The Fed Senses Malaise- Ponders More Crack

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fed seal

The Federal Reserve has signaled its willingness to continue, and even expand, quantitative easing (Bloomberg).

The current QE regime calls for the Fed to purchase $85 billion of bonds monthly, a truly staggering figure. But continued weakness in the economy, especially the employment markets, may persuade the central bank to step up the pace:

The Fed’s statement yesterday that it’s “prepared to increase or reduce the pace of its purchases” was a signal that its $3.32 trillion balance sheet is a flexible tool for monetary policy that can be adjusted up or down, like interest rates.

Although I am not a fan of the Fed these days, one must concede they are trying. Unlike the Obama Administration, which is in denial about the lackluster state of the economy, the Fed sees continuing trouble and is trying to fix it, especially the chronic unemployment problem:

Payrolls in March expanded by 88,000, slowing from a gain of 268,000 the prior month. A Labor Department report tomorrow will probably show an increase of 145,000 in April, while the jobless rate stayed at 7.6 percent, according to the median forecast of a Bloomberg survey of economists.

The jobless rate is about two percentage points above a level Fed officials would define as full use of labor resources, with nearly 40 percent of the jobless having been without work for 27 weeks or more.

There is an old saying that “when all you have is a hammer, every problem looks like a nail”. They have been hammering for five years now, and surely the law of diminishing returns has kicked in.

The cumulative effects of ramping up the money machine and pushing interest rates to near zero look worrisome. Sure, the stock market is booming, but that is a reflection of low interest rates, not a healthy, growing economy. And savers, especially seniors who traditionally rely on interest income, are being tempted to switch to riskier equity investments. Or, worse, are liquidating savings altogether to pay their bills.

In medical terms, the Fed has understood the symptoms but not the cure. To be fair, this problem is beyond the scope of their mandate. I just wish they would admit it. Then the nation could detox and focus on the root cause of the problem- the White House and Capitol Hill. The politicians have poisoned the economy with a witches’ brew of regulation, taxes, crony capitalism, out-of-control spending and an anti-growth agenda.

Pro-Growth Impact of Sequester Cuts to Regulatory Agencies Could Create 1.2 Million Jobs Annually

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sequestration

Very interesting analysis from the Phoenix Center:

Friday, absent Congressional and Presidential action, the Budget Control Act’s Sequester kicks in, forcing across-the-board spending cuts of $1.1 trillion spread out over nine years, with $85 billion cuts coming in 2013.  Without question, this reduction in federal spending will impact the economy, particularly as we measure it.  Government spending is a component of aggregate demand, and reduced demand in the economy will have its consequences.  Also, government spending is a component of Gross Domestic Product (about 23% of it), and since recessions are indicated (in part) by declining GDP, a cut in federal spending increases the probability of an indicated recession by the simple math of it.

While such mandatory cuts will be painful, there nonetheless may be a “silver lining” to the Sequester:  Forced reductions to the operating budgets of many federal regulatory agencies may lead to increased economic growth.

As we noted last year in our paper entitled Regulatory Expenditures, Economic Growth and Jobs: An Empirical Study, my colleagues and I at the Phoenix Center used fifty years of data and modern econometric methods to quantify the relationship between government spending on regulatory activity and the important goals of economic growth and job recovery.  We found that reducing the size of the federal regulatory budget by even modest amounts will have significant positive effects on both GDP and private sector job growth.  Since a portion of the Sequester cuts hit regulatory agencies, these mandatory cuts may offer a positive influence on economic activity.

Assessments of the budget impacts of the Sequester indicates that a number of federal regulatory agencies will see meaningful cuts.  The budgets of the Department of Energy, the Environmental Protection Agency, and the Department of Labor are expected to see cuts of about 8%.  Not all regulatory agencies are affected, however.

Using the results from our study, we can make some predictions about how the Sequester’s mandatory budget cuts may positively impact our economy.  As you can see in the table below, our analysis indicated that even a small 5% reduction in the regulatory budget will result in about $75 billion in expanded private-sector GDP each year.  While the reduction in spending will reduce government employment by about 12,000 jobs, the economy is predicted to see an increase in employment of 1.2 million jobs annually.  Roughly, eliminating the job of a single regulator grows the American economy by $6.2 million and nearly 100 private sector jobs annually.  A regulatory budget cut of 10% produces an additional $149 billion in GDP and 2.4 million private sector jobs.  As we measured it, the decline in the regulatory budget is likely to be closer to the 5% figure, so it may be that whatever economic activity is lost from the reduction in government expenditures, it could be made up by the stimulation of economic activity in a less-regulated economy.Cost Per Regulator Summary

It is, of course, hard to say exactly what the full economic impacts of the Sequester will be, since its implementation will be complex, spread over time, and distributed across a number of agencies and economic sectors.  However, the Sequester does reveal a lot about the state of the country—i.e., our quality of government—than just the immediate impacts of a spending cut.  Sequestration is not just about dollars; instead, the sequestration process speaks (and has spoken) to the competence and courage of our nation’s leaders.

