Monthly Archives: September 2010

NYTimes: Debating the Economy

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The republicans realized their blunder and it now looks like they are maybe coming around?

And, unfortunately, the deficit myths continue taking their toll as both sides agree federal spending must be ‘paid for.’

If there is any good news from Mr. Boehner and other Republicans, it is that they suddenly want to seem eager to shed their reputation as the Party of No. This week, they suggested that they might be open to some of Mr. Obama’s ideas, which include a $50 billion initial investment to create jobs improving roads, rail lines and airports — as long as those projects were not paid for by taxing billionaires, oil companies and other wealthy corporations. That, of course, is just how Mr. Obama intends to pay for them — and just how he should.

From The New York Times
EDITORIAL: Debating the Economy

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Boehner falls for Obama’s trap

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In a bold move to the right, President Obama proposed a series of Republican type business tax cuts that would not have been the first choice of anyone on the left, in addition to a tax cut for workers earning less than $250,000 per year.

Boehner’s best move would have been to embrace the business tax cuts as well as the personal tax cuts, declare victory, and claim it was voter rejection of the ‘liberal agenda’ that caused the President to break ranks with the left and join the conservative cause, etc. And I’m sure he could have spun it far better than my feeble attempt.

Instead, Boehner fell into the trap, as he rejected the entire pro Republican agenda proposal, and opened himself and the Republican party up to a crushing condemnation of his position by a President who was back to his teleprompter led candidate form.

Looks like a major political blunder to me. While Obama’s proposals can be said to fall short of the mark, there was precious little the Republicans should have been objecting to. Now Boehner is stranded in no man’s land, regrouping and groping for a position that makes sense. (Reminds me of the Arafat’s public relations disaster when he rejected a far more than generous offer from the Israelis.)

Unfortunately, Obama took advantage of and reinforced the anti deficit fear mongering and added to that fear mongering, claiming he didn’t extend tax cuts to the rich because the govt. needs those dollars for deficit reduction. This further sets us up for higher unemployment down the road and has already limited any fiscal response to levels that will keep US unemployment ‘high for long.’

Now the Democrats are hoping that the numbers between now and the election show a double dip is not in the cards, and that things have slowly turned, which is very possible.

Even so, there’s a good chance it’s too late to stem the anti incumbent tide.

Obama Blasts GOP, Boehner on Economy and Taxes

September 8 (AP) — President Barack Obama strongly defended his opposition to extending Bush-era tax breaks for the wealthiest Americans on Wednesday and delivered a searing attack on Republicans and their House leader for advocating “the same philosophy that led to this mess in the first place.”

Obama said the struggling U.S. economy can’t afford to spend $700 billion to keep lower tax rates in place for the nation’s highest earners despite a call by House Minority Leader John Boehner and other GOP leaders to do just that.

Speaking in the same city where Boehner, an Ohio Republican, recently ridiculed Obama’s economic stewardship, Obama said Boehner’s policies amount to no more than “cut more taxes for millionaires and cut more rules for corporations.”

Obama’s comments came as the administration rolled out new proposals designed to re-ignite a sputtering recovery, including new tax breaks for businesses and $50 billion for U.S. roads, rails and airports.

“Let me be clear to Mr. Boehner and everyone else. We should not hold middle class tax cuts hostage any longer,” the president said. The administration “is ready this week to give tax cuts to every American making $250,000 or less,” he said.

Actually, Obama and other Democratic leaders want to extend the tax cuts except for individuals making over $200,000 a year—or families earning over $250,000. The sweeping series of Bush tax cuts expires at the end of this year unless Congress renews them.

Obama went after Boehner—who would probably become House speaker if Republicans win control of the House in November’s midterm elections—directly by name.

In Boehner’s remarks on Aug. 24, Obama said, the Republican leader offered “no new ideas. There was just the same philosophy we already tried for the last decade, the same philosophy that led to this mess in the first place.”

