Obama needed a filet mignon in the June employment report. Instead he got a rubber chicken.
Only 80,000 new jobs were created last month, way below Wall Street expectations. It’s the fourth consecutive monthly disappointment. For a few months last winter, jobs were rising at an average of 225,000 a month. But that has sloped way down to only 75,000. The unemployment rate continues at 8.2 percent, which is the forty-first straight month above 8 percent. The U6 unemployment rate, which includes discouraged workers, is just under 15 percent.
As voters finalize their election impressions this summer, all of this is bad news for the Chicago incumbent.
In the hours following the Supreme Court’s decision to ratify Obamacare, Romney got $4.6 million in donations from 47,000 individuals. The tide is with him. The Supreme’s are a game changer.
But Romney has to make the case. He needs to link the anemic jobs and economic situation to the Obamacare tax, spend, and regulate fiscal drag. And he has to add to that mix the dangers to our freedoms embodied in Justice John Roberts’s expansion of the power to tax our personal behavior.
Of course the stock market dropped about 130 points. Twenty new or higher taxes across-the-board are bad for economic growth, bad for job hiring, bad for for investors, and bad for families.
A tax is a tax is a tax, according to Judge Roberts. But he forgot to say that if you tax something more, you get less of it.
Presumably Mitt Romney will make this case in a major way. Hopefully he won’t forget that Obamacare is not just a huge tax hike. It’s also a major new spending entitlement that’s already pegged at $2.5 trillion and will increase the federal debt burden much faster than the GDP expands.
In other words, tax, spend, regulate, borrow. The Obama mantra. Romney must go after it — time and time and time again.
Bankrupting the economy is not exactly a job-creator.
It may well be that the complex tax-and-regulatory mandates embodied in Obamacare have proven to be a deterrent for business job creation. You hear it all the time from men and women in business — especially smaller businesses, but large companies too.
However, color me skeptical that business will embark on a hiring binge if the Supremes overturn the Obamacare mandate tomorrow. Why? Because the uncertainty premium about future health-care policy is still going to be high, and it won’t be resolved until well after the election. Businesses will have almost no idea what Congress will propose if the Supreme’s strike down Obamacare.
For example, it’s going to take money and high insurance premiums to cover preexisting conditions. There also are the stay-at-home 26 year olds and the so-called health-care market exchanges among the states. There are many other issues to be resolved, but the big question is: How will they be financed?
Will there be a tax? Will there be regulations?
One thing’s for sure. A pure free-market health-care system is not going to happen. Many Republicans talk about a patient-centered consumer-choice system, which would be great. Give consumers tax credits for the same deductions that businesses now have. That also would be great. Include interstate insurance competition. Another winner. Tort reform. Another plus.
But the fiscal reality for health-care insurance and payouts to doctors in hospitals is going to be up in the air for quite some time. It’s a known unknown. And because of that, I think businesses are still going to sit on their hands until they know with greater certainty what the costs of hiring the extra worker is really going to be.
For the foreseeable future, there’s no economic miracle if the Supremes strike down Obamacare (as I believe they will).
The run-up to the presidential election is really a debate about growth and taxes, Senator Marco Rubio of Florida told me on Monday’s Kudlow Report.
“Growth helps the debt be more manageable, unemployment, all of these things,” he said. “Tax increases do not lead to growth. The reason why I oppose increases in taxes is not some religious objection, or even an ideological one. It is the knowledge that increasing taxes discourages growth.”
Rubio said that taxes remove money that was going to be spent into the economy. “When the government spends that dollar, they’re going to be a lot less efficient, a lot less stimulative,” he said.
Rubio, who is being considered for the vice-presidential slot by Mitt Romney, also spoke about the debt crisis, health care, and Arizona’s controversial immigration law, on which the U.S. Supreme Court ruled Monday.
I asked him whether there could be a compromise like the one former Florida governor Jeb Bush mentioned in an earlier appearance — $10 of spending cuts for every $1 of revenue increases. Rubio held firm: “I’ve always believed that was a false choice. The goal is not to give each side what they want. The goal is to solve the problem.”
Hours after the nation’s highest court upheld one of the most controversial parts of Arizona’s immigration law — that police can make checks for immigration status — Rubio agreed with the decision. “I’ve always believed the Arizona immigration law was constitutional,” he said. Rubio, the son of Cuban immigrants, also admitted that he had “mixed feelings” about it initially.
Rubio said, “I understand why Arizona did it. I understand why the people of Arizona are frustrated. I believe they have the 10th Amendment right to pass that law.”
Part of the law that was upheld instructs law-enforcement officials to verify the immigration status of anyone they detain. But Rubio said the federal government needs to fix the problem with several steps: “Secure the border, have an electronic verification system in place, and modernize our legal immigration so it reflects the 21st century needs of our country.”