The Hiring Malaise

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labor market-cut

A spate of layoff and restructuring announcements has hit the airwaves recently, while hiring remains distinctly lackluster.  Over three years into what the economists technically call a recovery, the employment market is listless and job seekers are frustrated.  What’s going on?

Allison Linn of NBC News points to several themes that explain today’s job market and why companies are so reluctant to hire:
- They are uncertain
- They don’t have to
- Their business strategies have changed
- They are risk averse

The first two factors are related in large part to hopefully temporary phenomena – political wrangling and the weakness of the recovery.   Ever since the passage of Obamacare and the resulting GOP takeover of the House of Representatives in 2010, the government has been in “kick-the-can-down-the-road” mode and has not faced up to hard decisions.  Uncertainty about government spending and the tax code  is bound to affect hiring, given the huge role government plays in business decisions. This in turn aggravates the weakness of the labor market, as companies try to get by without hiring. Productivity measures have ticked up sharply in recent years.

The last two are more structural and more ominous.  We may have entered a new era of business decision-making where the consensus awards risk avoidance:  better to have more certain returns on modest investments than  blowout returns on a bigger gambles.  If that’s the case, we could be facing anemic growth for a generation.

Heritage: Anemic Job Growth Continues

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unemployment

Originally posted at The Foundry by Amy Payne

Job growth continues to sputter—this morning’s jobs report shows that 12.1 million Americans are still out of work.

Going against other economic indicators, the unemployment rate dropped to 7.8 percent. Economists are already looking into the drop, saying it seems to be a statistical fluke, because it doesn’t match up with the sluggish job creation and recent downward revision of GDP growth. Heritage’s J.D. Foster says:

One time out of a hundred, the true figure will be much different than the reported figure. One time out of a hundred for a monthly survey means about once every eight years. What seems to have occurred with the September household survey is the one time in a hundred. The last time the household survey showed such a huge jump in employment was in 1983 during the Reagan-era economic boom. Today’s economy does not look much like the Reagan boom.

The real story, then, from the more reliable employment survey is the economy created a paltry 114,000 jobs, leaving 12.1 million out in the cold. This story is getting old. And the economy has no good news to look forward to.

Congress has gone home until after the election. When it returns to Washington, the end of 2012 will be staring us in the face. In just a few short months, the largest tax increase in history will hit America. It sounds like hyperbole, and we only wish that were the case. It’s been dubbed Taxmageddon, because for millions of workers it will be an end-of-working pink slip scenario. But on January 1, a nearly $500 billion tax increase will slam the economy.

Not only will this mean individual tax increases—if you’re a middle-class family, your taxes will go up around $4,100—but the whole economy will also suffer. The Congressional Budget Office has said that unless Congress and the President act, we will be plunged into a new recession extending through 2013—when we haven’t even recovered from the previous one.

The irresponsible behavior of Congress and the President in bringing the nation to this state means a significant slowdown is already almost certain. Mounting uncertainty about what, if anything, Washington will do is rapidly draining the vitality out of the economy.

The facts are plain: The economy will shrink and unemployment will spike unless Congress acts to prevent Taxmageddon. If Congress and the President choose to continue to play politics with the economy, we stand to lose 1.6 million more jobs.

Why can’t we seem to recover from the most recent recession? According to a new report by Heritage’s Salim Furth, a select group of businesses isn’t hiring: start-ups.

“Even in recessions, start-up job creation has been a constant—until now,” Furth reports. “Employment at start-up companies has fallen for five years in a row, reaching unprecedented lows in 2010 and 2011.”

This is devastating because start-ups normally create the vast majority of the net new jobs in the economy, he says. Larger businesses do expand with new jobs, but significant job creation comes from new businesses. And it’s more difficult than ever to jump through all the government hoops to create a new business. The system is completely against job creation right now. As Furth says:

With new regulations and business requirements in health insurance, small-business finance, environment, energy, and tax compliance, not to mention the ever-expanding reach of state licensure boards, it is expensive to open a business.

Businesses, and those who would start businesses, are looking at looming tax hikes and new regulations and simply deciding it isn’t worth it. There are many new regulations coming soon, but the Administration has gone silent on what they will be. So employers can’t even prepare.

Repealing the heavily regulatory Dodd-Frank law and Obamacare, with its 18 new tax hikes, would remove major burdens on businesses and individuals. But that won’t happen before next year.

Our elected leaders can prevent Taxmageddon. It would be the best thing they could do for the economy, including job creation, in the short term. There is still time, though it is growing short.

