July 5, 2020

Economy Ended the Year on an Upbeat Note

The United States economy ended 2012 on a surprisingly sound note as factory output increased and low inflation lifted the buying power of consumers, signaling that the economy may weather this year’s higher taxes.

Manufacturing output rose 0.8 percent in December, the Federal Reserve said Wednesday, a day after retail sales figures pointed to robust consumer spending last month.

“There is every indication that the improvement may be a reflection of a broader pickup in overall economic activity,” said Millan Mulraine, an economist at TD Securities in New York.

The increase in demand for goods appears unlikely to derail the Federal Reserve’s easy monetary policy soon, given the lack of inflation. The Labor Department said consumer prices were flat in December, restrained by a decline in gasoline prices.

That is good news for consumers still smarting from the 2007-9 recession. Weekly earnings rose 0.6 percent last month when adjusted for inflation, the department said.

The earnings increase means family budgets started this month on slightly better footing as payroll taxes rose for all workers and the wealthiest Americans faced higher income taxes.

The tax increases, enacted to reduce the federal budget deficit, are expected to restrain consumer spending through June. Some economists predict higher taxes will subtract a percentage point from economic growth this year.

American financial markets were little moved by the data, although the increases in factory output and real earnings beat the forecasts of analysts polled by Reuters.

Gains in manufacturing appeared broad, tempering the view that some of the growth resulted from a temporary rebound after Hurricane Sandy upset many lives on the East Coast in late October and early November.

The output of motor vehicles and parts jumped 2.6 percent, while production of machinery gained 0.6 percent. Factories made 1.5 percent more computers and electronics. Industrial production rose 0.3 percent.

Still, the data offered a reminder that the trend in factory output, like the broader economy, remains lackluster. Output of consumer goods fell 0.1 percent from November, and overall manufacturing gained by only 0.2 percent in the fourth quarter when measured at an annual rate.

“The manufacturing sector is just about keeping its head above water,” said Paul Ashworth, an economist at Capital Economics in Toronto.

Wednesday’s consumer price data reinforced the view that inflation will not reach the Fed’s 2 percent threshold soon.

“This leaves Ben Bernanke and the Fed with a free hand to continue with ultra-accommodative monetary policy,” said Michael Woolfolk, a currency strategist at Bank of New York Mellon.

The Fed has kept interest rates near zero since late 2008 and has bought about $2.5 trillion in assets to stimulate economic growth and get Americans back to work after the recession.The Fed uses a separate index of inflation that tends to run cooler than the Consumer Price Index. By either measure, annual inflation remains below the Fed’s threshold..

In the 12 months to December the price index increased 1.7 percent, the smallest increase since August. A measure of core prices, which strips out volatile food and energy prices to give a better sense of inflation trends, was up 1.9 percent.

The Fed’s latest beige book, a collection of anecdotal information on regional economic conditions, showed mild growth across the United States in recent weeks but it indicated no likelihood that economic expansion would accelerate.

Article source: http://www.nytimes.com/2013/01/17/business/economy/consumer-prices-unchanged-in-december.html?partner=rss&emc=rss

Tentative Accord Reached to Raise Taxes on Wealthy

While the Senate moved toward a vote on legislation to avoid the so-called fiscal cliff, the House was not going to consider any deal until Tuesday afternoon at the earliest, meaning that a combination of tax increases and spending cuts would go into effect as 2013 began. If Congress acts quickly and sends the legislation to President Obama, the economic impact could still be very limited.

Under the agreement, tax rates would jump to 39.6 percent from 35 percent for individual incomes over $400,000 and couples over $450,000, while tax deductions and credits would start phasing out on incomes as low as $250,000, a clear win for President Obama, who campaigned on higher taxes for the wealthy.

“Just last month Republicans in Congress said they would never agree to raise tax rates on the wealthiest Americans,” Mr. Obama said at a hastily arranged news briefing, with middle-income onlookers cheering behind him. “Obviously, the agreement that’s currently being discussed would raise those rates and raise them permanently.”

Democrats also secured a full year’s extension of unemployment insurance without strings attached and without offsetting spending cuts, a $30 billion cost.

As negotiators tied up the last points of dispute, officials said that the two top Democrats on Capitol Hill — Senator Harry Reid of Nevada and Representative Nancy Pelosi of California — had signed off on the agreement. In an effort to win over other Democrats uneasy with the proposal, Vice President Joseph R. Biden Jr., who had bargained directly with Republican leaders, traveled to the Capitol on Monday night for a 90-minute meeting with his former Senate colleagues.

“I feel very, very good,” Mr. Biden said after the meeting. “I think we’ll get a very good vote.”