Ahead of Obama’s speech, Boehner offered his own proposals on Wednesday, saying in a morning broadcast interview that Congress should freeze all tax rates for two years and should cut federal spending to the levels of 2008, before the deep recession took hold.

“People are asking, ‘Where are the jobs?”‘ Boehner said, calling the White House “out of touch” with the American public.

Obama gave one of his strongest pitches yet on allowing the Bush tax cuts to expire at the end of this year for wealthy Americans but allowing them to remain in place for everybody else.

Republicans, and even some Democrats, have suggested that it was no time to raise taxes on anybody, given the fragile state of the economy.

The debate is an unwelcome one for dozens of vulnerable Democratic incumbents just weeks before Election Day. Already, a handful of Democrats in conservative or swing districts, such as Reps. Gerry Connolly in the northern Virginia suburbs of Washington, D.C., and Bobby Bright in southeastern Alabama, have come out publicly for extending all the cuts—at least temporarily.

Still other embattled Democrats, wary of alienating middle-class voters, are siding with Obama. In central Ohio, for example, Rep. Mary Jo Kilroy has said the tax cuts for higher earners should be repealed, but middle-income people should see no tax increases.

Obama acknowledged that the recovery that began in late 2009 had slowed considerably.

“And so people are frustrated and angry and anxious about the future. I understand that. I also understand that in a political campaign, the easiest thing for the other side to do is ride this fear and anger all the way to Election Day,” he said.

“The middle class is still treading water, while those aspiring to reach the middle class are doing everything they can to keep from drowning,” Obama said.

Polls have shown a steady slippage in Obama’s approval ratings and an accompanying rise in Republican prospects for winning House and Senate seats in November.

In his speech, Obama outlined plans to expand and permanently extend a research and development tax credit that lapsed in 2009, to allow businesses to write 100 percent of their investments in equipment and plants off their taxes through 2011 and to pump $50 billion into the economy for highway, rail, airport and other infrastructure projects.

He also renewed a pitch for a small business package that has been stalled in the Senate because of Republican delaying tactics.

Of the debate over the expiring Bush tax cuts, Obama said, “I believe we ought to make the tax cuts for the middle class permanent. These families are the ones who saw their wages and incomes flatline over the last decade—and they deserve a break. And because they are more likely to spend on basic necessities, this will strengthen the economy as a whole.”

“But the Republican leader of the House doesn’t want to stop there. … He and his party believe we should also give a permanent tax curt to the wealthiest 2 percent of Americans.” Obama said these taxpayers were “folks who are less likely to spend the money” to help the economy grow, a notion disputed by Republicans and conservative economists.

Even Obama’s former budget director, Peter Orszag, has said that while he prefers Obama’s proposal to impose the higher taxes on the wealthy, getting such a formulation through Congress in this politically charged time might be extremely difficult. Orszag suggested a compromise—extend all the tax cuts, but just for two years, and then let them all expire.

Obama is strongly opposed to such a deal, White House officials said.

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Fears Grow over the Fate of Irish Economy, Banks

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The two external shocks of the summer were China, which historically has had second half slowdowns due to State lending front loaded to the first half, and the euro zone which became a ward of the ECB. China’s growth has slowed some, but not collapsed, and the ECB has continued its support of euro member solvency and funding capability in the short term markets.

There was no credible deposit insurance for the euro zone banks until the ECB ‘wrote the check’ by buying national govt debt in the secondary markets. It’s not the most efficient way to do things, but it does work to facilitate national govts being able to fund themselves, though mainly in the very short term markets (I still see my per capita distribution proposal as the better policy response). And that ability of the member nations to fund themselves means they can write the check for deposit insurance as needed.

The ECB also imposed ‘terms and conditions’ along with funding assistance, and as long as Ireland is in compliance, the ECB is for the most part responsible for the outcomes, so it seems logical the ECB will continue its support, perhaps changing its terms and conditions if not pleased with the outcomes. Additionally, the ECB will continue to supply liquidity directly to the banks, again, as with Ireland complying with the terms and conditions the ECB is now responsible for the outcomes.