Weak Economic Data Is Casting A Shadow On The Dems’ Vote To Raise Taxes On Nearly A Million Businesses

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‘You Don’t Raise Taxes’

Weak Economic Data Is Casting A Shadow On The Dems’ Vote To Raise Taxes On Nearly A Million Businesses

 

In 2010, Obama Said Tax Increases ‘Would Have Been A Blow To Our Economy’

 

PRESIDENT OBAMA: “You don’t raise taxes in a recession.” (“Obama: We Must ‘Help Elkhart Reinvent Itself,’” MSNBC, 8/5/09; Video Here)

 

·         OBAMA: “…tax rates for every American were poised to automatically increase on January 1st… would have been a blow to our economy just as we’re climbing out of a devastating recession.” (President Obama, Remarks At Bill Signing, 12/17/10)

 

New Data: Economy ‘Weak,’ ‘Sluggish,’ ‘Stalling’

 

BEA: “Real gross domestic product … increased at an annual rate of 1.5 percent in the second quarter of 2012…” (“Table 8. Real Gross Domestic Product: Percent Change From Quarter One Year Ago,” Bureau Of Economic Analysis, 7/27/12)

 

·         “Economy weak in second quarter … The U.S. economy has never been so sluggish this long into a recovery.” (“Economy Weak In Second Quarter, GDP Grows At 1.5% Rate,” USA Today, 7/27/12)

 

·         “The slowdown in growth adds to worries that the economy could be stalling…” (“US Economic Growth Slowed To 1.5 Pct. Rate In Q2,” AP, 7/27/12)

 

·         “The United States economy grew by a tepid 1.5 percent annual rate in the second quarter, losing the momentum it had appeared to be gaining earlier this year, the government reported Friday.” (“U.S. Economy Slowed To A Tepid 1.5% Rate Of Growth,” The New York Times, 7/27/12)

 

Dems Voted For Tax Hikes On Nearly A Million Businesses

GOVERNMENT STUDY: “The staff of the Joint Committee on Taxation estimates that in 2013 approximately 940,000 taxpayers with net positive business income … will have marginal rates of 36 or 39.6 percent under the President’s proposal…” (Joint Committee On Taxation, Letter To Congressional Office, 6/18/12)

 

·         51 Democrats voted to hike taxes. (S.3412, Roll Call Vote #184, Bill Passed 51-48: R 0-46; D 50-1; I 1-1, 7/25/12)

Failed Democrat Fiscal Policies Are Blocking Job Creation

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From the NRCC:

CBO Reports President Obama’s Deficit-Filled Budget Plan Will Hurt Economic Growth for Years to Come

WASHINGTON — The non-partisan Congressional Budget Office (CBO) has confirmed that John Barrow and his Democrat leaders in Washington are blocking job creation with their continuing spending and borrowing spree. After years of annual trillion dollar deficits under President Obama and his Washington Democrat allies, will Barrow finally admit these policies have failed and only made a bad economy worse?

“Despite the warning signs, John Barrow and his Washington Democrat leaders continue to insist on more spending and borrowing to fuel their big-government agenda at the cost of private sector job creation,” said NRCC Communications Director Paul Lindsay. “Barrow and his Democrat allies already have some of the worst fiscal records in American history after presiding over yearly trillion dollar deficits, which makes their promises of fiscal responsibility empty at best.”

A new CBO report affirms the Democrats’ record-setting spending spree will stifle economic growth:

“The nonpartisan Congressional Budget Office said Friday that President Obama’s 2013 budget will hurt the economy in the long term, arguing the larger deficits it would produce would reduce the amount of capital available to businesses. After five years, the CBO says, the Obama proposals would reduce economic output by between 0.5 percent and 2.2 percent.” (Erik Wasson, “CBO estimates Obama’s 2013 budget plan would hit economic growth,” The Hill, 4/20/12)

Specifically, spending and borrowing to sustain the Democrats’ big-government policies are blocking job creation:

“Larger deficits caused by the budget would cause the government to issue more bonds, sucking up private capital to finance its debts and thereby reducing the funds businesses could use to expand and hire, the CBO said. An increased tax on capital gains included in the president’s plan would also tend to reduce private capital, it says.” (Erik Wasson, “CBO estimates Obama’s 2013 budget plan would hit economic growth,” The Hill, 4/20/12)

Washington Democrats under President Obama have already overseen “the most rapid increase in the debt under any U.S. president” in his first term in office. (Mark Knoller, “National debt has increased $4 trillion under Obama,” CBS News’ Political Hotsheet Blog, 8/22/11)

House GOP Jobs Plan Status – Why Obama & the Senate Democrats are KILLING Jobs!!!

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House Republican Plan for American Job CreatorsEmpower Small Business Owners

Small business owners are being bogged down by burdensome regulations from Washington that prevent job creation and hinder economic growth. We must remove onerous regulations that are redundant, harm small businesses, and impede private sector investment and job creation.

