Vorisek Financial Weekly Market Update for September 12, 2018

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Good morning!

The Trump White House believes the “Tax Cuts and Jobs Act” legislation, signed by the president on 12/22/17, will create +3% annual economic growth in the USA, a level last achieved in 2005.  The US economy produced annualized growth of +3.2% during the first 6 months of 2018, reaching $20.4 trillion in size as of 6/30/18.  Surprisingly tax reform will be back in the news this week in Washington as the House Ways & Means Committee debate an extension of the new tax cuts even though they are already in place for another 7 years until 2025 (source: Congress).               

Average hourly wages of private sector workers climbed to a record $27.16 (equal to $54,000 in annual compensation) in August 2018.  That hourly rate is up +2.9% over the last year (i.e., August 2017 to August 2018) and represents the best year-over-year bump in wages since May 2009.  Economists have been at a loss to explain the meager wage gains achieved in the recent past while the jobless rate has tumbled below 4%.  The strong wage gains along with 201,000 new net jobs last month increases the probability of another Fed rate hike when they meet in 2 weeks on September 25-26 (source: DOL). 

It has been 10 years since Treasury Secretary Hank Paulson announced on 9/07/08 his plan to take control of mortgage giants Fannie Mae and Freddie Mac.  The government initially pledged up to $200 billion of financial support in anticipation of future mortgage defaults, ultimately disbursing $187 billion.  The controversial bailout was not a financial failure: Fannie and Freddie have paid back $271 billion to taxpayers over the decade, resulting in an $84 billion profit (source: Treasury Department).                   

Notable Numbers for the Week:

  1. OUR NEIGHBORS TO THE NORTH – Approximately 75% of $421 billion of goods exported by Canada in 2017 (stated in US dollars) was purchased by American consumers (source: WTEx).    

  2. SPENDING WAY TOO MUCH - 71% of 251 economists surveyed in late July 2018 believe the current fiscal policy of the US Congress is “too stimulative,” a significant jump from the 20% of economists who felt that way in August 2017 (source: National Association for Business Economics).        

  3. GRADUAL INCREASES - Between June 2004 and June 2006, the Fed met and raised short-term interest rates by ¼ of 1% at 17 consecutive Fed meetings.  Since 12/14/16, the Fed has met and raised short-term interest rates by ¼ of 1% at 6 of the last 14 Fed meetings (source: Federal Reserve).   

  4. NO PILOTS - The Navy awarded an $805 million contract on 8/30/18 for the construction over the next 6 years of 4 unmanned tanker planes that will be able to refuel fighter jets in mid-flight (source: Navy).

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