Weighing in on health care, Rubio said he would like to see Obamacare replaced with a free-market system in which insurance companies compete for consumers’ dollars.
“I think once there’s more choice, once the consumer is in charge of their health-care dollars, the market’s going to meet that demand,” he said. “Now, all of a sudden, companies are going to try to figure out how to make themselves more attractive so that you choose them over somebody else. Right now they don’t have to do that.”
Rubio added, “From the point of view of the marketplace, insurance companies, if they want my business, if I control my health-care dollars, and I get to choose from any insurance company I want, I’ll go to you and say, ‘Hey guys, I would love to buy your insurance, but I have a kid who is sick. Will you cover them as well? Because this other guy will cover them, and I’ll go with them if you don’t do the same.’ I think that now the consumer is empowered to make that argument.”
Rubio said that for chronically ill Americans, state governments could create high-risk pools to provide insurance. “I think that’s the one focused, narrow place where government — state government — can be helpful to folks,” he said.
Is it possible that we are already in a global recession but just don’t know it yet? And is the U.S. itself — still the epicenter of the world economy — standing on the front edge of another recession?
I sincerely hope I’m wrong. But warning signs are everywhere.
You didn’t see it in the mainstream financial media Wednesday morning. But stocks loved Governor Scott Walker’s spanking of public-sector unions and Democrats in Wisconsin. The Dow jumped about 165 points right at the opening on Wednesday, and was up over 200 points later in the day. There really was no other news. There was some speculation about central bank stimulus in Europe and the United States. Blah, blah, blah. But there was nothing specific or concrete.
So it’s an easy point to make: Markets love the Scott Walker landslide.
Tuesday night on The Kudlow Report, two investment gurus predicted a bullish market if Walker won. Art Hogan of Lazard Capital and Mike Ozanian of Forbes both forecasted a Walker rally. And that’s just what we got Wednesday morning.
The logic? Well, mainly, a big Walker win opens the door to a Wisconsin victory for Mitt Romney this fall. Think of Walker as the leading indicator for November.
Noteworthy in the Walker victory was a huge GOP get-out-the-vote ground game, set up by Reince Priebus, the Wisconsin native and Republican National Committee chairman. Priebus said he was confident that the superior ground game will be there in November for Romney. And if Romney takes Wisconsin, it could by Katy bar the door for a national GOP landslide.
But the other bullish point is that stock market investors prefer low taxes to high entitlement spending. The grassroots taxpayer tea-party revolt that carried Scott Walker to victory is alive and well around the country. (By the way, in California, San Diego and San Jose just voted in government-union pension cuts.) Collective-bargaining restraint, higher co-pays for pension and health-care benefits, and an end to mandatory dues-paying for Big Labor’s political slush funds are all bullish policies that come out of the Scott Walker win. So is a huge drop in government-union membership in Wisconsin.
Public-sector unions are in retreat.
The stock market is a gauge of future economic growth. Balanced budgets without income-tax hikes in Wisconsin, plus lower property taxes as a result of Scott Walker’s leadership in curbing government-union excesses, is a national message for economic growth.
And at the national level it seems clear that Mitt Romney gets all this. He gets smaller government, Social Security and Medicare reform without tax hikes, and quite possibly pro-growth tax reform. In other words, Romney understands the game-changing nature of the Scott Walker victory.
Remember this: Stock owners who make up the massive investor class — roughly 100 million people — are among those most likely to vote in the November election. That’s what history shows. So a union-rollback, low-tax, limited-government, pro-growth message is just what the investor class wants. That is a Romney message, not an Obama one.
Romney is almost universally regarded as the market-friendly, pro-business candidate. He got a big leg up Tuesday night with Scott Walker’s dramatic win. That’s why stocks surged on Wednesday.
You would think $1 trillion in spending stimulus and $2.5 trillion of Fed pump-priming would produce an economy a whole lot stronger than 1.9 percent GDP, which was the revised first-quarter number. And you’d think all that government spending would deliver a whole lot more jobs than 69,000 in May.
But it hasn’t happened.
The Keynesian government-spending model has proven a complete failure. It’s the Obama model. And it has produced such an anemic recovery that frankly, at 2 percent growth, we’re back on the front end of a potential recession. If anything goes wrong — like another blow-up in Europe — there’s no safety margin to stop a new recession.
