September 30, 2022

You’re the Boss Blog: This Week in Small Business: The Van Halen Principle


A weekly roundup of small-business developments.

What’s affecting me, my clients and other small-business owners this week.


Tom Chiarella says he believes that in business the little things are really the big things. Jordan Weissmann says America’s technology-talent shortage is a myth. And Ezra Klein explains how the Van Halen Principle applies to government.

Washington: Paying Down the Debt

The Treasury will pay down debt for the first time since 2007, and the Federal Reserve decides to keep its stimulus plan in place, saying recent tax increases and spending cuts have hurt the economy. These slides show why taxes should go up. In this video, Allan Madan explains how the federal budget affects your small business; these business owners have ideas for how Washington can help. Here are five sequestration cuts that have not happened. President Obama’s relationship with GOP congressional leaders hits a new low. Small-business contracts with the federal government worth more than $2 billion will open for competition in the coming months.

The Economy: Down, Flat, Surging

Small-business owners are more optimistic about their companies’ prospects and are picking up the hiring pace, according to one report. But the April 2013 SurePayroll Small Business Scorecard showed that month-over-month hiring was down 0.2 percent and the average paycheck was flat. Personal income and spending both increased, pending home sales reached a three-year high and home prices are surging. But home ownership fell to its lowest level since 1995. The University of Michigan said consumer sentiment fell to a three-month low, but the Conference Board’s index picked up. Positive same-store sales pushed the Restaurant Performance Index higher. Overall manufacturing activity declined last month. The unemployment rate fell and job-creation was solid in April. Heidi Shierholz reminds readers that adding 175,000 jobs a month won’t make us whole until 2020. The American auto industry has its best performance in 20 years.

Management: Don’t Be Available

An Office Depot study finds that nearly four in 10 business owners believe having a mentor would boost their business. Sharon Melnick, a business psychologist, offers five ways to be productive when the pressure is on, including “Don’t always be available.” Barbara Austin says you should shake things up if you’re stuck in a creative rut. Jaclyn Mullen believes you get back what you give. Here are five inspirational women business speakers. Brad Lomenick suggests six ways to be a more courageous leader. Here are seven outsourcing lessons. The chief executive of Liquidnet says goodbye to titles. Jason Matthews shares a gutsy story.

Cash Flow: He Won A Banana

Jose Pagliery explains what’s behind the all-cash legal marijuana business. Here are three ways that having working capital can spruce up your business. Even though it has enough cash to buy Facebook, Hewlett-Packard and Yahoo, Apple plans the biggest debt offering in corporate history. Small businesses cut borrowing for the third month in a row, and an online small-business lender has locked in $17 million more in financing for itself. Dun Bradstreet Credibility kicks off its 2013 Access to Capital Tour on May 22 in Chicago. A Fidelity small business analysis shows that balances for small-business retirement plans increased an average of 20 percent between 2007 and 2012. A man loses his life’s savings on a carnival game (but wins a banana), and here’s why professional liability insurance is helpful when collecting money from customers.

People: Get A Tattoo, Get A Raise

Richard Finger says American Airlines employees loathe their management. Alexandra Levit says there are six ways you may be sabotaging your company’s culture. Richard Branson offers tips for keeping your most valued employees happy. Heather Huhman suggests what to do when employees quit. Yahoo now offers 16 weeks of paid maternity leave, and a New York City real estate agent offers employees a pay raise for getting a tattoo (of the company logo). More employees are seeking training as they manage their careers, but 41 percent of college grads are overqualified for what they do. Here are a few steps to improve the way you give performance reviews. Here are the top 10 tech companies to work for, the 100 jobs that bring the highest salaries and the 23 signs that you’re the Stanley of your office.

Entrepreneurs: Do You Have What it Takes?

Mohul Ghosh says that “love for wealth” is one of nine unmistakable symptoms of entrepreneurship. In a radio interview, an author shares his entrepreneurial journey. Sinead says today’s geeks are the new rock stars. These are the top 10 billionaires who dropped out of school. Kenny Chesney explains why he’s a no-shoes entrepreneur with a taste for the rum business. And if you take this entrepreneurial quiz you might find out if you have what it takes to make it big.

Start-Up: Omaha

It appears the new must-attend start-up conference is in Omaha. This 18-slide pitch just landed a payment start-up $16.5 million, while another start-up creates a marketplace for the curious and those who teach. TechCrunch Disrupt discovers some exciting new companies in New York. Martin Zwilling suggests seven essentials to finding the right start-up mentor. Here are the top 10 reasons to start up in college. Sam Biddle shows what it looks like when you lose all of your start-up money.

Social Media: Do You Have a Policy?

