Federal budget update - still nothing close to decided

Not that this should surprise anyone, but when Republicans say their budget plans don't cut Medicaid, they are claiming something that is literally impossible. The Congressional Budget Office (CBO) confirmed it this week (read the report here if you want).

Here is CBO confirming the obvious. To meet House budget resolution's target that Energy and Commerce Committee make at least $880 billion in mandatory spending cuts and Medicare is excluded, deep #Medicaid cuts are absolutely necessary as there isn't much other spending. www.cbo.gov/publication/...

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— Edwin Park (@edwincpark.bsky.social) March 5, 2025 at 4:24 PM

And the Wisconsin Medicaid Coaliton gave a quick summary of what those numbers translate to.

The CBO analysis finds the committee has only $581 Billion in spending that is not Medicaid or Medicare. Congressional leadership has long promised no cuts to Medicare which would mean a minimum of $299 Billion in cuts to Medicaid, and only if it made deep cuts to other safety net programs. In fact, eliminating every program besides safety net programs only adds up to $135 Billion.

Last week the U.S. House of Representatives passed a Budget Resolution that commits the House to $2 Trillion in cuts, with at least $880 Billion in cuts assigned to committee covering Medicaid. Based on previous proposals from House Budget Committee Republican leadership, the $880 Billion in cuts are widely anticipated to come from the Medicaid program.

Remember that what passed the House wasn’t any type of specifics, but an outline of a budget with total numbers, and the committees that would figure out the details. If the Senate were to agree to this budget resolution (which they haven’t yet), then we’d have to get into the actual programs and specific programs that get cut to make the US budget match up with those numbers, or at least the same amount of deficit.

As a reminder, here are the required changes in all the committees to match up to the budget resolution of $4.5 trillion in tax cuts over the next 10 years.

So, each committee will write legislation that adheres to the instructions set in the budget resolution. Here's what the House budget resolution calls for:

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— Bobby Kogan (@bbkogan.bsky.social) February 25, 2025 at 7:22 PM

The Senate passed its own budget resolution in February that would have increased spending on macho Trumpian stuff like border security and defense, and planned to wait until later to do the taxing and budget cuts part. But it now seems that they will try to jam everything into one mess of a bill, although any Senate outline that gets revealed won’t come out for a while.

Senate Republicans adopted a budget reflecting their desired, two-bill strategy, which would have put the tax changes in a separate bill later this year. They are now switching to the one-bill track, but not before they address necessary changes to the House product to pass muster with their members.

The Senate Finance Committee, Thune noted, has quietly been socializing ideas with Senate Republicans on the tax piece and Senate Republicans are expected to talk about the House budget during their own closed-door lunches this week. It will mark the first chance leadership will have to take the temperature of the whole group at once.

Senate GOP leadership staff also briefed senior Senate Republican staffers during a meeting on Monday, indicating that they were still in the very early stages of ironing out a deal on the House budget resolution. Senate Republicans hold multiple staff meetings, which are run by leadership offices, at the start of every week.

While Senate Republicans grapple privately with the House budget resolution, Senate Republicans are expected to focus floor activity next week on a much closer deadline: funding the government.

Oh yeah, there’s that too!

The government shutdown deadline is looming for a week from Friday, and deals with the current year budget, to allow spending for the next 6 1/2 months. It is not the 2026 budget that would have the Medicaid cuts and GOP's tax giveaways in it. While House Speaker Mike Johnson says he plans for a vote on Tuesday to avoid a shutdown, let’s see if that actually happens.

If not, it could quite a different case of March Madness up on Capitol Hill next week. And we'd better not see one Dem vote for anything put up by the GOP until the unauthorized dweebs at DOGE and Elon Musk are driven out of DC, because otherwise we can't guarantee that our tax dollars will go anywhere other than the pockets of the crooks getting 6 figures to make things more inefficient in DC, and to screw things up for everyday Americans.

Manufacturing struggles to start 2025, and that's before any tariffs

We had another day of concerning economic news for America. Even though the Manufacturing Index from the Institute of Supply Management (ISM) showed expansion for the 2nd straight month, it was considered a disappointing. That,along with other Trumpian stpudity,caused the DOW Jones Industrial Average to give up all of its 600+ point gain from Friday.