House Speaker John Boehner is playing a heroic role right now. In his efforts to prevent the Bush tax cuts from expiring, Boehner is aggressively taking on President Obama’s leadership ineptitude on the economy. In essence, Boehner is pushing a Republican policy to wrap up a debt-limitation bill and extend the Bush tax cuts in one fell swoop before the election — and before all the last-minute, crisis-oriented, political machinations that would come in a lame-duck Congress, threatening another credit downgrade and leading to a business-hiring freeze and plunging stock market, all of which happened last year.
Tax-cut certainty is so vital right now because the anemic economic recovery may be moving towards deflation. That’s the message of a gold price that has collapsed by near 20 percent, falling from around $1,900 an ounce to the mid-$1,500s. With a risk-averse economy at home, and with the Greek and European financial crises abroad, the demand for dollars seems to exceed the dollar supply printed by the Fed. This could be solved by more quantitative easing. But a better approach for a system already oversupplied with unused liquidity would be the extension of tax-rate growth incentives, not more monetary pump-priming.
While President Obama is out on the campaign trail talking about how bad things were four years ago, and how we have to go “forward” to his second term to see just how great things are going to be in the next four years, the biggest problem he’s got is the here and now.
Real GDP in the second quarter stalled at 2.2 percent. There were a paltry 115,000 new jobs in April. The labor force shrank by 342,000 for the month, and the 63.6 percent labor-force participation rate is now the lowest since 1981. There are roughly 23 million people classified as either unemployed, underemployed, or no-longer-looking. And median household income has dropped by $4,300 during Obama’s time in office. This all adds up to a tough indictment of the administration’s economic policies.
After declaring that the world is in a state of “late Great Depression” on Tuesday, renowned Yale economist Robert Shiller hedged his words on that evening’s Kudlow Report. “Did I say that?” he remarked. “Well, I think there are a lot of analogies to what we’ve been going through to that of the Great Depression, but I don’t really think we’re in a depression, so I might have said it slightly wrong.”
Shiller, co-developer of the Case-Shiller index on housing trends and author of Finance and the Great Society, told me that while the U.S. is not in recession, certain elements of the economy resemble one. “The persistence of high unemployment is a problem,” he said, along with interest rates at “depression levels.”
On Monday, in an interview with Squawk Box Europe, Shiller said the world is in a “new age of austerity.” He said, “Our whole economy has been affected by variations in confidence. Central banks are sort of trusted, but the actions they have often affect people’s confidence by appearance rather than substance. We’re not in the most trusting mood now.”
And when I asked him on Tuesday whether the economy is in a recovery, Shiller said “not quite.”
“Depends on how you define these things. In some ways, we are not in a recovery. Look at the employment-population ratio. It’s stuck at 58.5 percent. That’s kind of close to the lowest it’s been in this whole debacle,” he said. “We haven’t recovered jobs. Unemployment rate is down, but that is because people have left the labor force.”
Shiller also reiterated his support for Keynesian stimulus. “I’ve been advocating raising taxes and expenditures as a temporary measure to get us out of the weak economy,” he said. “That’s the balanced-budget multiplier first proposed by William Salant and Paul Samuelson in the 1940s. Now’s the time to use it.”
And when I challenged him on the idea that President Obama’s stimulus hasn’t worked, Shiller defended it. “We’ve had a worse recession than anybody expected,” he said. “I don’t think it proves that the principle is wrong. I think we need to do that. We can’t give up on the economy.” Shiller claimed that the Obama stimulus has had “no impact on the natural debt.”
He did, however, say that he still believes in market forces. “I would like to see financial markets expanded,” he said, adding that he had faith that the stock market was still a good bet.
Asked to weigh in on Jeremy Siegel’s prediction that the Dow would hit 17,000 by the end of 2013, Shiller took a more modest outlook. “I agree with [Siegel] that stocks are a good investment,” he said. “I’m just not as high and gung-ho as Jeremy is.”
Businesses aren’t investing in the U.S. because of a lack of consumer demand, International Paper CEO John Faraci told me on Friday’s Kudlow Report. “I think this was all about consumer spending and demand,” he said. “You know, the problem we have is there’s inadequate demand to create jobs. We know how to respond when there is demand.”
The U.S. Commerce Department estimated that gross domestic product expanded at a 2.2 percent annual rate in the first quarter, falling short of analyst expectations for 2.5 percent growth and coming in well below the fourth quarter’s 3 percent rate.
Faraci said consumer spending has been dampened partly because the nationwide housing market has yet to recover. “Until it does,” he said, “we’re not going to see the kind of consumer spending you would expect coming out of a recovery.”
When I asked Faraci why companies are not investing, he once more pointed to demand that has not materialized. “Productivity has obviously been very good, so we’re creating more capacity with less resources,” he said. “But at the end of the day, this is really about responding to demand, whether its automobiles or packaging products we make for a whole variety of industries and end users.”
