by drought conditions.
Meanwhile, USDA’s Foreign Animal Disease Research Unit recently published a journal article to describe the risk and mitigation of foot-and-mouth disease (FMD) virus infection of pigs through consumption of contaminated feed.
— Sen. Rounds, others to offer legislation on Product of USA label. Sen. Mike Rounds (R-S.D.) is introducing legislation that would limit the “Product of USA” label for use product that is born, raised and slaughtered in the U.S. “It’s pretty simple — only beef born, raised and slaughtered in the United States should receive the ‘Product of USA’ label,” said Rounds. John Barrasso (R-Wyo.), Cory Booker (D-N.J.), Bill Hagerty (R-Tenn.), John Thune (R-S.D.), Cindy Hyde-Smith (R-Miss.), Cynthia Lummis (R-Wyo.) and Steve Daines (R-Mont.). Rep. Matt Rosendale (R-Mont.) is introducing companion legislation in the House. The legislation comes as USDA is conducting a top-to-bottom review of the Product of USA label.
— Two new USDA cattle pricing reports begin Monday. USDA on Monday will launch two new cattle pricing reports that "will bring needed clarity to the marketplace," said USDA Sec. Tom Vilsack on Thursday. The reports will provide more information on prices for cattle sold through the major channels.
CORONAVIRUS UPDATE
— Summary: Global cases of Covid-19 are at 201,040,616 with 4,270,895 deaths, according to data compiled by the Center for Systems Science and Engineering at Johns Hopkins University. The U.S. case count is at 35,443,200 with 615,341 deaths. The Johns Hopkins University Coronavirus Resource Center said that there have been 348,966,419 doses administered, 165,637,566 have been fully vaccinated, or 50.5% of the total U.S. population.
— Within weeks the FDA could lay out who should get booster shots of Covid-19 vaccines, and when. The Biden administration is pushing for swift release of the plan because for some people, when could be as soon as this month. Moderna said that it expects people who received its two-dose vaccine to need a third shot in the fall to keep up protection against newer variants; it plans to ask the FDA to authorize its booster shots in September.
— Amazon.com said it would delay corporate employees’ return to offices until next year as conditions around the Covid-19 pandemic evolve. The company adds to the wave of businesses adjusting their return-to-work plans as the highly transmissible Delta variant drives a surge in coronavirus cases.
— CNN President Jeff Zucker told staff that the network fired three employees who came to work without getting a Covid-19 vaccine, as the company steps up efforts to keep the virus from spreading in its offices.
— United Airlines will require its U.S. employees to be vaccinated this fall, the first major airline to take this step as the Delta variant drives a nationwide increase in Covid-19 infections.
— Universities face student lawsuits over vaccine mandates. More than a dozen university students have brought federal lawsuits challenging the vaccination requirements at major public university systems in Indiana, Connecticut, California and Massachusetts.
POLITICS & ELECTIONS
— In a key moment for the 2022 midterms, census redistricting data will arrive next week. The Census Bureau will release the data used to redraw congressional and state legislative boundaries next Thursday, Aug. 12, the agency said in a statement, setting up a highly contentious nationwide fight over redistricting before the midterm elections next year. Multiple battleground states, including Florida, Texas and North Carolina, are set to gain at least one new congressional seat, as are Colorado, Montana and Oregon. Seven states will lose a seat: New York, California, Ohio, Michigan, Pennsylvania, West Virginia and Illinois.
— Texas Session: Gov. Greg Abbott called for a second special session to pass voting legislation, after state Democrats torpedoed the first by fleeing to Washington, D.C. The group hasn’t yet said whether they will return for the second session, to begin Saturday.
— Impeachment investigation of New York Gov. Andrew Cuomo is nearing completion, Assembly officials said, setting an Aug. 13 deadline for him to submit defense evidence.
CONGRESS
— Grassley warns against land idling programs in Senate floor speech. During an Aug. 5 speech on the Senate floor, Sen. Chuck Grassley (R-Iowa) highlighted the importance of working lands conservation programs as the Biden administration moves forward with its “30 x 30” conservation initiative.
OTHER ITEMS OF NOTE
— Cotton AWP moves lower. The Adjusted World Price (AWP) for Upland Cotton declined to 75.43 cents per pound, effective today (Aug. 6) after having hit 78.47 cents per pound the prior week. Meanwhile, USDA announced that Special Import Quota #16 will be established Aug. 12 for 53,310 bales of Upland cotton, applying to supplies purchased not later than Nov. 9 and entered into the U.S. not later than Feb. 7.
