Senate Reconciliation Package Top Senate Dem Leadership Goal

Employment report on Friday top economic focus

Washington Focus

Lawmakers are preparing to depart or have departed Washington for an extended summer recess (the House Friday, the Senate this week). The House will return for a time in August if the reconciliation measure comes to a vote — they are expected to return to Washington in less than two weeks to take up the legislation, if the Senate is able to pass it. There is a special election on Aug. 9 in Minnesota that Republicans are likely to win. That will cut House Democrats’ vote margin to three. Senate Majority Leader Chuck Schumer (D-N.Y.) told fellow Democrats at a caucus meeting Thursday to prepare to work through this weekend. That would cancel at least the first few days of the August recess. The reconciliation measure in the Senate could still see some changes.

Another big topic: fiscal year (2023) spending, which will very likely see a stop-gap spending bill that extends spending until after the Nov. 8 elections and a lame-duck session of Congress.

The Senate Dems’ reconciliation package, which can clear the Senate on a simple majority vote, would put $369 billion toward fighting climate change and $64 billion to shoring up the Affordable Care Act/ObamaCare. It would create a standard minimum 15% income tax on large corporations, enable Medicare to negotiate prescription drug prices, close the carried-interest loophole favored by Wall Street that allows asset managers to pay capital gains tax rates on income earned from profitable investments, spend taxpayer dollars on programs to mitigate climate change (including biodiesel and SAF tax incentives), and as noted increase federal benefits obtained through the Affordable Care Act. Democrats claim the bill would reduce the deficit and lower inflation.

The proposed $369 billion compromise bill is the costliest and most ambitious effort ever by the U.S. to address climate change — and it is powered partly by benefits for fossil fuels and the broader energy industry.

Sen. Kyrsten Sinema (D-Ariz.) may push to delete the $14 billion provision on carried interest in the reconciliation agreement. It is unclear if that would cause the deal to collapse, but in supporting the tax, Sen. Joe Manchin (D-W.Va.) said, “Enough’s enough for the one-10th of 1% of the wealthiest people in the country having an advantage. I’m not prepared to lose it.” Sinema took a printout of the 725-page bill back to Arizona. Of note, the Schumer/Sinema relationship hit a cold front in February when Schumer declined to endorse her 2024 re-election when asked by CNN.

Democrats may find it hard to convene their full caucus in the coming weeks, with Covid cases increasing in the Senate. On Thursday, Sen. Dick Durbin of Illinois, who is the Democrats’ majority whip, and Manchin were both quarantined with Covid, while Sen. Patrick Leahy (D-Vt.) has been recovering from surgery but is expected to return for any major vote. Several other Democrats have Covid now or are just getting over it, including Manchin, Tina Smith (Minn.) and Tom Carper (Del.).

EVs and the reconciliation package. The new climate provisions brokered by Schumer and Manchin include the restoration of a tax credit for electric vehicle makers that can be passed on to consumers. The $7,500 clean vehicle credit for new electric vehicles would no longer be limited to manufacturers who have sold under 200,000 electric vehicles. The proposal would benefit carmakers, such as Telsa, that have already sold 200,000 vehicles and would allow them able to cut the price of their vehicles for customers under this wider tax credit. Previous EV tax incentives capped the number of consumers who could receive the credit; this time around the program lasts for a decade without a cap. The tax credit would be limited to individual filers who make $150,000 per year or less and joint filers who make a combined $300,000 a year or less. The credit is also limited to SUVs, pickup trucks, and vans with a manufacturer suggested retail price of $80,000 or less and a limited MSRP of $55,000 for all other cars. There is a $25,000 limit on the price of used electric vehicles, but also a $4,000 tax credit for used EVs. For used EVs, income limits are $150,000 if filing a joint return, $112,500 for a head of household, and $75,000 for others not in the first two categories. Credits would also go to buyers of hydrogen fuel cell and plug-in hybrid vehicles. For the first half of this year, electric vehicles accounted for about 5% of U.S. new vehicle sales, with 46 models on sale. S&P Global Mobility expects that to hit 8% next year, 15% by 2025, and 37% by 2030.

It also features tax credits aimed at solar panel and wind turbine manufacturing and $40 billion to incentivize state utilities to transition to renewable energy sources. Americans would receive rebates to install heat pumps and make their homes more energy-efficient.

There could be some positive announcements from the OPEC+ meeting this week, a top Biden administration official said. The group will gather on Aug. 3 to discuss oil-production policy for September. On Monday, new OPEC secretary-general, Haitham Al-Ghais of Kuwait, takes office.

Arizona and Missouri among primaries Tuesday. In Arizona, which will host one of the country’s major Senate races this fall, Blake Masters has embraced former President Donald Trump’s election fraud claims. Republicans also fear that scandal-plagued former Gov. Eric Greitens would put deep-red Missouri’s Senate seat in play if he emerges as the party’s nominee.

The winner of Tuesday’s Republican primary will go on to face either Lucas Kunce, a retired Marine who has run as a Bernie Sanders-style progressive Democrat, or Trudy Busch Valentine, an heiress to the Busch family beer fortune who has plowed millions of her own dollars into the campaign but has struggled to gain traction with voters.

