by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
June 8, 2020
LAST FRIDAY’S STRONG JOBS REPORT will not derail still another stimulus package. We expect enactment of a $1 trillion-plus bill by early August, despite grumbling from some deficit hawks that it isn’t needed.
FIRST OF ALL, THE REPORT wasn’t quite as strong as the headline number, which showed unemployment fell to 13.3%. The Bureau of Labor Statistics said there was a “misclassification error” in the data which would have produced a rate of 16.3%. That’s still better than the 20% jobless rate that many economists expected.
AFTER TALKING THIS WEEKEND with experts in both parties, our sense is that the two most important players — Donald Trump and Jerome Powell — are still on board for another bill that would provide aid to state and local governments, still another shot of assistance to small business, and perhaps some type of tax bonus for people who return to work.
ONE REASON WHY MOST REPUBLICANS will grudgingly accept another bill is their desire to address a flood of lawsuits targeting businesses; some type of liability protection is increasingly likely. Whether Trump will get a payroll tax cut is still doubtful but no longer out of the question.
THE WHITE HOUSE REACTED TRIUMPHANTLY to the jobs report, but our sources think it’s premature to declare victory. Most economists think this is no time to tap on the brakes because the recovery is so tentative — and covid-19 cases seem to be rising again.
THE GOOD NEWS, IN OUR OPINION, is that the worst of the recession may be over — with even more fiscal and monetary stimulus available. No one wants to derail that scenario, certainly not Trump, who now trails Joe Biden on betting sites and in key states like Michigan, where one poll shows Biden suddenly ahead by 12 points.
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A LIFE PRESERVER FOR TRUMP? With public opinion overwhelmingly in agreement that African-Americans are mistreated by the police, progressive activists are determined to abolish or defund the police. A campaign to defund the police would be a gift for the reeling Trump, who will proclaim that Democrats are veering sharply leftward.
TRUMP DESPERATELY NEEDS AN ISSUE that could improve his standing with moderate voters, and it might be this (along with an improving economy). Mayors in New York and Los Angeles are talking about shifting resources away from police to community projects, and the city council in Minneapolis may defund the police. That’s too radical for most moderates.
THIS WILL BECOME A POLITICAL LITMUS TEST for Biden, who will urge police reform, not defunding. He and virtually all Democrats will embrace a bill that will be introduced today that would target racial profiling, ban chokeholds and no-knock warrants, and make it easier to prosecute and sue for police misconduct.
THERE’S NO QUESTION THAT A BILL like this will win enactment, but Biden will have to do more. Former Orlando police chief Val Demmings, now a well-regarded House member, is rising fast as a contender for Biden’s VP pick.
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