Morning Report: Personal Incomes rise

Vital Statistics:

	Last	Change
S&P Futures	2633.3	8.3
Eurostoxx Index	389.2	1.2
Oil (WTI)	57.8	0.5
US dollar index	86.8	0.1
10 Year Govt Bond Yield	2.39%
Current Coupon Fannie Mae TBA	102.625
Current Coupon Ginnie Mae TBA	103.625
30 Year Fixed Rate Mortgage	3.88

Stocks are higher this morning as tax reform looks more likely. Bonds and MBS are flat.

Initial Jobless Claims fell 2,000 last week to 238,000.

Personal incomes rose 0.4% in October and personal spending rose 0.3%. The savings rate ticked up to 3.2%.  Inflation remains in check, with the core rate rising 0.2% MOM and 1.4% YOY. It probably won't make any difference to the Fed, which is pretty much set to hike interest rates next month for the second time this year. 

The core PCE (the inflation measure preferred by the Fed) has been pretty much below the Fed's target for almost a decade, except for a blip in 2012.

Tax reform has begun debate and some hope to see a vote in the Senate tonight. One of the biggest sticking points is the idea of a trigger, which would increase taxes if there is a revenue shortfall. We have had all sorts of spending triggers before (the Medicare "doc fix" is the classic one), but they invariably get ignored. Here is the issue with a revenue trigger. Suppose the US enters a recession, and revenues fall (as they almost always do). The bill would require the government to hike taxes in response, which is exactly the wrong thing to do as it adds another drag to the economy. In other words, it would never happen. Again, I am skeptical that such a large undertaking could be done on a tight timeline without much debate, but you never know.