Timothy Fiore chairs ISM's Manufacturing Business Survey Committee, and his notes are ominous.

…Demand weakened, while output stabilized and inputs, for the first time in several months, contributed to PMI® growth. Indications that demand weakened include: the (1) New Orders Index dropped into contraction territory, (2) New Export Orders Index continued expanding, but at a slower rate, (3) Backlog of Orders Index continued in contraction, but moved upward, and (4) Customers’ Inventories Index moved further into ‘too low’ territory. Output (measured by the Production and Employment indexes) was stable. Factory output marginally expanded compared to January, indicating that panelists’ companies are being cautious about ramping up output in the face of economic headwinds. The Employment Index moved back into contraction, as panelists’ companies continued to release workers. More companies cited ‘attriting down’ as the best process, with destaffing not as urgent as it was in the second half of 2024. Inputs — defined as supplier deliveries, inventories, prices and imports — revealed the first signs of supplier difficulties due to some pull-forward deliveries and discussions about who will pay for tariffs. Inventories recovered somewhat as a result.

Then you go inside the numbers for both February and for January, and it seems evident that a one-time pre-tariff bump in orders from January has gone away, and that manufacturing suppliers and businesses are raising prices even before the tariffs are put in place.

The data complements Friday’s report that told us the dollar amount of imported goods went up by nearly $35 billion in January compared to December (11.9%), including a $22 billion increase in industrial supplies and a $6 billion increase in consumer goods. That spiked the trade deficit in goods by more than 25%, and caused the Atlanta Fed to project a decline in economic growth for the first quarter of Trump Presidency 2.0. There also was a sizable increase in new orders for manufactured goods for January. But that increase was almost entirely due to a jump in nondefense aircraft and parts, and that sector also is the cause behind a large jump in unfilled orders in manufacturing. That overall increase in new orders nearly reversed monthly declines of 1.8% in December and 2.0% in November.

However, that same report has a significant 2.5% decline in new orders for motor vehicles and parts in January. It was the 4th consecutive month that new car and parts orders have gone down, and by (seasonally adjusted) dollar amounts, it's the lowest in 2 ½ years. That's a significant turnaround from the end of 2024, where cars and auto parts accounted for nearly 1/5 of the country’s GDP growth of 2.3%.

And sales of cars in America were even worse, as inflation-adjusted auto sales declined by 6% in January. It was a key reason behind a surprising 0.5% drop in inflation-adjusted consumer spending for that month, which was the other reason we saw projections of economic growth falling on Friday.

Again, these worrying numbers in January happened before tariffs were imposed. And Pras Submramanian of Yahoo Finance mentions that the price tag will be noticeable.

The Anderson Economic Group (AEG) found that vehicles like EV crossovers could have price hikes of over $12,000 depending on the vehicle if proposed tariffs of 25% go into effect on Canadian and Mexican imports. According to news reports, Trump is expected to decide on tariff levels today.

The tariffs don't just affect vehicles imported from those countries, but also parts that cross over the border many times during the production process, adding to additional tariff costs. The costs would almost all be passed on to US buyers, the study said.

Other popular vehicles, like a standard, gas-powered crossover, could see hikes of at least $3,500, while pickup trucks — a staple of working-class Americans and small business owners — could see costs jump as much as $8,000 due to the tariff effect.

Full-size SUVs could see costs rise by $9,000, and small cars could see a hike of $6,200.

With all of these imports coming into the country, and the threat of tariffs raising prices, it’s hard to see where consumer demand rebounds for these items any time in the near future. Sure, January has volatile numbers due to seasonality. But weak numbers for February and March might put things on a point of no return.

Given the huge amount of front-running of orders, imports and inventory, a lack of demand for manufactured goods should cause cutbacks in both production and jobs. And that would mean even more rough times for American manufacturing after 3 years of stagnation and/or decline in the sector, which started with the Federal Reserve raising interest rates in early 2022.