Facebook is losing millions of users, and apps like this may be the reason. This is what the new YouTube layout and other Google updates mean for your small business. LinkedIn now lets you add photos, videos, and comments from others. A study finds mothers of young children are more likely than the general public to use social media. Kyle Nunes explains why you should consider blogging for your business. Debbie Thomson thinks your small business may need a social media policy. A Mexican restaurant’s privileged customer complains about the service and is the recipient of a social media firestorm. Twitter opens up a self-serve advertising platform to businesses, and according to Kealan Lennon, “what today’s social retailers are getting right is that the most compelling content to consumers is the media created by the consumers.” Living Social is hacked. A reporter’s Instagram photo reveals a “near-death” experience. According to an ATT study, two-thirds of small-business owners said they planned to spend as much or more as they did last year on digital marketing (including Web sites, social media and online advertising).

Customer Service: Loyalty And Lady Gaga

April was Customer Loyalty Month and Shep Hyken celebrated. This is how to make customers come back even after they return purchases. A study shows that spelling and grammar errors in shop signs lose customers. Here are seven customer-loyalty lessons you can learn from Lady Gaga. And now it’s May, which is National Salad Month.

Health Care: Surprise!

The Affordable Care Act application form is out, and it’s actually quite easy. A Stanford professor says the Act will cause millions of Americans to pay more for health insurance. Meanwhile, other experts propose $1 trillion in savings. Ron Present and Bill Goddard give advice for controlling your health care costs.

Around The Country: More Oil in North Dakota

A survey doubles the estimate of recoverable oil reserves in North Dakota. The Chamber of Commerce names these the most enterprising states. Local pawnshops in Daytona Beach, Fla., are unfazed by the recent drop in gold prices. The UPS Store introduces a Main Street franchise model. A small-business conference is scheduled for May 17 and 18 in New York, and Philadelphia announces its first Small Business Week.

Around The World: The Pirate Party

Euro-area economic confidence falls more than expected, and Spain sinks deeper into recession after suffering 33 consecutive months of falling retail sales. Europe’s youth employment levels are called “insane.” Germany accuses France of being “Europe’s biggest problem child,” and France wants to woo foreigners with entrepreneur visas. Meanwhile, Italy is facing a shortage of pizza makers. Churchill will be on a new bank note. Japan’s manufacturing and hiring rises. In this video, the Russian president meets with small-business owners. The Pirate Party wins three seats in the Icelandic parliament. Obama’s comedy is anything but routine for the Chinese. Micro-breweries are bubbling over in South Africa. A small business expo is planned for Jamaica.

Technology: Google Glass

Bob Cringely says things are looking up for Google Glass, and Robert Scoble says he will never again live a day without wearing it. Here’s how to use it. Bring-your-own-device adoption at small businesses increased in 2012 but be careful: lawsuits may be looming. Here are 10 little-known apps entrepreneurs can’t live without, 21 tips for super-charging your cloud storage and a few helpful tech upgrades for the home office. A report from National Public Radio explains why, when it comes to productivity, technology can hurt and help. This is what the voice of Alexander Graham Bell sounded like. Blackberry’s chief executive believes tablets are doomed. Square updates its mobile-payments software for small restaurants. Boy, what a difference 20 years has made. This simple trick turns commercial polymer into the world’s toughest fiber. Supermarkets of the future will track shopper eye movements. And this men’s suit will turn transparent when the wearer lies.

Tweet of the Week

@jayleno – A NH man says he was conned by a carnival, losing his entire life savings at the ball toss game. Well, now he knows how #Lakers fans feel!

The Week’s Best Quote

Jon Stow says that you must adapt and change, or your business will die: “I hope I do not seem unkind, but this week I had one of those online petition e-mails from some booksellers who were petitioning for Amazon to pay more tax. Yet I am sure the reason for their knocking Amazon was because Amazon is eating into their business. I feel sorry for the booksellers, but we cannot run our businesses as museum pieces because we will make no money.”

This Week’s Question: Will you be able to live without Google Glass?

Gene Marks owns the Marks Group, a Bala Cynwyd, Pa., consulting firm that helps clients with customer relationship management. You can follow him on Twitter.

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Today’s Economist: Bruce Bartlett: Dynamic Scoring Once Again


Bruce Bartlett held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul. He is the author of “The Benefit and the Burden: Tax Reform – Why We Need It and What It Will Take.”

On March 22, the United States Senate adopted an amendment to S. Con. Res. 8, the concurrent budget resolution for fiscal year 2014, that would require the Congressional Budget Office and the Joint Committee on Taxation to produce estimates of the revenue effect of tax changes that incorporate their macroeconomic effects (Sec. 416).

Today’s Economist

Perspectives from expert contributors.

