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Tuesday, June 5, 2012
Tuesday – e21 Event: A Book Party for Luigi Zingales’ A Capitalism For The People, ISM Non-Manufacturing Index
Washington Update
Market Talk
Editorials & Opinions Story of the DayWhy This Slow Recovery Is Like No Recovery (Robert Barro in The Wall Street Journal)Last week's dismal jobs report showed little change in payroll employment for May and a slight rise in the unemployment rate to 8.2%, thereby underscoring the weakness of the economic recovery. Although changes in payroll employment and the unemployment rate are important, the key gauge of recession and recovery is the growth rate of real gross domestic product, and that is where our core problems lie. The average annual growth rate of U.S. GDP since 1948 has been 3.1%. In the recession starting in the third quarter of 2007 and ending in the second quarter of 2009, GDP fell by nearly 5%. But this decline is 10% when gauged relative to trend—that is, after factoring in normal growth. To make up for this shortfall, the subsequent recovery has to attain growth rates averaging above 3% for several years. This is not an unreasonable expectation. For instance, the GDP growth rate averaged 4.3% per year from 1982 to 1989 following the deep recession of the early 1980s. Yet in the current "recovery," beginning in the second quarter of 2009, growth has averaged only 2.4% per year, and just 1.8% for the first quarter of 2012. This low growth means that the U.S. economy has actually been falling further and further behind the normal trend. Therefore, it is not a recovery at all.  Back to Top
Washington UpdateConrad Defends Fiscal 2013 Outlay Limit in Dispute Over Debt Ceiling Law (CQ)Senate Budget Chairman Kent Conrad disputes a charge that he filed inflated spending levels for the coming fiscal year, setting up another argument over the interpretation of the August debt limit law that could further divide the parties. Jeff Sessions of Alabama, the top Republican on the Budget panel, last month charged that the $2.945 trillion fiscal 2013 outlay limit that Conrad included when he filed spending limits and committee allocations for the Senate in March was $14 billion higher than it should have been based on the debt limit law (PL 112-25). Outlays are recorded as federal agencies actually spend the money that Congress has given them the authority to spend. GOP aides said the higher outlay limit would allow more actual spending next year than permitted under the debt limit law. Congress Embarks on Spending Spree (National Journal)Congress is expected to do what it does best—spend money—this week, with the House taking up three appropriations bills and the Senate starting work on farm subsidies. There will be other bits of business, namely a Senate vote to promote wage equality for women and some jostling in the House over a tax on medical devices. But for the most part, Congress should be engaged in the happy business of distributing cash. The House will meet on Tuesday to continue work on the spending bill that funds the Energy Department, along with the Army Corps of Engineers and the Bureau of Reclamation. Once it clears the bill, the chamber will take up appropriations measures for the Homeland Security Department and the legislative branch. House Majority Leader Eric Cantor, R-Va., said on Friday that there may be debate on a bill to strike the excise tax on medical devices, which was contained in President Obama’s health care reform law. The Senate’s week is a microcosm of its current character. It will start with what is expected to be a party-line vote for political consumption (which should take about 15 minutes), and then move to a bipartisan measure that will likely take several weeks of floor time to pass. U.S. and European Stocks Mixed, Amid Fears of Political Deadlock (The Washington Post)U.S. and European stock markets were mixed Monday, after both fell sharply last week amid grim news about American payrolls and escalating fears that European’s financial crisis could be gaining pace. The trading week opened on a sour note, with Asian markets falling sharply. But the downturn on Japanese and Chinese markets did not turn into a global rout. Stocks in Germany and several other countries lost ground, but the French market and a few others showed slight gains, London’s FTSE 100 was flat, and Europe’s regional Stoxx index was up slightly. In the United States, the Dow Jones industrial average and other main stock indexes were off in morning trading, though less than 1 percent. By mid-afternoon, the Nasdaq and the Standard & Poor’s 500-stock index were fluctuating in and out of positive territory. The relative respite came as anemic job growth in the United States, a business slowdown in Asia and the intensifying debt crisis in Europe raised pressures on political leaders to take new actions to bolster the world economy. But it was far from clear that they would be able to forge the necessary consensuses on exactly how to do that. In the United States, political deadlock in Washington has kept any significant economic measures from emerging from Congress, despite obsessive political rhetoric from Democrats and Republicans about the need to create jobs. In Europe, the policy gap remains wide between the austerity-minded leaders of Germany, the continent’s wealthiest country, and a raft of newly elected populists seeking to increase government spending in their ailing countries. Back to Top