But there is no question it is all a precarious brew, and there is no telling what might result in the ECB withdrawing support, so at this time steep yield curves for euro member nations due to credit risk make perfect sense.

Also, Europe and the rest of the world would like nothing more than to increase net exports to the US.

It’s all a golden opportunity for a decade or more of unparalleled US prosperity if we knew enough to again become the ‘engine of growth’ and implement the likes of a full payroll tax (FICA) holiday to provide Americans working for a living enough spending power to buy both everything we could produce at full employment and all the rest of the world wants to net sell us.

Unfortunately the deficit myths continue to cast a wet blanket over domestic demand as our leaders continue to let us down.

And with maybe 100 new Congressmen on the way, with most supporting a balanced budget and a balanced budget amendment which already has maybe 125 votes, there’s more than enough fiscal responsibility looming to create a true depression.

Hopefully their tax cutting agenda outweighs their balanced budget agenda.

And hopefully we get some kind of energy policy to decouple GDP growth from a spike in energy consumption.

Fears Grow over the Fate of Irish Economy, Banks

By Patrick Allen

September 8(CNBC) — The fate of the Irish economy is back in focus for investors across the world, after the former Celtic Tiger extended guarantees to its banking industry and depositors and with the spread on Irish bonds hitting record highs.

The country is also waiting for a decision from the European Commission on the fate of Anglo Irish, the troubled bank that was nationalized two years ago; uncertainty on whether Anglo Irish will be wound down or allowed to survive has weighed on sentiment towards the country.

Ireland is an example of a Western economy adjusting to both the banking crisis and, crucially, the emergence of Asia, Amit Kara, an economist at Morgan Stanley, said.

“Ireland has taken steps to overcome the hangover from the credit boom, but a successful outcome requires the economy to become more competitive and also, and more crucially, a global economic recovery,” Kara said.

He is confident the Irish economy will be able to roll over debt in the coming weeks and sees the chance for Irish debt to outperform the likes of Spain.

“Though Ireland faces serious long-term challenges, its liquidity position is healthy and its banks should have sufficient ECB-eligible collateral to significantly offset the funding impact of upcoming debt redemptions,” Kara explained.

“Given the underperformance of recent weeks, we see scope for Irish bonds to regain some ground against Portugal and Spain in particular, once the initial round of government-guaranteed bond redemptions has taken place over the first two weeks of September,” he added.

What is on Ireland’s Books?

The Irish banking system remains hooked on European Central Bank funding and investors are also worried about the risks posed by the scale of liabilities following Ireland’s decision to guarantee the country’s lenders.

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GS Skinny: The Administration’s New Fiscal Proposals

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The President’s proposal is now looking anemic at best.

Like I think Woody Allen once said, the food was bad and the portions were small.

This will cost the Dems even more seats in November.

Fortunately the federal deficit is already large enough to support a bit of modest growth.

All looking very L shaped to me, with a hint of growth.

Gasoline consumption has recovered and showing signs of growth year over year, but very modest.

Modest recoveries from the lows and leveling off.

Continued modest improvement from the lows

Manufacturing, the smaller component of GDP, led from very low levels

Looking very L shaped.

These are March numbers, June should be out soon and show further balance sheet repair as deficit spending continues are relatively high levels, adding income and net financial assets to the non govt. sectors.

Lots of signs of leveling off at modest levels of top line growth.

Waiting for the handoff to private sector credit expansion as balance sheets repair, or another fiscal adjustment.