While seemingly innocuous, this amendment opens the door to “dynamic scoring,” which Republicans have long supported to make it easier to enact tax cuts and harder to enact tax increases. Tellingly, they reject the idea of dynamic scoring on the spending side of the budget.

The origins of the debate on dynamic scoring go back to the 1970s, when my former boss, Representative Jack Kemp, Republican of New York, used the “Laffer curve” to assert that an across-the-board cut in income tax rates of 30 percent would not lose any revenue. That is because the stimulative effect of the tax cut on the gross domestic product, employment, investment and so on would be so great and instantaneous that the tax base would expand more than the tax cut, he said.

The Laffer curve is named for the economist Arthur Laffer, who, according to legend, drew it on a napkin to show that there were always two tax rates that raised the same dollar amount of tax revenue – a high rate on a small tax base and a low rate on a large tax base. There is nothing controversial about this proposition, which economists from the time of Adam Smith have acknowledged.

The problem has always been estimating the curve empirically and calculating the impact of any particular tax cut at a given moment under a certain set of conditions. There is also the question of the appropriate time period over which to estimate revenue effects.

Generally speaking, supporters of dynamic scoring don’t offer any kind of serious economic analysis; they simply assert, as if it were self-evident, that the nation is always on the high side of the Laffer curve and that any tax cut will therefore pay for itself.

Pressed for evidence supporting this contention, supporters of dynamic scoring will point to the impact of cuts in the capital gains tax. But this is a very poor example because capital gains are a very special form of income.

Unlike wages, interest, dividends and rent, which are taxed when earned, capital gains are not. Gains that are not realized through the sale of an asset remain untaxed. Thus the stock of potentially taxable capital gains is much larger than the amount of gains that may arise in any given year.

A cut in the capital gains tax may unlock some of these gains, which may have arisen over decades, thus leading to a temporary surge in revenue. But it is important to recognize that the economy is not expanding when capital gains revenue rises, because the economic activity that gave rise to the gains occurred in the past. Comparing the revenue effect of a cut in the capital gains tax to the effect of an across-the-board tax cut on all forms of income is grossly inappropriate.

Another problem with dynamic scoring is that proponents often assert that if nominal federal revenue ever rises to the level before a tax cut, this proves that it paid for itself. Supporters of the tax cuts during the George W. Bush administration often state that since the aggregate dollar amount of federal revenue was higher in 2006 than it was in 2000, this is proof that the Bush tax cuts paid for themselves. (Revenue was well below its 2000 level from 2001 to 2005.)

This assertion is so ridiculous it hardly needs rebuttal, but since one still hears it, let me say that inflation raises nominal revenue and the economy generally grows over time whether taxes are cut or not. To observe that the nominal dollar amount of revenue is higher many years after a tax cut occurred tells us absolutely nothing about the revenue effects of that tax cut.

A better method would be to look at federal revenue as a share of gross domestic product. On this basis, the Bush tax cuts are still reducing federal revenue, which has yet to come close to where it was in 2000.

An even better method would be to look at projections of future revenue at the time a tax cut is made and compare the path of revenue with and without the tax cut, incorporating the effects on the economy. In 2003, the Heritage Foundation did just such an estimate – exactly what advocates of dynamic scoring propose.

The Heritage analysis shows that the 2003 Bush tax cut would immediately begin to expand the economy, offsetting some of the static revenue loss, which is the estimated revenue loss, assuming no change in the macroeconomy. In 2003, 8.8 percent of the static revenue loss would be recouped, rising to 14.6 percent in 2004, 28.5 percent in 2005, 47.5 percent in 2006, 73.7 percent in 2007 and 90 percent by 2011.

According to Heritage’s “dynamic” forecast, federal revenue should have reached $3.5 trillion in 2012 with the Bush tax cuts in place. In fact, they were only $2.5 trillion. Of course, Heritage was also wrong about the growth path of revenue without the tax cut. Economic growth over the last 10 years was far worse than anyone expected with or without the tax cut in 2003.

In principle we should want the revenue effects of tax changes to be calculated as accurately as possible, including their impact on the macroeconomy.

But this is a very time-consuming process, and the vast bulk of tax changes have no effect on the macroeconomy one way or another.

In practice, dynamic scoring is just another way for Republicans to enact tax cuts and block tax increases. It is not about honest revenue-estimating; it’s about using smoke and mirrors to institutionalize Republican ideology into the budget process. Why six Democrats joined the Senate Republicans in this move remains to be seen.

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Economic Growth Remain Subpar but Resilient

WASHINGTON (AP) — The American economy grew at a faster rate at the end of last year than previously estimated, providing evidence that growth might have accelerated in early 2013 despite higher taxes and cuts in government spending.