Events on Tap This Week

Monday, Aug. 1

· Belt and Road initiative. The Asia Society Policy Institute (ASPI) holds a virtual discussion on "Retooling the Belt and Road Initiative: Digital Guidance for Better Outcomes."

Tuesday, Aug. 2

· Federal Reserve. Cleveland Fed President Loretta Mester addresses Washington Post Live event on the Fed’s plan "to tamp down on inflation and the concerns that it could induce a recession."

· Food security and Kenya. The Wilson Center's Africa Program holds a discussion on "Food Security Systems as Drivers for Sustainable Peacebuilding in Africa: The Case of Kenya."

· Bipartisan infrastructure law and EPA. The Bipartisan Policy Center (BPC) holds a discussion on "Implementing the Bipartisan Infrastructure Law at the EPA."

Wednesday, Aug. 3

· FDA Commissioner Califf on health issues. Health Affairs holds a virtual discussion with Food and Drug Administrator (FDA) Commissioner Robert Califf.

· CBO budget forecasts. American Enterprise Institute for Public Policy Research (AEI) holds a discussion on "The Congressional Budget Office's Long-Term Budget Forecast."

· China, Ukraine and zero COVID. US-China Economic and Security Review Commission holds a virtual hearing on “Challenges from Chinese Policy in 2022: Zero-COVID, Ukraine, and Pacific Diplomacy.”

· Covid-19 origins. The Hudson Institute holds a virtual discussion on "Investigating Covid-19 Origins."

· Electoral issues. Senate Rules and Administration Committee hearing on "The Electoral Count Act: The Need for Reform."

Thursday, Aug. 4

· Hurricane outlook update. National Oceanic and Atmospheric Administration (NOAA) holds a media conference call briefing to provide an update to the Atlantic hurricane outlook.

· Taiwan Strait crisis. Center for Strategic and International Studies (CSIS) holds a virtual discussion on "Toward a Fourth Taiwan Strait Crisis."

· Trade finance panel meeting. International Trade Administration holds a virtual meeting of the Trade Finance Advisory Council to receive an update on the implementation status of previously adopted recommendations.

Friday, Aug. 5

· Urban agriculture issues. USDA’s Natural Resources Conservation Service virtual meeting of the Urban Agriculture and Innovative Production Advisory Committee.

Economic Reports for the Week

Highlight of the week will be the Bureau of Labor Statistics' jobs report for July on Friday morning. Economists' consensus calls for growth of 250,000 nonfarm payrolls and for the unemployment rate to remain at 3.6%.

Monday, Aug. 1

Census Bureau reports construction spending statistics for June. Consensus estimate is for a 0.2% monthly rise in total construction outlays, to a seasonally adjusted annual rate of $1.78 trillion.
Institute for Supply Management releases its Manufacturing Purchasing Managers’ Index for July. Economists forecast a 52.2 reading, slightly lower than June’s 53, which was the lowest in two years.
ISM manufacturing

Tuesday, Aug. 2

Bureau of Labor Statistics releases the Job Openings and Labor Turnover Survey (JOLTS). Expectations are for 11.1 million job openings on the last business day for June, 154,000 fewer than in May.
Vehicle sales
Housing vacancies
Chicago Fed President Charles Evans speaks
St. Louis Fed President James Bullard speaks

Wednesday, Aug. 3

MBA Mortgage Applications
ISM releases its Services PMI for July. The consensus call is for a 53.3 reading, two points less than in June. The Services PMI has fallen for three consecutive months and is at its lowest level since May of 2020.
S&P Global services PMI
Factory orders

Thursday, Aug. 4

Department of Labor reports initial jobless claims for the week ending on July 30. The four-week average for claims is 249,250—the highest level since late last year.
International Trade: The U.S. trade deficit is estimated to have narrowed in June, for the third consecutive month. The gap shrank in May as U.S. households spent less on imported goods and exports jumped on energy shipments.
Cleveland Fed President Loretta Mester speaks
Fed Balance Sheet
Money Supply
Bank of England announces its monetary-policy decision. Traders are pricing in a 50% chance that the central bank will raise its key interest rate by a half-percentage point, to 1.75%.

Friday, Aug. 5

Bureau of Labor Statistics releases the jobs report for July. Economists think the economy added 250,000 jobs, after a 372,000 increase in June. The unemployment rate is forecast to remain unchanged near a half-century low of 3.6%.
Consumer Credit

Key USDA & international Ag & Energy Reports and Events

Weather is the key ag market focus now and traders have been rebuilding a premium into markets for the past few weeks. Meanwhile, rhe United Nations’ monthly food price index will be published on Friday.

Monday, Aug. 1

Ag reports and events:

Export Inspections
Crop Progress
Amber Waves, August issue
Cotton System Consumption and Stocks
Fats & Oils: Oilseed Crushings, Production, Consumption and Stocks
Flour Milling
Grain Crushings and Co-Products Production
Honey Bee Colonies
International Cotton Advisory Committee releases monthly outlook report
Eearnings: CF, Mosaic
Holiday: Canada