GS Skinny: The Administration’s New Fiscal Proposals
(CLEARED FOR EXTERNAL USE)

September 7, 2010

The White House has announced three new measures to stimulate growth: 100% up-front depreciation of capital investments; a permanent and slightly expanded R&D tax credit; and $50 bn in infrastructure spending. They could be helpful but are unlikely to have a large effect on growth for four reasons: (1) some of them cover multiple years, spreading out the fiscal impulse; (2) the incremental effect is smaller than the headline numbers imply, as some are modifications of existing proposals or policies and one is essentially an interest free loan; (3) the president proposes offsetting the cost of some of the proposals with targeted corporate tax increases of an equal amount; and (4) the likelihood of enactment of some of these proposals is low.

Key points:

1. Bonus depreciation. The president proposes to allow companies to deduct 100% of the cost of capital investments (not including real estate) made in 2010 and 2011. Press reports cite White House estimates that the proposal would lower corporate tax receipts by $200bn. However, almost all of this revenue loss would be temporary, since the additional deductions taken now would lower deductions in future years, effectively making this an interest free loan. Given current low levels of capacity utilization, the benefit of additional investment is low to begin with. Our previous analysis indicated that the 50% bonus depreciation provision effective for 2008 and 2009 had a relatively small effect on investment. To the extent it does have an effect, it is likely to pull forward demand into the quarter just before expiration (in this case Q4 2011) so the near term effect should be even more modest (and indeed the effect in early 2012 would be negative). Whatever effect the provision would have would also be weakened somewhat by the proposal to raise corporate tax revenues (through closing of “loopholes”) to offset the proposal’s cost.

2. R&D Tax credit. The president is expected to propose to increase and make permanent the research and development tax credit, at a cost of $100bn over ten years. This proposal is somewhat less than meets the eye, since the president has already proposed to make the credit permanent at a cost of $80bn. This leaves an incremental proposal worth around $20bn, or $2bn per year. Nevertheless, enactment of this proposal would be helpful on the margin, since the existing R&D credit lapsed at the end of last year and has yet to be renewed by Congress.

3. Infrastructure. The president proposes to spend $50bn on transportation infrastructure projects, as part of a six-year plan. We take this to mean a front-loading or incremental investment on top of the six-year reauthorization of surface transportation spending programs that has been pending in Congress for most of the year. For context, a $50bn addition to infrastructure spending is roughly on par with the investments made in that sector in the 2009 Recovery Act. If enacted, this could provide an important boost to growth, particularly in 2011. However, the likelihood of enactment in the near term appears low. Also, offsetting the otherwise positive effect is the proposal to offset the entire cost with the repeal of tax incentives for oil and gas companies.

4. Process from here. There are two likely scenarios for consideration of the tax-based measures. First, the Senate will vote on small business legislation next week, which already includes a 50% depreciation bonus for 2010. This provision could simply be modified, to bring it into line with the president’s depreciation proposal, in which case it could be enacted in the next few weeks. The second scenario is that the tax measures could be added to upcoming legislation to extend the expiring 2001/2003 tax cuts, which will be debated in late September. Adding corporate tax cuts to that legislation might allow Democratic leaders to attract enough votes for passage without extending the upper-income tax rates that most Republicans support. However, given that legislation’s uncertain prospects, adding these measures to it could also risk delaying enactment until after the November election. Infrastructure spending would be dealt with separately from the tax measures; the most likely scenario is that it could be considered after the election as part of the next stop-gap extension of the highway program, which expires December 31.

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1938 in 2010

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1938 in 2010

By Paul Krugman

September 5 (Bloomberg) — Here’s the situation: The U.S. economy has been crippled by a financial crisis. The president’s policies have limited the damage, but they were too cautious, and unemployment remains disastrously high. More action is clearly needed. Yet the public has soured on government activism, and seems poised to deal Democrats a severe defeat in the midterm elections.

The president in question is Franklin Delano Roosevelt; the year is 1938. Within a few years, of course, the Great Depression was over. But it’s both instructive and discouraging to look at the state of America circa 1938 — instructive because the nature of the recovery that followed refutes the arguments dominating today’s public debate, discouraging because it’s hard to see anything like the miracle of the 1940s happening again.