The nation’s gross domestic product grew at an annual rate of 0.4 percent in the October-December quarter, the Commerce Department said on Thursday, slightly better than the previous growth estimate of 0.1 percent. The revision reflected stronger business investment and export sales.

Analysts say they think the economy is growing at a rate of around 2.5 percent in the current January-March quarter, which ends this week.

Steady hiring has kept consumers spending this year. A rebound in company stockpiling, further gains in housing and more business spending also likely drove faster growth in the first quarter.

The 0.4 percent growth rate for the gross domestic product, the economy’s total output of goods and services, was the weakest quarterly performance in almost two years and followed a much faster 3.1 percent increase in the third quarter. The fourth quarter was hurt by the sharpest fall in military spending in 40 years.

For all of 2012, the economy grew 2.2 percent, after a 1.8 percent increase in 2011 and a 2.4 percent gain in 2010. Since the recession ended in mid-2009, the economy has expanded at subpar rates as a string of problems including higher gas prices and Europe’s debt crisis has acted as a drag on the United States economy.

Growth appears to be strengthening this year even after taxes increased on Jan. 1 and automatic government spending cuts totaling $85 billion started to take effect on March 1. The Congressional Budget Office has estimated that the combination of tax increases and spending cuts could trim economic growth this year by about 1.5 percentage points. The office is predicting just 1.5 percent growth for 2013.

But the economy is showing signs of holding its own against the fiscal drag.

Employers have added an average of 200,000 jobs a month since November. That helped reduce the unemployment rate in February to 7.7 percent, a four-year low.

The number of Americans seeking unemployment benefits did rise by 16,000 last week, the second straight weekly increase. But the longer-term trend in layoffs remained consistent with an improved job market.

Applications rose to a seasonally adjusted 357,000 for the week ending March 23, the Labor Department said Thursday. That is an increase from 341,000 the previous week, which was revised slightly higher.

The four-week average, a less volatile measure, rose 2,250 to 343,000. Even with the gain, the average is only slightly higher than the five-year low of 340,750 attained the previous week. Economists pay closer attention to the four-week average because it smooths out week-to-week fluctuations.

The total number of people receiving some kind of unemployment aid is also down sharply. Nearly 5.5 million people were receiving unemployment aid as of the week ended March 9, the latest data available. That figure is up roughly 87,000 from the previous week but still well below the 7.2 million of a year earlier.

The government will release its initial look at first-quarter growth on April 26.

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Economix Blog: Federal Austerity’s Bite on Job Growth

The latest jobs report could have been even better. Employers added 236,000 jobs in February, evidence that the economy is gaining strength, but analysts generally agree that the number would have been higher if the federal government had not increased payroll tax rates in January.

And the sequestration of federal spending, which began last week, has joined the tax increases in restricting the pace of job growth.

As a result, the rest of the year is shaping up as a tug of war between a strengthening private sector and federal austerity.

“This is basically a picture of an economy that is showing modest growth, but has not yet felt the impact of the end of the payroll tax cut and the sequester,” Dean Baker, co-director at the liberal-leaning Center for Economic and Policy Research, wrote of the February data released by the Labor Department.

Government and private forecasters expect austerity, in the form of the spending cuts and tax increases, to take a big bite: about 142,000 fewer jobs a month for the rest of the year than would otherwise be added. That’s more than the 134,000 jobs that employers added each month last year, on average.

“Clearly, the labor market was in decent shape before the sequester began and before the impact of the Jan. 1 payroll tax hike started to work through,” wrote Ian Shepherdson, chief economist at Pantheon Macroeconomic Advisers. “But that does not mean these two factors — a tightening worth about 1.5 percent of G.D.P. — will not reduce payroll growth in the months ahead.”

The Congressional Budget Office estimated last year that the payroll tax increase would cost about 800,000 jobs this year, or about 67,000 a month.

Sequestration, the office estimates, will in turn cost about 750,000 jobs over the remaining 10 months of the year – or about 75,000 jobs a month.

Private economic forecasters have offered similar estimates. Macroeconomic Advisers predicted that sequestration would cost about 700,000 jobs, with most of the missed opportunities falling in the second and third quarters.

On the one hand, these estimates suggest that without federal austerity, the economy might have added more than 300,000 jobs in February. That would have been a good month even by the robust standards of the 1990s.

On the other hand, the estimates also suggest the economy will need to grow even more quickly to keep chipping away at unemployment. Another month like February, taking sequestration into account, would only increase employment by about 160,000 jobs, about enough to keep pace with population growth.

“It will take many months of job growth at this level simply to make up for the job losses during the recession,” wrote Joan Entmacher, an expert in family economic security at the National Women’s Law Center. “And Congress just made the task harder by refusing to block sequestration.”

