Monday, March 1, 2010

Economic Events of the Week

Monday March 1 - Personal Income and ISM Manufacturing
Tuesday March 2 - House Financial Services Committee hearing on housing finance reform
Wednesday March 3 - ADP National Employment
Thursday March 4 - Productivity and Costs, Pending Home Sales Index
Friday March 5 - Employment Situation and Consumer Credit

Front Page News
Democrats Will Have Votes for Health Bill, Obama Aide Says (Washington Post)

Washington Update
Chambers Looks For Ways Ahead on Jobs, Healthcare Bills (Congress Daily)

Financial Markets News
Weekly Summary and Look Ahead (Calculated Risk)
Warren Buffet's Annual Shareholder Letter (Berkshire Hathaway)
Macro Viewpoint (Merrill Lynch)

Editorials and Commentaries
Exploring the Causes of the Financial Crisis (Financial Crisis Inquiry Commission)
Spreading the Wealth Around: Reflections Inspired by Joe the Plumber (Greg Mankiw Paper)

Front Page News

Democrats Will Have Votes for Health Bill, Obama Aide Says (Washington Post)

Raising the prospect of a "simple up-or-down vote" on health-care reform, White House adviser Nancy-Ann DeParle said on Sunday she thinks Democrats will secure enough ayes on the measure and signaled that the administration could be moving toward trying to pass it along party lines. Increasingly, the White House appears to favor having the House pass a version of the measure that cleared the Senate with 60 votes in December. The Senate would then pass changes to the bill to satisfy some demands of House Democrats. That Senate vote would take place under a parliamentary procedure known as reconciliation, which requires 51 votes rather than 60. For more vote-counting analysis, see the New York Times which argues that "overhaul now rests largely with two blocs of swing Democrats in the House of Representatives — abortion opponents and fiscal conservatives."

For discussion of arcane Senate rules, see Capital Gains and Games where Pete Davis reviews the logistics of using reconciliation to pass comprehensive healthcare legislation. Pete concludes that "any section of the bill that doesn't change budget authority, outlays, or revenues would be knocked out. Out would go definitions, administrative provisions, abortion spending prohibitions, and insurance reforms that lack direct budgetary effects." Stan Collender responds that Pete's "interpretation of the rules for what qualifies as an extraneous provision is far too strict...Just because a particular sentence of a bill would be extraneous if considered by itself doesn't automatically make it extraneous if it's part of a larger section that as a whole isn't extraneous."

Washington Update

Chambers Looks For Ways Ahead on Jobs, Healthcare Bills (Congress Daily)

Majority Leader Reid is planning to open debate today on a roughly $150 billion measure combining long-term extensions of expiring unemployment benefits, COBRA healthcare subsidies for laid-off workers with an increase in Medicaid reimbursements to states, dozens of lapsed tax breaks for businesses, farm disaster aid and other provisions. At the Banking Committee, Senator Dodd intends to reach a compromise this week on legislation to revamp the nation's financial regulatory structure. Dodd has been working with Sen. Bob Corker, R-Tenn., in trying to reach consensus on a bill with at least some GOP support.

Financial Markets News

Weekly Summary and Look Ahead (Calculated Risk)

This will be a busy week for economic data, and the focus will be on the BLS February employment report to be released on Friday. The consensus is for a net loss of 50 to 80 thousand payroll jobs, and the unemployment rate to increase slightly to 9.8% (from 9.7%). On Monday, the BEA will release the Personal Income and Outlays report for January. On Tuesday, the various manufacturers will release light vehicle sales for February. The consensus is for a decline to about 10.4 million from 10.8 million in January. Sales for Toyota will be closely watched. On Wednesday, the Fed's beige book will all be released. On Thursday, the closely watched initial weekly unemployment claims, productivity report, factory orders, and pending home sales will all be released. And on Friday, the BLS employment report, Consumer Credit (more contraction), and another round of bank failures.

Warren Buffet's Annual Shareholder Letter (Berkshire Hathaway)

Warren Buffet reported that Berkshire gained 19.8% in 2009, a big turn from lost years 9.6% loss but still less than the S&P 500 index's 26.5% gain. Since 1965, Warren Buffet has earned 20.3% compared to the S&P 500's 9.3% annual return. Buffet believes that "within a year or so, residential housing problems should largely be behind us. Prices will remain far below 'bubble' levels, of course, but for every seller or lender hurt by this there will be a buyer who benefits." And although Buffet bought significant amounts of corporate and municipal bonds last year -- which were "ridiculously cheap" -- he regrets not buying more: "Big opportunities come infrequently. When it’s raining gold, reach for a bucket, not a thimble." For more of Buffet's quips read the full letter or see MarketBeat's selection of Buffet zingers.

Macro Viewpoint (Merrill Lynch)

The US economy continues on a bumpy road to recovery. Weaker data last week on consumer confidence, jobless claims, housing, and durable goods orders have introduced downside risks to our near-term economic outlook. We have made some minor adjustments to our GDP forecast. Fourth quarter GDP was revised up to 5.9%, with the inventory swing now accounting for 3.9 pp of growth, up from 3.4 pp. We think this “steals” some growth from 1Q. In our view, it will be difficult to get a firm grip on the economy until the March data begin to roll in. We expect that once the impact from the severe weather fades, the data will reveal an economy enjoying a modest cyclical recovery.

Editorials and Commentaries

Exploring the Causes of the Financial Crisis (Financial Crisis Inquiry Commission)

The Financial Crisis Inquiry Commission held a two day forum exploring the causes of the financial crisis with eminent academics from around the country. Click through for presentations on the interconnectedness of financial institutions (Kroszner), macroeconomic factors and monetary policy (Gourinchas), leverage (Geanakoplos), financial literacy (Lusardi), mortgage lending practices (Mayer), the GSEs (Jaffee), derivatives (Brunnermeier), firm structure (Kashyap), and shadow banking (Gorton). For highlights, see the Real Time Economics blog.

Spreading the Wealth Around: Reflections Inspired by Joe the Plumber (Greg Mankiw Paper)

I don’t think it is an exaggeration to say that the single most important difference between the political left and the political right is over the questions of whether, and to what extent, spreading the wealth around” is a proper function of government. Looking ahead, I fully expect the issue to remain at the center of political debate. Congress will find past entitlement promises hard to break, and so it will have little choice but to raise taxes to levels unprecedented in U.S. history. Which naturally raises the question: Whose taxes should go up? I should say at the outset that the issues I will discuss with you here involve not only economics but also some political philosophy.

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