Market TalkMore Twist, Mortgage Buying Likely From Fed, Jersey Says (Bloomberg)The Federal Reserve is likely to provide added monetary stimulus when its current effort winds down, with an emphasis on extension of Operation Twist and further mortgage buying, according to Credit Suisse Group AG. The probability of more central bank policy action reached 80 percent, up from 60 percent, the company said, after the Labor Department reported June 1 that U.S. employers added 69,000 jobs in May, the fewest in a year after an increase of 77,000 the previous month. The median forecast of 85 economists in a Bloomberg News survey before the jobs report was for an increase of 150,000 jobs. “With the weak and slowing global and domestic economy and falling confidence, the case for a continuation of the current policy is very high,” said Ira Jersey, an interest-rate strategist at Credit Suisse Group AG in New York, one of 21 primary dealers that trade with the Fed. “A move close to the status quo is likely, along with mortgage buying to further lower borrowing costs.” US Factory Orders Decline (Financial Times)Demand for US manufactured goods unexpectedly declined in April after demand for cars, machinery and computers fell compounding fears about a loss of momentum in the world’s largest economy. Factory orders fell by 0.6 per cent for the month, Commerce Department statistics show. The data fell below analysts’ forecasts of a 0.1 per cent rise. The previous month’s numbers were revised to show a 2.1 per cent decrease, a steeper decline than the 1.5 per cent loss originally reported. This is the first back-to-back decline since January and February 2009. A downward revision to gross domestic product on Friday came alongside a weak jobs report from ADP, the payrolls processing company, and a rise in new claims for unemployment insurance, painting a gloomy picture about US economic growth. New Bank Rules, More Lending Worries (The Wall Street Journal)Regulators trying to promote both sound financial institutions and economic growth are getting an earful from big banks about tougher capital rules. Citing their own studies and ones by independent economists, the banks say holding too much capital would force them to cut back on lending and raise the cost of loans, imperiling the fragile economic recovery. But some economists say regulations requiring plumper buffers for the largest banks are unlikely to crimp lending. The Federal Reserve is expected to propose specific rules Thursday, with more coming later. The requirements, which are aimed at staving off a repeat of the 2008 financial crisis, have been criticized by the banks as excessive. Yet J.P. Morgan Chase & Co., one of the institutions railing against the tougher rules, recently bolstered the case for them, after disclosing a trading loss of more than $2 billion. Back to Top
Editorials & OpinionsWhy is Employment Growth Still Disappointing and When Will it be “Normal” Again? (Gad Levanon in The Conference Board)During presentations, I’m often being asked why employment growth in the U.S. is still disappointing. The recession ended almost three years ago, and U.S. employers are still cautious about hiring new workers. In the past three months, U.S. employers added just ninety six thousand jobs per month. In a typical expansion, this number is well over two hundred thousand. In a typical recovery, rapid economic growth is driven by pent-up demand for consumer durable goods, housing, and business equipment. Also, in a typical recovery the government moderately adds jobs, and economies outside of the U.S. are enjoying robust growth, which helps boost American exports and raises the revenues of American multinationals. So what’s different this time? There are several combined factors that are dragging down the U.S. economy and labor market... Fannie Med (The Wall Street Journal Editorial)Perhaps you thought that the Affordable Care Act is all about making insurance more affordable. Too bad no one told Americans that the law also turned the Health and Human Services Department into a giant venture capital investor for health care. This won't turn out well. Awash in ObamaCare dollars, HHS has a growing investment portfolio that includes everything from new insurance companies to health-care start-ups to information technology. Secretary Kathleen Sebelius is rushing out loans and subsidies like nobody's business in case the Supreme Court overturns the law or Mitt Romney wins. "We're moving forward with implementing this law, including moving forward with this very important commitment by the President, by the Administration, to community health centers and the people they serve," said senior White House aide Cecelia Munoz on a recent conference call with reporters. She was referring to $728 million in seed money for new clinics that HHS dispensed last month. Inside ObamaCare's Grant-Making (Steven Greer in The Wall Street Journal)Early this year, I was briefly involved with one of the Affordable Care Act's bureaucracies called the Center for Medicare and Medicaid Innovation, or CMMI. Despite its lofty ideals, it is one more pork program and venue for political cronyism, as I learned firsthand. The innovation center is supposed to test better ways to deliver and pay for health care than the current fee-for-service system, and the outfit will spend $10 billion over the next decade on awards, grants and contracts. In a recent letter to Congress defending its work, the center touted its "structured clearing process" and "rigorous evaluation of models." But I found there are few safeguards and little transparency in practice. This January, I was invited to review grant applications for something called the Health Care Innovation Challenge. Local health systems, state Medicaid programs and the like could apply for awards ranging from $1 million to $30 million, with priority for "projects that rapidly hire, train and deploy new types of health care workers." I was selected to become one of the chairmen overseeing the volunteer panels of outside experts. Our grant application reviews were supposed to help the CMMI in making the final award decisions. There were more than 3,000 grant applications in total. Back to Top |
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