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S.&P. Extends Its Rally to a Five-Year High

The Standard Poor’s 500-stock index edged up to a five-year high on Friday, extending a rally that started in January.

The S. P. 500 rose 8.54 points, to 1,517.93, closing up 0.3 percent for the week. The index is at its highest point since November 2007 and has advanced for six weeks, the longest streak of gains since August.

The Dow Jones industrial average rose 48.92 points, or 0.35 percent, to 13,992.97.

The Dow had its best January in almost two decades and closed above 14,000 on Feb. 1 for the first time since 2007. The index is up 6.78 percent so far this year; the S. P. 500 is up 6.43 percent.

The Nasdaq composite index climbed 28.74 points, or 0.91 percent, to 3,193.87.

A last-minute budget deal in Washington to avoid tax increases and spending cuts has helped to power the rally, on top of optimism about housing and gradual improvements in the jobs market.

The S. P. 500 finished the week higher despite logging its biggest daily decline in almost three months on Monday after worrying news from Europe. The index fell 1.2 percent that day as bond yields in Spain and Italy rose on concern that the region’s politicians would drag Europe back into crisis. The European Central Bank president, Mario Draghi, made cautious comments about the region’s economy on Thursday, which also weighed on markets.

“Everybody seems to be saying this market needs to correct,” said Robert Pavlik, chief market strategist at Banyan Partners. “Nobody wants to be in it, but nobody wants to be out of it.”

Largely positive corporate earnings reports and a report that showed that the United States trade deficit narrowed sharply in December provided more fuel for the market’s advance on Friday.

The trade deficit fell nearly 21 percent in December from November, to $38.5 billion, the smallest point in nearly three years, as exports rose while oil imports plummeted. The smaller trade gap means the economy most likely performed better in the final three months of last year than first reported last week.

“The trade balance was surprisingly very good,” said Philip J. Orlando, chief market strategist at Federated Investors.

The government estimated that the economy contracted at an annual rate of 0.1 percent in the last three months of 2012. Mr. Orlando said that may now be revised to growth of 0.5 percent.

Shares of LinkedIn, the online professional networking service, jumped $26.39, or 21.27 percent, to $150.48, after the company reported fourth-quarter results late on Thursday that beat analysts’ forecasts.

AOL shares soared $2.31, or 7.35 percent, to $33.72, after the company said its quarterly revenue grew for the first time in eight years, helped by strength in worldwide advertising.

Analysts are expecting earnings for the fourth quarter of 2012 to rise 6.5 percent for S. P. 500 companies, according to data from SP Capital IQ. That is an increase from the 2.4 percent growth rate recorded for the preceding quarter.

Stocks have benefited as investors poured a net $4.1 billion into stock mutual funds since the start of the year, according to data provided by Lipper.

“I’m very encouraged by the fact that, finally, for the first time in many years, individual investors seem to be participating in this,” said David Kelly, chief global strategist at J. P. Morgan Funds.

The Treasury’s benchmark 10-year note rose 2/32, to 97 4/32, and the yield fell to 1.95 percent from 1.96 percent late on Thursday.

Trading volume was light as Wall Street braced for a large winter storm. Up to two feet of snow was forecast along the densely populated Interstate 95 corridor from the New York City area to Boston and beyond.

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Against the Odds, Starting a Tech Business in France

PARIS — For a young entrepreneur starting a company in Paris, Fabien Cohen could not have picked a worse time: French businesses are still recovering from the financial crisis and facing potential tax increases, and many with deep pockets have taken flight from the country.

Worst of all for Mr. Cohen, many of his friends — other “start-uppers” in their 20s — have packed their bags for the more business-friendly climes of London, San Francisco and even Bangkok or Rio de Janeiro.

“Everyone I know who is in his or her 20s wants to find their own experience, and that is overseas,” Mr. Cohen said. “There is a necessity to see elsewhere.”

Without the means to make the jump himself, Mr. Cohen, 25, is making do. His smartphone application, Whoozer, which he likens to Circle, an app that notifies people when their friends or contacts are nearby, was set to be introduced in December but hit a technical snag a month earlier. His bank balked at putting up more money, and potential investors decided to wait on the sidelines. He could barely pay his employees last month.

And yet, Mr. Cohen is making it work. He switched banks and secured a new credit line at the last minute. His fledgling company, made up of a dozen or so employees, tinkered with the business strategy and clinched a vital sponsorship to introduce Whoozer exclusively at a top French business school, ESCP Europe, on Monday. In March, they plan to introduce the service in three other business schools.

“The climate is still tricky, but I’ve jumped in at the deep end,” Mr. Cohen said. “Things are still complicated in France, but that doesn’t prevent me from doing anything.”