Now, we weren’t supposed to find ourselves replaying the late 1930s. President Obama’s economists promised not to repeat the mistakes of 1937, when F.D.R. pulled back fiscal stimulus too soon. But by making his program too small and too short-lived, Mr. Obama did just that: the stimulus raised growth while it lasted, but it made only a small dent in unemployment — and now it’s fading out.

And just as some of us feared, the inadequacy of the administration’s initial economic plan has landed it — and the nation — in a political trap. More stimulus is desperately needed, but in the public’s eyes the failure of the initial program to deliver a convincing recovery has discredited government action to create jobs.

In short, welcome to 1938.

The story of 1937, of F.D.R.’s disastrous decision to heed those who said that it was time to slash the deficit, is well known. What’s less well known is the extent to which the public drew the wrong conclusions from the recession that followed: far from calling for a resumption of New Deal programs, voters lost faith in fiscal expansion.

Consider Gallup polling from March 1938. Asked whether government spending should be increased to fight the slump, 63 percent of those polled said no. Asked whether it would be better to increase spending or to cut business taxes, only 15 percent favored spending; 63 percent favored tax cuts. And the 1938 election was a disaster for the Democrats, who lost 70 seats in the House and seven in the Senate.

Most interesting!

Then came the war.

From an economic point of view World War II was, above all, a burst of deficit-financed government spending, on a scale that would never have been approved otherwise. Over the course of the war the federal government borrowed an amount equal to roughly twice the value of G.D.P. in 1940 — the equivalent of roughly $30 trillion today.

Had anyone proposed spending even a fraction that much before the war, people would have said the same things they’re saying today. They would have warned about crushing debt and runaway inflation. They would also have said, rightly, that the Depression was in large part caused by excess debt — and then have declared that it was impossible to fix this problem by issuing even more debt.

Agreed! The deficit per se was of no consequence. The risks were and remain inflation from excess demand, which is not an easy channel to use to generate what we call inflation in today’s world. Our CPI problems have tended to come in through the cost channel and propagated by govt indexation of one form or another.

But guess what? Deficit spending created an economic boom — and the boom laid the foundation for long-run prosperity.

Agreed. Though the way I say it, for a given size govt. and given set of credit conditions there is a level of taxes that coincides with full employment, and that level is generally well below the level of govt spending.

Overall debt in the economy — public plus private — actually fell as a percentage of G.D.P., thanks to economic growth and, yes, some inflation, which reduced the real value of outstanding debts. And after the war, thanks to the improved financial position of the private sector, the economy was able to thrive without continuing deficits.

What??? Here, sadly, Paul’s implication that the actual level of the govt debt per se matters, and that his bent that lower deficits are somehow ‘better’ shines through, keeping him in the camp of being part of the problem rather than part of the answer.

(Good article for MMT’s to earn some hearts!)

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Obama to Push Tax Break

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Hard to believe that a Democratic administration is proposing only support for business and none for consumption.

While it might be an election ploy the fact that it’s been a pattern all along just adds more weight to the notion that this administration is a tool of big business as it works to keep unemployment high and domestic consumption down along the lines of the classic gold standard export model of growth. This notion is further supported by the official goal of doubling exports, and Bernanke stated before Congress a couple of years ago that he prefers exports to domestic consumption (not that anything he does actually matters for that purpose).

News Alert from The Wall Street Journal

President Barack Obama, in one of his most dramatic gestures to business, will propose that companies be allowed to write off 100% of their new investment in plant and equipment through 2011, a plan that White House economists say would cut business taxes by nearly $200 billion over two years.

The proposal, to be laid out Wednesday in a speech in Cleveland, tops a raft of announcements, from a proposed expansion of the research and experimentation tax credit to $50 billion in additional spending on roads, railways and runways.

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U.S. Green Party takes historic monetary step!

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A very sad day for the green party.

On Sat, Sep 4, 2010 at 3:09 AM, AMI wrote:

Dear Friends of the American Monetary Institute,

Some exciting and historic news from the U.S. Green Party!

