- Some economists are lowering their forecast for 3Q growth to a 5.00% annualized rate, down from 7%. The change results from a slew of disappointing consumer spending data, which put the last Q into a weak position as we move into the Fall. Between the Delta Variant and low consumer sentiment, I believe it will drag down GDP over the next two quarters keeping FED rates low.
- NYC will be using some of the $5.9B in FED aid to assist people within the city, such as artists and taxi drivers. Most of the funds are slated for the MTA system and the build-out of construction projects halted during COVID. Last week NYC released a 70-page document on how it plans on using the funds, where most cities have not gotten around to allocating their money. NYC seems to be ahead of the pack as it relates to budgeting these funds. The DRL Group continues to be buyers of "infrastructure" type paper such as MTA's.
- Over the next month or two, President Biden will unveil a nominations package related to the FED. I suspect that Powell will remain at the top spot. Many believe that Powell is the right person for the position while doing an excellent job through COVID. I think Powell will continue in his current role, and the markets will stay steady based on this reappointment.
- Market consensus is that the FED should press ahead with the plan to taper later this year, despite last Friday's poor job growth numbers. I suspect this will happen, and the labor markets will look strong as we move into 2022. Overall, this should not impact our markets to the point where we see yields spike. Furthermore, tapering should be directed towards MBS's
- On Friday, Goldman Sachs cut the US growth forecast for the remainder of this year and into the first half of 2022. They said that the US is on a "harder path" for the American consumer than anticipated. Overall expansion in 2021 is now expected to be at 5.7% compared to 6.7%, published at the end of August. Explaining the downgrade, Goldman believes American consumers are likely to spend less amid the Delta Variant emergences, fading fiscal support, and demand for goods and services. Goldman lifted their expectation for the unemployment rate as well. All of this should not impact our markets. However, I would expect it to wear on the equity markets as we move through the balance of this year.
- Barclays indicated that the MUNI bond markets could see a "good deal of volatility" in the coming months as trading picks up from the summer slowdown. I tend to agree with this. As we have discussed before, August and the first of September are historically slow in our markets, with the summer over and kids going back to school. Also, the Democrat's discussions around an infrastructure package that will include state and local debt enhancements and credit upgrades will add to this volatility.
- The State of IL, like many states, saw its General Fund Budget rise 8.7% from last year to $3.2B. These increases stem from higher sales taxes, personal income, public utility consumptions, and franchise tax collections, all higher than the previous year. These types of numbers should push the rating agencies to upgrade many municipalities. The DRL Group has been buyers of this paper since COVID - many states such as IL continue to have strong balance sheet results due to the economy getting back on its feet.
David Loesch
dloesch@drlgroup.net
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