France’s business ecosystem thrives on contradictions — the country has some of the highest labor costs in Europe and restrictive regulations, and yet its companies regularly make the Fortune 500 list; it has highly skilled graduates and engineers but struggles to compete globally; it has an alphabet-soup of agencies intended to support fledgling businesses, but they are so lacking in coherence that they remain unheard of to many; there is a vibrant investor community ready to commit funds, but only once an entrepreneur has a proven track record; and the French embrace money, but not bling.

The ambiguities perhaps capture well what some call France’s “Raymond Poulidor syndrome,” after a former Tour de France cyclist who never won a race but never gave up.

“He was always number two. And the French really love him,” said Matthias Berahya-Lazarus, who heads Bonial, a Web service that offers localized shopping catalogs and discounts. “Likewise, the French like entrepreneurs when they remain very discreet and don’t transform into a businessman. That’s where the evil begins. So they like the number two. They don’t like success. They have a problem with wealth and with money.”

Aside from the day-to-day headaches and dilemmas familiar to any entrepreneur, French businesses have their wings clipped by onerous social charges paid to the government based on the salary of the employee. Companies need to think twice before hiring and firing, when employees are often due extensive severance benefits. They also need to coax financing from a traditionally risk-averse market and console themselves with the relatively small clout that businesses hold in government.

Mr. Cohen’s dogged pursuit, often accompanied with wry humor, reflects the ingenuity of French entrepreneurs in finding ways to wriggle out of predicaments.

“They’ve lived under constraints for so long they’ve become quite good at that,” said Jean-David Chamboredon, who runs the French Internet entrepreneurs’ fund ISAI.

But the web of regulations can also be a blessing, in the form of loopholes.

One young company chief outsmarted the “system” by taking advantage of what he described as a badly coordinated tangle of benefits for job seekers wishing to create companies to pocket enough funds for his start-up.

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Shares End Higher on Hope for Fiscal Deal

Traders hung on every word out of Washington on Monday, sending share prices on a jerky path upward on what is usually a quiet day of trading ahead of the New Year’s Day holiday.

It ended up being the best day for American stocks since the middle of November and was enough to push leading indexes into positive territory for December. The Standard Poor’s 500-stock index finished the day up 1.7 percent, bringing the year’s gains to 13.4 percent. The Dow Jones industrial average was up 1.3 percent for the day and 7.3 percent for 2012.

The government was expected to go over the so-called fiscal cliff on Monday night, when a package of tax increases and spending cuts was set to start being phased in. But the political signals out of Washington convinced many investors that the White House and Congress would avert the changes that would be most damaging to the economy. “By day’s end, the assumption was that a deal was in hand — minor details needed to be worked out, but a finished product would be in the books within the next few days,” said Daniel Greenhaus, chief global strategist at BTIG. “Investors that had spent the last couple of days trading down reversed that trend and took things higher.” 

The market’s jump, much of which occurred after an early-afternoon news conference by President Obama, brought an unexpected end to a day that began with continuing bickering in Washington and a sense of foreboding on Wall Street. American stocks had fallen steadily for most of the last week and opened the day trading down.

Senator Mitch McConnell of Kentucky, the leader of the Republican minority, said late in the day that an agreement was “very, very close.”

Stocks could easily lose their gains if either chamber of Congress is unable to pass the compromise that was being negotiated on Monday. Senators said they were hoping to agree upon legislation and pass it along to the House for a vote on Tuesday. Some details of the agreement were still unclear, and the Republican-controlled House could demand changes.

The stock markets are closed on Tuesday, and most traders will be back at their desk Wednesday morning after a week of vacations and light trading.

Even if there is an agreement, it is unlikely to resolve a separate debate over the limit on the amount the government can borrow. The government hit its self-imposed debt ceiling on Monday, and Treasury Department officials have said they will be able to finance the budget for only a few weeks using emergency measures.

Some Republicans have said they want to use the debate over the debt ceiling to extract more spending cuts from Democrats. Investors are preparing for another bout of volatile trading if that happens.

The year did end with many market strategists in an optimistic mood about the American economy, once the fiscal negotiations in Washington are out of the way.

“While fiscal policy and political gridlock are negatives, there are other factors that remain supportive of growth, including a modest recovery in housing and further improvements in household balance sheets,” BlackRock’s chief investment strategist, Russ Koesterich, said in a note to clients.

The Standard Poor’s 500 index climbed 1.7 percent, or 23.76 points to 1,426.19. The Dow Jones industrial average was up 1.3 percent, or 166.03 points to 13,104.14. The Nasdaq composite index rose 2 percent, or 59.20 points, to 3,019.51.

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Pessimism About Fiscal Gridlock Extends a Losing Streak

Stocks fell for a fifth day, the longest such streak since July, on concern that lawmakers in Washington would fail to reach a budget deal before a year-end deadline.