In one final piece of the puzzle, negotiators agreed to put off $110 billion in across-the-board cuts to military and domestic programs for two months while broader deficit reduction talks continue. Those cuts begin to go into force on Wednesday, and that deadline, too, might be missed before Congress approves the legislation.

To secure votes, Mr. Reid also told Democrats the legislation would cancel a pending congressional pay raise — putting opponents in the politically difficult position of supporting a raise — and extend an expiring dairy policy that would have seen the price of milk double in some parts of the country.

Anticipating Senate approval of the deal, Speaker John A. Boehner late Monday said the House would “honor its commitment to consider the Senate agreement if it is passed. Decisions about whether the House will seek to accept or promptly amend the measure will not be made until House members — and the American people — have been able to review the legislation.”

The nature of the deal ensured that the running war between the White House and Congressional Republicans on spending and taxes would continue at least until the spring. Treasury Secretary Timothy F. Geithner formally notified Congress that the government reached its statutory borrowing limit on New Year’s Eve. Through some creative accounting tricks, the Treasury Department can put off action for perhaps two months, but Congress must act to keep the government from defaulting just when the “pause” on pending cuts is up. Then in late March, a law financing the government expires.

And the new deal does nothing to address the big issues that Mr. Obama and Mr. Boehner hoped to deal with in their failed “grand bargain” talks two weeks ago: booming entitlement spending and a tax code so complex that few defend it anymore.

Jennifer Steinhauer and Robert Pear contributed reporting.

Article source: http://www.nytimes.com/2013/01/01/us/politics/tentative-deal-is-reached-to-raise-taxes-on-the-wealthy.html?partner=rss&emc=rss

Fiscal Cutoff Gradually Morphs Into a Horizon

Until late last week, most observers had expected the president and Congressional Republicans to come up with at least a short-term compromise before the year-end deadline. But the failure of Speaker John A. Boehner to win support for tax increases on the wealthiest Americans from fellow House Republicans has forced many economic observers to reconsider what might happen if political leaders remain deadlocked into 2013.

Wall Street is still betting on a quick deal, but that confidence is misplaced, said Julia Coronado, chief North American economist at BNP Paribas. “Markets have been incredibly complacent about this,” she said. If a compromise cannot be found by Jan. 1, she said, “the markets will take that hard.”

Some hits — like a two percentage point increase in payroll taxes and the end of unemployment benefits for more than two million jobless Americans — would be felt right away. But other effects, like tens of billions in automatic spending cuts, to include both military and other programs, would be spread out between now and the end of the 2013 fiscal year in September. These could quickly be reversed if a compromise is found.

Similarly, the expiration of Bush-era tax cuts on Jan. 1 would not have a major impact on consumers if Congress quickly agreed to extend them for all but the wealthiest Americans in early 2013, as is widely expected.

Other probable changes, like a jump in taxes on capital gains and dividends, would most likely be felt over a broader period rather than as an immediate blow to the economy.

In the meantime, more observers are contemplating what the impact will be if Washington ignores the year-end deadline and waits until January or February to act.

“It’s still possible they will work something out by the end of the year, but the probability seems reasonably high that we may go into January with no agreement,” said Dean Maki, chief United States economist at Barclays Capital. “But the longer this goes on, the more nervous I get about first-quarter growth. If negotiations were to linger into March, then the first quarter could be much weaker.”

If the impasse lasted even longer and the full force of more than $500 billion in tax increases and spending cuts hit the economy, the Congressional Budget Office predicts the country would slip into recession in the first half of 2013, with unemployment rising to 9.1 percent by the fourth quarter of 2013. But for all the pessimism recently, most observers still think a compromise will be reached, even if it takes a few more weeks.

Negotiations are set to resume in the coming days, following a break for Christmas, although hopes for a so-called grand bargain have faded. Instead, President Obama is pushing for a scaled-back plan that would extend the Bush-era tax cuts on incomes below $250,000, while suspending the automatic spending cuts and extending unemployment benefits.

Michelle Meyer, senior United States economist at Bank of America Merrill Lynch, said there is a 40 percent chance of what she calls a “bungee-jump over the fiscal cliff,” with Congress failing to act until after Jan. 1 but eventually averting the full package of tax increases and spending cuts by mid-January. If that were to happen, she predicts a steep sell-off on Wall Street, which would quickly force political leaders to compromise.

Over all, Ms. Meyer estimates that the economy will grow by just 1 percent in the first quarter of 2013, well below the 3.1 percent pace recorded in the third quarter of 2012.

