Gold was unable to sustain the earlier intraday rebound, falling back into the daily range. The choppy trade comes as a result of a mixed bag of economic data, dovish FedSpeak, much ado about President Trump’s budget proposal and ongoing concerns about his broader economic agenda.
Markit PMI data were mixed with services better than expected and manufacturing missing expectations. The Richmond Fed index tumbled to 1 in May, below expectations of 15, vs 20 in April. New home sales tumbled 11.4% in April, well below market expectations. It was the biggest drop since March of 2015.
Sales fell in every region of the country, led by a 26.3% plunge in the West, the biggest drop since October 2010. — AP
Minneapolis Fed President Kashkari noted today that inflation is going the “wrong way.” Rising inflation and inflation expectations was the main incentive for the Fed’s move to tighter policy. Kashkari wants to see more data before considering a further tightening of monetary policy in June.
Speaking at the Peterson Foundation Fiscal Summit, Treasury Secretary Mnuchin confessed that “we’re not going to get [tax reform] done by August.” While he’s still hopeful that it will get done this year, there are rumblings that the GOP may have to settle for tax cuts, rather than reforms, but even that may be a heavy lift. There is also talk of combining fiscal spending with any tax bill in an effort to garner support from Democrats.
The bottom line is that the economic agenda seems to be losing additional momentum, and the new budget proposal isn’t going to help the cause. President Trump’s $4.1 trillion budget seems to be overly optimistic about the growth prospects of the U.S. economy. While the budget targets 3% growth, some analysts suggest continued sub-2% growth is the more likely reality. Zerohedge also reported that the administration is perhaps overly-optimistic about how long the current expansion will last.
Given the cuts to entitlements, Democrats are already girding for battle. As that battle rages, the clock will continue tick toward the inevitable next recession. Since the Great Depression, the U.S. has suffered thirteen recessions. The periods of economic growth between recessions have been as long as 120-months, and as short as 12-months. The average is just over 59-months.
The time elapsed since the Great Recession “officially” ended in June 2009 presently stands right at 95-months. To think we can go more than another decade without an economic contraction just might be delusional.