The Dow Jones industrial average dropped 158.20 points to 12,938.11, with losses accelerating in the last 20 minutes of trading as reports circulated that President Obama would not be making a new budget proposal in a meeting with Congressional leaders.

The Standard Poor’s 500-stock index fell 15.67 points to 1,402.43, its longest losing streak in three months, and the Nasdaq composite index fell 25.59 points to 2,960.31.

“The reality, late in the day, is that a deal is just not going to get done,” said Ryan Detrick, a senior technical strategist at Schaeffer’s Investment Research. “We could be greeted by a big sell-off at the start of January.”

President Obama returned from a Christmas break in Hawaii to meet with Congressional leaders at the White House in the hopes of preventing across-the-board tax increases and government spending cuts beginning Jan. 1. Economists have said that if those measures are put in place, it could push the economy back into recession.

Traders have been focusing on Washington and the budget negotiations since the Nov. 6 elections returned a divided government to power. Stocks closed lower Thursday but erased most of an early loss after Republicans said they would reconvene the House of Representatives on Sunday.

“I can’t wait till this is done, so we can start talking about markets again and not just about politics,” said Doug Cote, chief market strategist at ING Investment Management.

Mr. Cote said that he expected that lawmakers would not reach a deal before the deadline and that when people assessed the extent of tax increases on the way, “the market is going to reel.” Mr. Cote also expected slowing earnings growth to drag down stocks.

Despite the fiscal gridlock in Washington, major stock indexes are holding on to gains for the year. The Dow is up 5.9 percent, the S. P. 500 is 11.5 percent higher, and the Nasdaq is up 13.6 percent.

Stocks rose in 2012 on optimism that a recovery in the housing market, coupled with an improving job market, would support economic growth. The Federal Reserve had also extended its bond-buying program, which is intended to lower borrowing costs and encourage spending and investment.

While stocks declined on Friday, reports suggested the outlook for the economy was improving.

A measure of Americans who signed contracts to buy homes increased last month to its highest level in two and a half years, the latest sign of improvement in the once-battered housing market. The National Association of Realtors said Friday that its seasonally adjusted pending home sales index rose to its highest reading since April 2010.

The Institute for Supply Management’s Chicago-area purchasing managers index for December came in at 51.6, beating estimates for a gain to 51.

Bond prices rose as investors moved money into defensive investments. The Treasury’s benchmark 10-year note rose 9/32 to 99 10/32 and the yield fell to 1.70 percent from 1.73 percent late Thursday.

Stock in Hewlett-Packard, the computer and printer maker, fell 36 cents, or 2.6 percent, to $13.68 after the company said the Justice Department was investigating its software unit Autonomy. H.P. bought Autonomy for $10 billion in 2011 and has accused the company’s former management of falsifying its accounting before the acquisition.

H.P. has lost almost half of its market value this year, making it the biggest decliner among the 30 stocks in the Dow average.

Barnes Noble shares rose 62 cents, or 4.3 percent, to $14.97 after the British publishing and education company Pearson said it was making an $89.5 million investment in the company’s Nook Media division.

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News Analysis : Even After Victory, President Remains Constrained by G.O.P.

But if anything has been learned since then, it’s that the president’s power in Washington remains severely constrained by a Republican opposition establishment that is bitter about its losses, unmoved by Mr. Obama’s victory and unwilling to compromise on social policy, economics or foreign affairs. House Republicans, in particular, argue that they won elections as well and they see their ability to retain control of the House as granting them the right to stick to their own views even when they clash strongly with the president’s.

Friday’s pre-Christmas wrangling in the nation’s Capitol crystalized the challenges that Mr. Obama faces as he prepares to begin a second term next month.

In House Speaker John A. Boehner, the president has a deal-making partner who is unable to rally House Republicans behind his own plans, much less any deal he might cut with Mr. Obama. In a news conference Friday morning, Mr. Boehner essentially admitted he was running out of ideas to avert big tax increases and spending cuts early next year.

“How we get there,” Mr. Boehner told reporters, “God only knows.”

Across town just minutes later, officials with the National Rifle Association made clear what House Republicans had been whispering all week: the president’s call for gun control in the wake of the Connecticut shooting will run into tremendous opposition.

Wayne LaPierre, the executive vice president of the firearm group, made clear the N.R.A. would not support the president’s call for gun control, recommending instead a “school shield” program of armed security guards at the nation’s schools as well as a national database that could track the mentally ill.

“The only thing that stops a bad guy with a gun is a good guy with a gun,” Mr. LaPierre said at a news conference that was interrupted by protests and allowed no questions from reporters.