What’s worrisome, she added, is that consumer anxiety about the fiscal impasse has begun to mount, catching up with business leaders who have been warning of economic danger since summer. “What’s been missing in this recovery has been confidence,” she said. “We’d see a healthy recovery if it weren’t for this uncertainty and the potential shock from Washington.”

Indeed, the economy has been showing signs of life recently. Unemployment in November sank to 7.7 percent, a four-year low. Consumer spending has been picking up, and the housing market has continued to recover in many parts of the country. Overseas worries like slowing growth in China and recession in Europe have also faded.

Those trends have encouraged some observers, like Steve Blitz, chief economist at ITG Investment Research. He estimates that the economy will grow by nearly 2.5 percent in the first quarter if Washington comes up with even a modest compromise. In the absence of a deal, the pace of growth would be more like 1 percent, he said.

“I don’t think that not having a deal going into the new year is all that critical,” Mr. Blitz said. “It doesn’t mean you will immediately go into a recession.”

Article source: http://www.nytimes.com/2012/12/26/business/economy/fiscal-cliff-deadline-effects-economy.html?partner=rss&emc=rss

Faltering Budget Talks Hit Markets

Asian shares and United States stock index futures fell sharply in early trading on Friday after a Republican proposal to fend off a fiscal crunch failed to get enough support, deepening uncertainty over prospects for negotiations to avert automatic spending cuts and tax increases set to start in January.

“Markets dislike signs of further delay in talks, with the risk that a deal may not be reached by the end-of-the-year deadline,” said Yuji Saito, director of foreign exchange at Credit Agricole in Tokyo. “It clearly hit risk sentiment.”

Assets that carried a risk of devaluation were sold off, from stock shares to oil to currencies like the Australian dollar and the euro, which fell while the Japanese yen rose slightly.

Futures on the Standard Poor’s 500-stock index fell 1.5 percent on worries over the breakdown.

On Thursday, global shares rose as lawmakers in Washington continued in their budget negotiations, but gold prices tumbled to their lowest level since August on a burst of year-end selling.

Wall Street rebounded from early losses, after the House speaker, John Boehner, said he would keep working on a solution to the budget negotiations. Republicans in the House pushed ahead with their own plan to avoid a series of tax increases and spending cuts expected next month, complicating negotiations with the White House. President Obama has vowed to veto the plan, which would raise taxes only on the wealthiest Americans.

“Speaker Boehner went on the air and basically told us he doesn’t like what the president’s doing or not doing, and the markets rallied on that, which was kind of weird,” said Stephen Guilfoyle, a trader at Meridian Equity Partners in New York.

When that plan fell apart, well after the close of market trading, stock index futures, and Asian shares went into a swoon.

Investors have hoped for an agreement soon, but progress has been slow.

The lack of progress in Washington kept most markets in a virtual holding pattern. Currencies held to tight ranges in thin preholiday trade, and the euro seesawed against the dollar. In commodities markets, crude oil futures edged higher while Brent futures slid in choppy trade.

The Dow Jones industrial average was up 59.75 points, or 0.45 percent, at 13,311.72 on Thursday. The Standard Poor’s 500-stock index was up 7.88 points, or 0.55 percent, at 1,443.69. The Nasdaq composite index was up 6.02 points, or 0.20 percent, at 3,050.39.

NYSE Euronext, the operator of the New York Stock Exchange, had the biggest gains on Thursday, surging 34.1 percent to $32.25, after the IntercontinentalExchange said it would buy the company for $8.2 billion. Intercontinental rose 1.4 percent to $130.10.

The MSCI world equity index, which has risen steadily over the last five weeks on optimism that a budget deal would clear the way for stronger growth in 2013, was up 0.2 percent to near 343 points on Thursday. It remains near levels last seen in July 2011.

In Europe, shares stuttered as indexes approached levels considered overbought. The FTSEurofirst 300 closed virtually unchanged at 1,142.80 points.

In currency markets, investors struggled to gauge developments on the American budget talks against a backdrop of generally positive economic data in the United States.

The euro recouped earlier losses to gain 0.1 percent at $1.3226. On Wednesday, the euro hit an eight-and-a-half-month high of $1.3308.

In the oil market, crude in the United States settled 0.17 percent higher at $90.13 a barrel, after trading $89.26 to $90.54 a barrel in a thin market.

Interest rates were lower. The Treasury’s benchmark 10-year note rose 2/32, to 98 14/32, and the yield fell to 1.80 percent from 1.81 percent late Wednesday.

Article source: http://www.nytimes.com/2012/12/21/business/daily-stock-market-activity.html?partner=rss&emc=rss