This past week (end of August 2010) the Green Party’s National Committee working on monetary and economic policy matters have approved an historic, comprehensive Monetary Reform Plank in their 2010 Platform which actually does the job, as it includes all three of the necessary elements to achieve real reform. We’re happy to report this mirrors the proposed American Monetary Act.

Here below and linked at http://www.monetary.org/greenpartymonetaryplank.html is what the U.S. Green Party approved, please read it carefully.


Sincerely,
Stephen Zarlenga
Director
American Monetary Institute

Monetary Reform (Greening the dollar)

“While the banking reforms outlined in the above 12 points are very important to ameliorate the present crisis in our banking system, to affect long term, transformative change, it is imperative that we restructure our poorly conceived monetary system. The present mis-structured system of privatized control has resulted in the misdirection of our resources to speculation, toxic loans, and phony financial instruments that create huge profits for the few but no real wealth or jobs. It is both possible and necessary for our government to take back its special money creation privilege and spend this money into circulation through a carefully controlled policy of directing funds, through community banks and interest-free loans, to local and state government entities to be used for infrastructure, health, education, and the arts This would add millions of good jobs, enrich our communities, and go a long ways toward ending the current deep recession.

To reverse the privatization of control over the money issuing process of our nation’s monetary system; to reverse its resulting obscene and undeserved concentration of wealth and income; to place it within a more equitable public system of governmental checks and balances; and to end the regular recurrence of severe and disruptive banking crises such as the ongoing financial crisis which threatens the livelihood of millions; the Green Party supports the following interconnected,

Green Solutions:

1. Nationalize the 12 Federal Reserve Banks, reconstituting them and the Federal Reserve Systems Washington Board of Governors under a new Monetary Authority Board within the U.S. Treasury. The private creation of money or credit which substitutes for money, will cease and with it the reckless and fraudulent practices that have led to the present financial and economic crisis.

2. Create a Monetary Authority, which will, with assistance from the FDIC, the SEC, the U.S. Treasury, the Congressional Budget Office, and others, redefine bank lending rules and procedures to end the privilege banks now have to create money when they extend their credit, by ending what is known as the fractional reserve system in an elegant, non disruptive manner. Banks will be encouraged to continue as profit making companies, extending loans of real money at interest; acting as intermediaries between those clients seeking a return on their savings and those clients ready and able to pay for borrowing the money; but banks will no longer be creators of what we are using for money. Many new forms of banks will be encouraged such as community banks, credit unions, etc., see 11 and 12 above)

3. The new money that must be regularly added to an improving system as population and commerce grow will be created and spent into circulation by the U. S. Government for infrastructure, including the human infrastructure of education and health care. This begins with the $2.2 trillion the American Society of Civil Engineers warns us is needed to bring existing infrastructure to safe levels over the next 5 years. Per capita guidelines will assure a fair distribution of such expenditures across the United States, creating good jobs, re-invigorating the local economies and re-funding government at all levels. As this money is paid out to various contractors, they in turn pay their suppliers and laborers who in turn pay for their living expenses and ultimately this money gets deposited into banks, which are then in a position to make loans of this money, according to the new regulations.”

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Reinhart and Reinhart paper

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This paper should provide very useful information for those of you trying to determine whether the data shows fiscal policy is effective. (This shows it is)

Carmen and Vince decided only to use govt spending rather than net spending so keep that in mind.

My take is that exiting the gold standard per se does nothing if all nations do it together. Export advantages gained by doing it first are reversed when the rest join in. What exiting the gold standard did do is allow for fiscal expansion otherwise not possible.

Warren,

I don’t know if I ever sent this to you. But I’ve attached an article that Carmen and I published in the Brookings Papers on Economic Activity last year about the Great Depression. The bottom line is that inconsistent fiscal stimulus lengthened the adjustment.