 

Review of Federal Regulations
H.Res. 72 – Passed by the House (391-28) on February 11, 2011

Reducing Regulatory Burdens Act
H.R. 872 – Senate has taken no action to date

Energy Tax Prevention Act
H.R. 910 – Senate has taken no action to date

Disapproval of FCC’s Net Neutrality Regulations
H.J.Res. 37 – Senate has blocked a companion measure by a vote of 46-52

Clean Water Cooperative Federalism Act
H.R. 2018 – Senate has taken no action to date

Consumer Financial Protection & Soundness Improvement Act
H.R. 1315 – Senate has taken no action to date

Protecting Jobs from Government Interference Act
H.R. 2587 – Senate has taken no action to date

Transparency in Regulatory Analysis of Impacts on The Nation
H.R. 2401 – Senate has taken no action to date

Cement Sector Regulatory Relief Act
H.R. 2681 – Senate has taken no action to date

EPA Regulatory Relief Act
H.R. 2250 – Senate has taken no action to date

Coal Residuals Reuse and Management Act
H.R. 2273 – Senate has taken no action to date

Workforce Democracy and Fairness Act
H.R. 3094 – Senate has taken no action to date

Regulatory Accountability Act
H.R. 3010 – Senate has taken no action to date

Regulatory Flexibility Improvements Act
H.R. 527 – Senate has taken no action to date

REINS Act
H.R. 10 – Senate has taken no action to date

Farm Dust Regulation Prevention Act
H.R. 1633 – Senate has taken no action to date

Fix The Tax Code To Help Job Creators
America’s tax code has grown too complicated and cumbersome. We need a tax code that is flatter, fairer, and simpler to ensure that everyone pays their fair share, lessen the burden on families, generate economic expansion, and create jobs by making America more competitive.

Small Business Paperwork Mandate Elimination Act
H.R. 4 – Signed into law by the President on April 14, 2011

3% Withholding Rule Repeal
H.R. 674 – Signed into law by the President on November 21, 2011

Middle Class Tax Relief and Job Creation Act
H.R. 3630 – Senate has taken no action to date

Increase Competitiveness for U.S. Manufacturers
The more that American businesses export, the more they produce. The more businesses produce, the more workers they need. This means job creation. Expanding market access for U.S. made products will be a shot in the arm for businesses small and large and will create jobs.

U.S.-Colombia Trade Promotion Agreement Implementation Act
H.R. 3078 – Signed by the Preisdent on October 21, 2011

U.S.-Panama Trade Promotion Agreement Implementation Act
H.R. 3079 – Signed by the Preisdent on October 21, 2011

U.S.-Korea Free Trade Agreement Implementation Act
H.R. 3080 – Signed by the Preisdent on October 21, 2011

Southeast Arizona Resource Utilization & Conservation Act
H.R. 1904 – Senate has taken no action to date

Encourage Entrepreneurship and Growth
America has historically been on the cutting edge of innovation and technological development, but we are increasingly falling behind our global competitors. We must make it easier for existing businesses to grow and allow more start-up companies to flourish.

The America Invents Act
H.R. 1249 – Signed into law by the President on September 16, 2011

Veterans Opportunity to Work Act
H.R. 2433 – Signed into law by the President on November 21, 2011

Small Company Capital Formation Act
H.R. 1070 – Senate has taken no action to date

Small Banks’ Access to Capital Act
H.R. 1965 – Senate has taken no action to date

Entrepreneur Access to Capital Act
H.R. 2930 – Senate has taken no action to date

Access to Capital for Job Creators Act
H.R. 2940 – Senate has taken no action to date

Fairness for High-Skilled Immigrants Act
H.R. 3012 – Senate has taken no action to date

Maximize Domestic Energy Production
The energy sector is crucial to our economic growth, and high energy costs have a major impact on job creation. We need policies that allow us to harness our abundant supply of natural resources in America, develop new sources of energy, and create jobs here at home.

Restarting American Offshore Leasing Now Act
H.R. 1230 – Senate has taken no action to date

Putting the Gulf of Mexico Back to Work Act
H.R. 1229 – Senate has taken no action to date

Reversing President Obama’s Offshore Moratorium Act
H.R. 1231 – Senate has taken no action to date

Jobs and Energy Permitting Act of 2011
H.R. 2021 – Senate has taken no action to date

North American-Made Energy Security Act
H.R. 1938 – Senate has taken no action to date

Pay Down America’s Unsustainable Debt Burden
The federal government is spending and borrowing so much that the United States will soon go broke. Washington’s spending binge has put our nation in debt, eroded economic confidence, and caused massive uncertainty for private sector job creators. It’s time to live within our means.

Budget for Fiscal Year 2012
H.Con.Res. 34 – Senate has not yet considered a budget of its own

 

H/T to Saul Anizis for reminding me about this…

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