One of the least convoluted, most insightful and thus best forecasts of what the first few months of the Trump administration will look like, came from one of the respondents of today's Dallas Fed manufacturing survey. This is what the respondent said:
President Trump looks to do things that will be favorable for business, which would improve employment and growth if successful. However, protesters are all over the place, so I tend to think that will cause trouble for the country and for business.
Those 42 words, with a sufficient margin of error on either side, pretty much summarize everything that will happen in the next 6-12 months: a push to improve the economic growth (perhaps leading to overstimulation and a Fed that is far behind the inflationary curve, resulting in a sharp move higher in rates), offset by protesters who are "all over the place."
In addition to the above snippet, the Dallas Fed respondents, among the most outspoken of all regional Feds, had several other notable comments on the state of the US economy. Here are some highlights, first regarding the Trump administration:
- We feel if the news of the new administration holds, we should be on an uptrend throughout the Trump presidency.
- One of our manufacturing facilities is in Mexico. There is some uncertainty around potential impacts related to NAFTA and other policy changes from the Trump administration. Several large chain customers are asking for backup plans should there be any supply chain disruption.
- We expect President Trump's policies towards NAFTA and Mexico will have a negative impact in the borderland in the next six months.
- We are expecting President Trump to have a very positive impact on the business environment. We need less regulation, less red tape, better trade deals and lower taxes.
- We are waiting to see whether the new administration in Washington follows through on the threats to place additional tariffs on parts imported from Mexico and Asian countries. That could cause the price of our finished products to increase.
- Generally, since the election, all activity has increased and quote activity for projects down the road has increased.
And then, on various other secular trends within the US, and global, economy:
- The global economies and U.S. economy are very weak and uncertain.
- We have seen an improvement since the election.
- Imports coming from Asia continue to plague the drilling equipment market. Foreign-governmental subsidized products are being brought over and sold at unprecedented low prices (prices not seen in the last 35 years).
- The printing industry has been hurting for a long time and continues to decline. At the end of December we purchased a small print shop in order to increase sales, but we also increased overhead. Our lost sales have been a result of mergers and companies selling off divisions that are not profitable. We are still hopeful that a change in the economy will help increase sales.
- Equipment purchases remain sluggish with a "wait and see" approach being taken by the refinery operators regarding crack spreads and available cash flow.
- An unchanged outlook means it is still not good. I still seem to be in a secular 2–3 percent decline in sales. We are working to diversify, and while such efforts have been successful, they aren't big enough yet to move the needle.
- Order and shipment volumes have increased from low fourth-quarter levels across most industry sectors. We are experiencing some material price pressure.
- Maybe it's because we have hit the January doldrums that can occur for us this time of year, but it seems way slower with much less activity both in order entering and in quoting. It's as if our customers are still out on vacation or taking a wait and see to the new president this Friday.
But perhaps the best recent Dallas Fed response had nothing to do with either Trump, or the economy, but instead was in response to a special question from last month's survey, dealing with "transactions in the Permian Basin", which had received significant attention in the second half of the year, with some reports of acreage being overvalued, according to the Dallas Fed. The following comment expressing concern over acreage prices stood out for obvious reasons:
“The Permian transactions are approaching price multiples associated with a bubble or a Ponzi scheme. Multiple private equity (PE)-backed buyers are simply trading assets from one to the other—very similar to transactions we witnessed in the early ‘80s real estate bubble, the tech bubble of ‘98–‘01 when venture capital firms co-invested with each other to drive up paper gains, and the oil transactions prior to 2014 when every PE fund, pension and endowment manager needed shale in their portfolios.”
Let's hope that this time it's different.