Haver Analytics
Haver Analytics

Viewpoints: October 2024

  • On Sunday, October 27, 2024, Elon Musk claimed that he could find at least $2 trillion of potential spending reductions in the federal budget if Donald Trump were elected in the upcoming November 5, 2024 presidential election. I assume he could find the same magnitude of budget cuts if Donald Trump were not elected. Well, if Musk can return a rocket to its launch pad, why wouldn’t we expect him to identify $2 trillion in federal budget cuts? After all, in Fiscal Year (FY) 2024, federal net outlays were $6.75 trillion. Surely, Musk could identify $2 trillion of “fat” to trim. Or could he?

    Shown in the Chart below are net federal outlays in FY 2024 minus net outlays for national defense, interest payments on the public debt, Social Security, Medicare and veterans’ benefits/services. The amount remaining of net federal budget outlays after these subtractions is $2.3 trillion. That’s $2.3 billion for Medicaid, SNAP (food stamps), civilian retirement, earned income tax credits and the operating /capital costs of nondefense federal departments, including, but not restricted to, Justice, Agriculture and Transportation. So, if Musk had been able to identify $2 trillion of cuts in FY 2024 federal outlays, net of defense, interest, Social Security, Medicare and veterans’ benefits/services, that would have left him with $300 billion to fund the rest of federal outlays. Would you want to fly on commercial airlines knowing that airline regulations might not be enforced? You might want to start growing your own vegetables and raising your own animal protein, because the FDA might not be able to inspect food. Those Venezuelan gangs might be taking over more towns because of a lack of FBI agents to stop them. You get the picture. Unless Musk is going to cut spending on defense, interest, Social Security, Medicare, and veterans’ benefits/services, cutting $2 trillion from federal outlays would not leave enough to fund the rest of the government adequately. And if Musk, as part of a Trump administration, were to cut Social Security, Medicare and veterans’ benefits, the Democrats would likely win large majorities in the House and Senate after the 2026 midterms. So, although Musk can return a rocket to its launch pad, I don’t think he can cut $2 trillion from federal outlays in one year without causing severe political problems for a Trump administration.

  • The Federal Reserve Bank of Philadelphia’s state coincident indexes in September remained soft. Connecticut was, yet again, on top, with a fairly modest .57 percent increase. New Hampshire was the only other state up more than .5 percent. 11 states saw declines, with Massachusetts, South Carolina, and Montana all down .29 percent. Over the 3 months ending in September, 14 states were down, with Massachusetts dropping 1.9 percent, while South Carolina was also down more than 1 percent. The odd New England pattern was ongoing, with Connecticut was on top with an increase of 1.95 and New Hampshire rising more than 1 percent. Over the last 12 months, 3 states were down, Ohio was flat, and another 8 saw increases of less than 1 percent. Rhode Island’s index was off by .6 percent. Arizona had a 4.99 percent increase, and Connecticut, New Hampshire, Idaho, Texas, and Utah had gains of more than 3 percent (Maine was up 2.98 percent—there certainly has been some odd variation in New England).

    The independently estimated national estimates of growth over the last 3 months (.7 percent) and 12 months (2.8 percent) appear to be roughly in line with the state numbers.

  • State labor markets were a bit firmer in September than in other recent months. Five states, plus DC, saw statistically significant increases in payrolls. New Jersey had the largest absolute gain (19,200), while Idaho saw a .7 percent increase (Texas reported an increase of more than 29,000, but this was seen as not statistically different from zero; the gain was only about .2 percent).

    Five states had statistically significant increases in their unemployment rates in September, and one (yet again Connecticut) showed a decline. None of the increases were larger than .2 percentage point. The highest unemployment rates were in DC (5.7%), Nevada (5.6%), California (5.3%), and Illinois (5.3%). No other state had rates as much as a point higher than the national 4.1%. Alabama, Hawaii, Iowa, Maine, Maryland, Mississippi, Nebraska, New Hampshire, North Dakota, South Dakota, Vermont, Virginia, and Wisconsin had rates of 3.0% or lower, with South Dakota at 2.0%.

    Puerto Rico’s unemployment rate dipped to 5.6%--very unusually, matching Nevada and a touch below DC--while the island’s job count grew by 3,600.

  • India’s economy is rebounding, with the business cycle upswing becoming more pronounced and widespread. Although GDP growth slowed slightly in the second quarter, moderating to 1.1% quarter-on-quarter (QoQ) from 1.3% QoQ, this was largely due to a contraction in government spending, inventories, and exports. Importantly, both consumption and investment spending grew robustly, marking the fastest pace since late 2021 and early 2022, respectively. Leading indicators remain positive, and the economic fundamentals are supportive of continued growth.

    The corporate profit cycle is in full swing, with company balance sheets in rude health, positioning businesses to increase investment. Corporate debt-to-equity ratios have declined significantly, and corporate debt as a percentage of GDP is well below global averages. Consequently, the debt service-to-equity ratio is now below the 2007-2023 average, and the interest coverage ratio remains stable—44x for IT, 7.5x for manufacturing, and 1.7x for non-IT services. Infrastructure companies, buoyed by optimism, are increasing their spending, according to the RBI’s Q1 FY24/25 Services and Infrastructure Outlook Survey. Capacity utilisation is tight, and order backlogs are rising. Additionally, monthly data shows upward trends in the capital goods sector and the eight-core industry infrastructure index.

    Public sector banks, which dominate the financial sector, have never been stronger. Non-performing loans (NPLs) are at a 12-year low due to a sustained reduction in new NPLs and higher write-offs. Provisioning levels are at their highest since 2007, and asset quality among large borrowers continues to improve. The sector is well-capitalised, with average capital adequacy ratios of 16.8%, comfortably above the RBI’s 11% regulatory minimum. Private credit is growing at double-digit rates, with strong borrowing demand across industries, services, small and medium enterprises, large corporations, mortgages, and big-ticket consumer goods.