Vincent

From the abstract:

Fiscal policy was also active—most countries sharply increased government spending—but was prone to reversals that may have undermined confidence. Countries that more consistently kept spending high tended to recover more quickly.

And later under fiscal policy:

Although fiscal impetus was forceful in some countries, in almost all it was also erratic. Figure 4 further reveals that each of the three large increases in spending in the United States and Canada was followed by some retrenchment. The impetus from government spending in the United States in 1932, 1934, and 1936 appeared on track to provide considerable lift to the economy, but after each of those years real spending dropped off, imparting an arithmetic drag on expansion. The fact that fiscal expansion has been aggressive in many countries in 2009 works to help contain the contraction in the global economy. That it will continue to do so is far from assured, if history is any guide.

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Support

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He’s Got My Vote

Yesterday I was driving into New York City for a couple of meetings, and I heard an old friend from the business being interviewed by Kathleen Hays on Bloomberg Radio.

I was amazed that Warren Mosler is running for Chris Dodd’s seat in the US Senate.

I thought his business interests in Florida and the US Virgin Islands would keep him from coming back to New England, but maybe he’s getting a jump on future northward migration from global warming.

Warren was a “blogger” on economic and market topics before there was blogging. Besides making the fastest sports car on the planet, he used to pen columns on the economy, the market, and government policy before we even used the internet to communicate.

His position papers and thought pieces that were very popular with professionals in the bond business throughout the late 80’s and 90’s, so I suppose it’s no surprise to find him sharing his thoughts on the web today.

I’ll be contacting the campaign to see how I can help.

hh

Bio

Howard Hill is a former Wall Street mortgage finance “rocket scientist” who invented a number of successful bond structuring techniques and analytic tools in the 1980’s and 1990’s. He headed research, finance, sales and trading groups at major Wall Street houses in the first half of his career, and became a customer for Wall Street in the new Millennium, analyzing and buying the same kinds of bonds he used to create. In addition to scores of mortgage deals, he structured the first securitized deals with apartment building loans, nursing home loans, mobile home park mortgages, computer leases, life insurance policyholder loans and Argentine mortgages.

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Payrolls

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Karim writes:

  • Better than expected overall; private payrolls up 67k, consistent with recent trend.
  • Net revisions up 123k (July private payrolls revised from +71k to +107k)
  • UE rate up from 9.51% to 9.64%
  • Hours flat but July revised up from 0.3% to 0.4%
  • Avg hourly earnings up 0.3%
  • Private payroll strength even more impressive considering -61k swing in mfg employment (totally out of synch w/ism employment indicator)
  • Median duration of unemployment down to 19.9 weeks, from 22.2 last mth and high of 25.5 in June
  • U6 UE measure up to 16.7% from 16.5%

Conclusion: Beneath the surface, solid gains this quarter in the components that drive personal income: jobs+wages+hours. Politically, the headline UE rate and the U6 measure are a problem and will make the various fiscal stimulus measures more likely. So really may be best of both worlds for economy.

Agreed!

UE up as people reenter the labor force, which happens as jobs open up in this part of the cycle.

And low/negative productivity last quarter could be telling us businesses critically understaffed due to uncertainty are finally being forced to get to where they need to be to service current sales/client bases. So hiring rises faster than output for a while. This is also a good sign as that supports personal income and consumption.

There never was a double dip in the cards. It would have had to come from an outside shock. The federal deficit now seems more than large enough to continue to support modest top line growth, and any further increase will offer further support.

The ongoing federal deficits have also largely repaired household balance sheets, adding income and savings of financial assets to the non govt sectors, and continue to do so.

This sets us up for the ‘hand off’ to private sector deficit spending (credit expansion) taking over from govt sector deficit spending, usually via cars and houses. Car sales seem to already be improving, and housing has nowhere to go than up as well. Starts could double and still be at historically low levels.

So the outlook remains very good for equities, not so good for rates, and not so good for large share of the population that needs to work for a living, as most of the incremental wealth flows to the top.

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