MARY REICHARD, HOST: Next up on The World and Everything in It, the Monday Moneybeat.
NICK EICHER, HOST: Financial analyst and advisor David Bahnsen is back for our weekly conversation on the economy. Good morning.
DAVID BAHNSEN, GUEST: Good morning, Nick. Good to be with you.
EICHER: It’s April 5th, so we’re officially through the first quarter of the year and that’s always a good place to take stock, instead of week-to-week data points. You’ve had the chance to evaluate the entire quarter. So, David, three months in the books, how do you grade them?
BAHNSEN: Yeah. It’s such an interesting quarter, because from our vantage point as investment managers, it was a splendid quarter. We’re not gonna get a GDP number for another few weeks, but I’m expecting a really strong quarter and even stronger Q2 and Q3.
The area in which things were negative in Q1 was entirely political. Uh, a really thoughtless $1.9-trillion stimulus relief bill, signs of pretty severe partisanship in the first quarter with the new administration, um, a lotta weak knees in the moderate Democrats that are gonna be necessary to hold back some of the legislative areas. So, the political arena, I’d give the quarter about a D, and the, um, economic quarter, I’d give it about an A-.
EICHER: But GDP, you’re expecting a really strong not only quarter when we receive that data in several weeks, but a really strong year, predicated on a really terrible year in 2020 with COVID and COVID policy. But still, we haven’t seen 7-8-9 percent annual growth in a very, very long time.
BAHNSEN: Um, and you’d have to go back an awful long ways. Eh, now again the, again, the trendline is what would matter, and this isn’t gonna bring the trend line up because you’re gonna blend 2020 and 2021. When we were getting numbers above 6% real GDP growth in the ’80s, that was sustained. That was lasting for multiple years and well into the ’90s. You had a bunch of four, five, and sixes. I would rather have four, five, and six, year over year over year than one year of eight, um, and anyone would.
But unfortunately, we just simply have way too much, uh, government debt that crowds out the private sector and that, uh, represents economic growth unfulfilled ’cause it was already used in the past when the debt was taken on. And so, that high level of debt—this is a subject, Nick, you and I have talked about on past shows—that is the number one detractor of sustained real GDP growth into the future.
EICHER: Surprisingly good jobs number for March. Headline unemployment down to 6 percent, net pickup of nearly a million jobs—916K most of them in the private sector—and it really came as a surprise, a positive surprise.
BAHNSEN: Yeah. It was a surprise on the margin in the sense that there was some expectation of a good number and good trajectory. And then, it ended up outperforming that expectation, so that’s what a surprise is. But the composition of it was not a surprise to me. The reason why I expect to see superlative job growth come primarily in leisure hospitality and things of that nature is that’s where the, uh, superlative job losses were. But there will be a delta. There will be a net difference between jobs pre-COVID and jobs post-COVID because they did succeed in putting away a lot of restaurants permanently.
EICHER: OK, before we go, we do have a little more detail on the big bill we’ll be talking about for the next few months as it takes shape—the infrastructure bill and the pay-for, the taxes.
How do you appraise it?
BAHNSEN: Yeah. You know, the way they did it is kinda clever by breaking it up into two, um, pieces because we actually don’t have a lot of clarity on the infrastructure bill itself. And then, the pay-for, they, they’ve given us the information on the corporate tax increase, but they’re kind of leaving it ambiguous on a blended basis as to what the total amount of tax increases will look like.
But basically, I’m of the school of thought that the reason the market is not responding negatively to it is, I think he started at 28% of a corporate tax rate, which is halfway between the Obama 35% level and the Trump 21% level, and I think his 28’s gonna come down to 25. And 25 from 21 is not much of a needle mover. I don’t like it, but it’s really not that substantive. And that’s kinda where we are right now.
But it’s not that I don’t wanna criticize first drafts of plans. It’s just that there’s no real precedent historically of a first draft looking anything like the final legislation.
But forgetting the tax increase side and the quote-unquote pay-for side, we do have a big amount of infrastructure need. We do have some that lies in the federal, uh, domain. There are federal highways and things that are constitutionally under that jurisdiction. Most sensible people would say, “Hey, that’s something you gotta include into your household budget in a year when you didn’t spend another couple trillion on other things.”
So, I think Larry Summers, the former Clinton and Obama economic adviser, uh, is gonna be proven right here that the Biden Administration has hurt themselves a lot and their political potency to get this infrastructure bill done by passing through and ramrodding through that $1.9 trillion, uh, quote-unquote COVID relief bill.
EICHER: Alright. We’ll leave it there. David Bahnsen, financial analyst and advisor. Always great to talk with you. Safe travels and thank you very much.
BAHNSEN: Thanks so much, Nick.
(AP Photo/Evan Vucci) In this March 31, 2021, file photo President Joe Biden delivers a speech on infrastructure spending at Carpenters Pittsburgh Training Center in Pittsburgh.