The Market Today

Small Business Confidence Weakens Again; Economic Expectations Now Down 55 Points Since September


by Craig Dismuke, Dudley Carter

CORONAVIRUS UPDATE (VS Coronavirus Chartbook – PDF)

Cost of Raising the Minimum Wage: According to CBO’s scoring of the Raise the Wage Act, President Biden’s proposal to raise the minimum wage to $15 per hour by 2025, the plan would result in 1.4 million fewer employed persons, 900,000 fewer people in poverty, and a $54 billion larger federal budget deficit over the next ten years.  The increased budget deficit stems from the impact of a higher minimum wage on inflation and the corresponding increase in federal budget outlays tied to inflation.  The scoring does not include the impact of higher interest rates on federal interest payments, but notes that it is projected to add an additional $16 billion in interest payments over the 10-year horizon.  This brings the total cost to $70 billion.  As discussed often, the federal interest expense burden is likely to increasingly become a limiting factor on fiscal policy.

Democrats Push Forward with Stimulus as Pandemic Statistics Continue Sharp Improving Trend: This week’s virus headlines were off to a slow start Monday as investors continued to watch improving virus statistics and developments around another U.S. stimulus bill. As one example of the national pandemic easing, California reported that its positivity rate had declined to 5% from 14% one month ago. House Democrats reportedly kept a minimum wage increase in an early draft of the COVID-19 relief bill despite the president himself saying it’s unlikely to be allowable under Senate reconciliation rules. Nonetheless, congressional committees continued to work on drafting text for the agreement Democrats plan to pass using reconciliation and without Republican support. Senate Minority Leader McConnell confirmed that Democrats appeared to be going at another aid package alone.


TODAY’S CALENDAR

Small Business Confidence Weakens Again, with Economic Expectations Now Down 55 Points Since September: Despite some survey data showing the broader economy remained resilient at the turn of the year, small business confidence declined for a third consecutive month in January. The NFIB’s Small Business Optimism Index fell 0.9 points to 95.0 last month, a fourth monthly miss relative to expectations (97.0) and the weakest level since May. The economic outlook continued to deteriorate and drive the headline weakness. The 7-point decline in those saying they expect the economy to improve left the net share with a positive outlook at -23%, a low back to 2013. The sales outlook also weakened again, dipping 2 points to a net -6% of business owners who expect sales to increase, the lowest since May. The NFIB’s Chief Economist said, “The COVID-19 pandemic continues to dictate how small businesses operate and owners are worried about future business conditions and sales.” He added that another “powerful fiscal boost” for small businesses would be “welcome.” Indices tracking plans to hire or make capital investments were unchanged.

Later Today: December’s JOLTS Job Openings report will be released at 9:00 a.m. CT and is expected to show a second monthly decline in job postings in December. At 11 a.m. CT, St. Louis Fed President Bullard will speak on his outlook for the economy and monetary policy. Bullard has been a contrarian relative to other Fed officials, saying he believes the economy could recover more quickly than most expect and sees a case for inflation to surprise to the high-side of the general consensus.


24 HOURS OF MARKET ACTIVITY

Momentum Pauses Overnight After Stocks Hit New Records Monday with Sixth Gain: The Dow and S&P 500 both rose for a sixth consecutive session Monday, each clearing a 0.7% gain and notching a record close. The Nasdaq was even stronger, rising just under 1%, also a sixth straight gain to a new all-time high. The string of gains started last week as pressure on several heavily shorted stocks eased up. Momentum accelerated further as Democrats pushed forward with the president’s $1.9 trillion stimulus proposal without Republican support. Airlines were among the top performers Monday after a draft of a House committee’s legislative text indicated the industry could receive additional emergency support as part of the plan. The strength, however, was broad-based amid expectations a sizable package could stoke a faster economic recovery. Energy companies led all sectors with a more than 4% gain as U.S. WTI crude rose for a sixth day to around $58 per barrel, its highest level since January 2020. Treasury yields had started higher but fell back by the close after hitting new highs for the pandemic. The 10-year yield closed up 0.7 bps to 1.17% after reaching as high as 1.198% ahead of U.S. trading. The 30-year yield fell 1.8 bps to 1.95% after briefly breaking above 2.00% for the first time in a year.

And while Asian markets overnight tracked the cheer from Monday’s solid U.S. session, the seemingly impenetrable confidence has calmed since European trading began. The MSCI Asia Pacific Index rose 0.4% but Europe’s Stoxx 600 opened lower Tuesday and was trading down 0.3%. U.S. futures had slipped around 0.2% from record highs at 7 a.m. CT and Treasury yields were flattening and near their lows of the day just before 7:15 a.m. CT. The 10-year yield was 2.4 bps lower at 1.15% amid the softer global tone.


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