At the same time, the White House said on Friday that it would officially name Senator John Kerry of Massachusetts as Mr. Obama’s choice to lead the State Department — a decision Mr. Obama was forced to make after Republicans effectively blocked his preferred choice, Susan E. Rice, the ambassador to the United Nations.

Ms. Rice, a longtime confidante of Mr. Obama’s, was never formally nominated, but it was no secret inside the White House that the president would have liked her to succeed Hillary Rodham Clinton early next year. But even on the heels of his electoral victory, Mr. Obama was unable to overcome Republican opposition — led by Senator John McCain — to her nomination.

Polls suggest that Mr. Obama’s popularity has surged to its highest point since announcing the killing of Osama bin Laden. In the latest CBS News poll, the president’s job approval rating was at 57 percent.

But taken together, the events of the last five weeks suggest that even that improvement in the polls has done little to deliver the president the kind of clear authority to enact his policies that voters seemed to say they wanted during the election.

Even some of the president’s closest advisers said they were surprised by the ferocity of the Republican opposition.

“It’s kind of a stunning thing to watch the way this has unfolded, at least to date,” said David Axelrod, one of Mr. Obama’s longtime advisers. “The question is, how do you break free from these strident voices?”

Mr. Axelrod said that the election appeared to have had no effect on the president’s most committed adversaries in the Republican House, many of whom remain committed to blocking his every move.

“You have got members of Congress who are simply unwilling to compromise and unwilling to yield to either the will of the American people or the demands of the moment,” Mr. Axelrod said.

That may yet change.

There are still ten days left in which Mr. Obama might reach some sort of arrangement with Congress on averting a fiscal crisis that some predict could plunge the nation back into recession. The White House says it remains hopeful.

In another 31 days, Mr. Obama will deliver his second inaugural address, providing him the opportunity to make his case to the American public on the direction he wants to take them in a second term.

A few weeks after that, he will give his State of the Union address, which he has already promised to use as a call for new gun control laws.

Those opportunities could provide the president with fresh political momentum in the new year.

He will need it. Whatever happens during the remainder of December, Mr. Obama will face economic challenges starting in January, including the likelihood of an extended debate with Republicans over how to overhaul the nation’s tax code.

The president’s team will need to shepherd Mr. Kerry through the Senate, past what appears to be minimal Republican opposition. But his nominees for other posts — including, perhaps, Chuck Hagel, the former senator from Nebraska, to be Secretary of Defense — may face tougher questions.

The gun control fight he has promised to wage will also compete for time and energy with a battle over comprehensive immigration reform, which he has also said he wants to begin early next year.

In a news conference on Wednesday, Mr. Obama expressed hope about finding ways to compromise with his adversaries but also lamented the opposition that he faces in Republicans.

“They keep on finding ways to say no, as opposed to finding ways to say yes,” Mr. Obama said on the tax and spending fight. On the subject of guns, he acknowledged the challenge of pursuing gun control in the face of political opposition from those same Reublicans.

“It won’t be easy,” he said.

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Shares Lean Higher in Early Trading

Shares on Wall Street rose modestly on Tuesday as investors speculated that negotiations between Democrats and Republicans would lead to a budget deal.

The market’s gains followed a steep rally in the previous session, which lifted the Standard Poor’s 500-stock index to its highest level in nearly two months.

Speaker John A. Boehner said he hoped for a broader deal on the budget talks and was still talking with President Obama about the issue.

President Obama made a counteroffer to Republicans on Monday that included a major change in position on tax increases for the wealthy. The plan would increase tax rates on households making more than $400,000 a year, instead of the $250,000 level that he had long pushed.

Investors have been reluctant to make big bets in the face of uncertainty over the standoff in Washington. If no deal is reached among the president and lawmakers, a combination of steep tax increases and spending cuts are set to take effect next year that could hurt the country’s economy.

“Neither side appears to be digging in their heels so much, and that increases the optimism there might be a deal,” said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, N.Y. “Political risks have been the main thing suppressing market gains, so if those abate, we could see a rally that is significant.”

In morning trading, the Standard Poor’s 500-stock index rose 0.5 percent. The Dow Jones industrial average rose 0.3 percent, and the Nasdaq composite was up 0.7 percent percent.

“We’ve been getting a series of snippets suggesting accommodation from both Boehner and Obama, which is feeding the sense in markets that we could get a deal,” said Michael Holland, chairman of Holland Company in New York.

European shares rose 0.3 percent on Monday, while January crude oil futures were up 0.6 percent.

Arbitron, the media and marketing research company, surged about 24 percent after Nielsen Holdings agreed to buy it in a deal worth $1.26 billion. Nielsen rose more than 1 percent.

Oracle reports results after the market closes. The company is expected to report profit growth of more than 10 percent, but with a 2.3 percent dip in revenue, according to Thomson Reuters data.

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