President Trump.
I’ll bet you didn’t expect to see those two words together. You may have hoped you would…or maybe you dreaded the possibility…but you didn’t expect you would. Right? Defying odds and expectations for almost 2 years, Trump did what ‘they’ said couldn’t be done.
Well, there is one thing we know with absolute certainty: Folks who conduct polls are among the newly unemployed. Who in their right mind would ever hire these bozos again?
What was their prediction yesterday? An 83% likelihood of a Clinton win? After Brexit and now this, poll credibility must be at a new all-time low. What are the odds Christmas will come around this year? Don’t ask the pollsters.
But we don’t know if Trump likes steak. I have my suspicions … I think he does. He seems like a ‘meat and potatoes‘ guy to me. I’m guessing he favors “rump roast.” I’ll have to ask: Maybe I’ll send him a Tweet.
As always, if you need a refresher on the SHI, or its objective and methodology, I suggest you open and read the original BLOG: https://terryliebman.wordpress.com/2016/03/02/move-over-big-mac-index-here-comes-the-steak-house-index/)
Why You Should Care: The US economy is a behemoth. With a GDP over $18.5 trillion a year, it towers over all others. The objective of the SHI is simple: To predict the direction of this behemoth. But while the objective is simple, the task is not.
BEA publishes GDP figures the instant they’re available. Unfortunately, it is a trailing index. The data is old news; it’s a lagging indicator. We know how the economy is doing in advance of the GDP release.
Personal consumption expenditures, or PCE, is the single largest component of the GDP. In fact, the majority of all GDP increases (or declines) usually result from consumer spending. Thus, this is clearly an important metric to track.
I intend the SHI is to be predictive, anticipating where the economy is going – not where it’s been. Thereby giving us the ability to take action early. Not when it’s too late.
Taking action: Keep up with this weekly BLOG update. If the index moves appreciably – either showing massive improvement or significant declines – indicating expanding economic strength or a potential recession, we’ll discuss possible actions at that time.
The BLOG: Wow. President Trump.
Perhaps even more amazing: Republicans now control the White House, the Senate and the US House of Representatives. This last occurred in 2005 when Bush was president.
How does this outcome impact the US economy? International trade? Immigration policies? Global politics? Energy policy? Who knows? But one thing is certain: The pollsters don’t.
We don’t really know because Trump’s campaign focused more on values than issues. Apparently his values resonated with enough Americans to propel him into the White House. Whether you or I like them … agree with them … or not. Now that he’s in office, his administration focus will shift to issues.
But the simple fact is the President is only one person. The Senate and House have another 535 folks combined … some of them also recently elected. If a President expects to move a his agenda forward, he must persuade a majority of these folks to come along. Sure, he is the President, and – as President Teddy Roosevelt was known to say – has the greatest “bully pulpit” on the planet at his disposal.
But he can’t act alone. The behavior of the President is somewhat constrained by the 1946 ‘Administrative Procedures Act‘. The ‘Act’ requires that Trump administration’s ‘interpretations’ are reasonable and its ‘decisions’ are not “arbitrary, capricious, (or) an abuse of discretion.” There are constraints.
So it begins. Speaking earlier today, President Obama urged us all to welcome President Trump to the White House and make the transition as smooth and successful as possible. “The Presidency is bigger than any of us…,” Obama said. Agreed.
But enough about the elections; after all, this is an economics BLOG.
As the first day of Trump’s presidency began, at 12:05 am (ET), the 10-year Treasury yield was about 1.71%. As I write this BLOG about 12 hours later, the yield has increased dramatically, eclipsing 2.02% – an increase of over 30 basis points.
Moves like this, in a 12 hour period, are uncommon. When yields increase, bond values fall. There are more sellers than buyers. Why? I suspect this move is tied to an investor belief that a Trump administration will significantly increase the supply of Treasury bonds available for sale.
According to the Urban Institute & Brookings Institution, Trump’s proposed tax “plan would significantly reduce marginal tax rates on individuals and businesses. His proposal would cut taxes at all income levels. The plan would reduce federal revenues by $9.5 trillion over its first decade. The plan would improve incentives to work, save, and invest. However, unless it is accompanied by very large spending cuts, it could increase the national debt by nearly 80% of gross domestic product by 2036.”
Hmmm….this doesn’t sound good to me. With a national debt already above $18 trillion (review this BLOG post: https://terryliebman.wordpress.com/2016/10/19/the-steak-house-index-shi-update-10192016/), I don’t believe the US can easily support another $15 trillion of debt. And any such move is highly inflationary.
The bond markets seem to agree. This yield increase is simply a “no-confidence” vote in Trump’s tax plan … and the uncertainty it creates.
But I suspect this is simply a momentary, knee-jerk reaction. As I said above, before any tax plan can be enacted, the President must convince a majority of another 535 people the idea has merit. Not an easy task … but possible. Even if possible, it will take a long time. Given the larger, more global economic issues the US faces today, I suspect this rate increase will recede in coming weeks.
I know what you’re thinking: What does all this have to do with the SHI? And what the heck is ‘Rump Roast?’ Here’s a photo:
As I said above, I suspect Trump is a fan. Just a feeling. Which means I have no doubt he would also be a fan of the Steak House Index! Feel free to send President Trump a URL link.
And how are the steakhouses doing this week?
Interestingly enough, this weeks SHI reading matches last week’s – exactly. Both are zero. Take a look:
At 11 AM today, OpenTable.com shows a table for 4 is available this Saturday at Mastros within – if you’re prepared to dine at 9 pm. This week, four time slots are unavailable at Ruth’s Chris (vs. two last week). Numerically, this week’s SHI reading has remained constant, reflecting an algorithm value for a 9:00 pm (available slot) to be about equal to the additional booked slots at Ruth’s Chris.
Here’s our trend grid from SHI inception:
A few weeks ago, we saw a graph of the SHI 3-month rolling average. that suggested the SHI was trending downward. As you can see below, the most recent data has ‘leveled off’ the SHI trend (see the red line):
The weakening trend we saw a few weeks ago seems to be gone. Once again, not only is The Capital Grill fully available on Saturday night, the SHI is telling us that US economic growth continues, slow and steady. The SHI suggests consumer spending remains robust…and there is no potential for recession in the near future.
Let’s see how it looks next week – one week into a Trump presidency.
1 Comment
I wasn’t surprised by Trump’s victory. That’s because there was a lot of information out there about ‘oversampling’. Just like with Brexit, they weren’t asking the right sample of people. And, as my son mentioned to me, he is convinced that people were sometimes unwilling to tell others they would vote for Trump.
My summary: Americans chose the bombastic one over the criminal. I’m glad we don’t have a criminal in the White House. Now it remains to be seen what Trump will actually be able to do.