“We’re investing in India. We’re investing in Russia. We’re investing in Brazil,” Faraci added. “Not to ship products back here, but because demand exists in those markets. At the end of the day, this is really about responding to demand. We’re not going to go out and invest unless there’s demand.”
Don Peebles, CEO of Peebles Corp., a real-estate developer, agreed with Faraci that housing remains a drag on the economy. Where a strong market, cheap money, and high leverage fueled growth before the financial crisis, Peebles said “the housing market is not [now] able to carry the economy.” According to Peebles, “Americans’ wealth has been decimated as a result of the lost value in their homes.”
Peebles also acknowledged that rising health-care costs and uncertainty over taxes are a challenge. But he added that the number-one issue is access to capital.
Rounding out Friday’s business panel was Mort Zuckerman, founder of real-estate investment trust Boston Properties and publisher of the New York Daily News and U.S. News & World Report. Zuckerman blamed the housing-market collapse, as well as health-care costs and an “inadequate, badly structured stimulus program,” for today’s lackluster growth picture.
“Clearly,” Zuckerman said, “you should’ve had a GDP growth now of somewhere between 6 and 8 percent, with the degree of monetary and fiscal stimulus.”
Is Tim Geithner the most politically partisan treasury secretary in history? Certainly sounds like it these days. As the government’s chief financial officer, he’s spending a lot of time firing campaign barbs at various Republicans and their policies.
Geithner has blasted Mitt Romney by name on several occasions. He frequently attacks Representative Paul Ryan and the GOP budget. And he recently fired a broadside at top-Romney economist Glenn Hubbard, who is presently dean of the Colombia Business School.
Responding to a Hubbard op-ed in the Wall Street Journal — which calculated that the president’s spending plans would require an 11 percent tax increase on people earning less than $200,000 a year — Geithner said, “That’s a completely made-up, remarkably hackish observation for an economist.”
Wall Street headlines are full of fears of a springtime stall for the already subpar economic recovery. And if that weren’t bad enough for Obama’s reelection chances, a spate of new polls show Mitt Romney’s economic-approval ratings are far outdistancing the president’s.
Even while the headline surveys basically show an Obama-Romney tossup, it will be very difficult for Obama to pull out a victory this fall. Traditionally, incumbents who poll below 50 percent are in trouble. And with Obama consistently in the mid-40s, he has a tough uphill climb ahead.
In my latest interview with Mitt Romney, the former Massachusetts governor emphatically defends his own business success against Obama’s class-warfare/Buffett Rule/Romney Rule attacks. Don’t look for Mitt to back off from his free-enterprise vision.
He also told me hewill go after HUD and DOE for budget cuts and consolidation, along with a slew of other agency cuts. He also will roll back tax deductions for upper-earners while he lowers marginal rates by 20 percent across-the-board. He does not want more stimulus from the Fed. And he thinks blaming speculators for high energy prices is completely wrong.
He would roll up his sleeves to deal with taxmageddon immediately during his transition if elected. And wants his veep to be able to lead the country as president if that were necessary. He believes women can meet that requirement, as well as men.
In President Obama’s latest class-war, tax-the-rich gambit, he has stooped to a new low with misleading and out-of-context quotes from Ronald Reagan. Apparently, the president is now trying to use the Gipper for cover while he attacks Mitt Romney with the so-called Buffett Rule.
In an address this past week, Obama cited a couple of Reagan speeches from June 1985, in which the former president quoted a letter from a wealthy executive who grumbled that he paid less in taxes than secretaries or bus drivers. Obviously, Obama was trying to draw a parallel with Warren Buffett’s complaint that his tax rate is lower than his secretary’s, and to the resulting Buffett Rule, a proposed 30 percent minimum tax on millionaires. With a tongue-in-cheek flourish, Obama referred to Reagan as “that wild-eyed, socialist, tax-hiking class warrior.”
Despite the disappointing jobs report for March, it’s very difficult to make a realistic case that the economy is falling off a cliff, or that some kind of double-dip recession is on the way. Or that a Ben Bernanke QE3 is likely.
Sure, the 120,000 gain in nonfarm payrolls — roughly half of expectations — is causing a downgrade in growth psychology. Ditto for the 31,000 drop in household employment. But if you smooth out these numbers over three months, payrolls have averaged a 212,000 increase, while small-business household jobs are still up a big 415,000.
But let’s not forget other data points: ISM indexes in the mid-50s are still reasonably strong. Consumer confidence has been rising. Jobless claims have been falling. Car sales are solid. And chain-store sales are beating expectations. It still looks like a 2.5 to 3 percent economy.
You wouldn’t know it from falling stocks, but the Fed’s apparent decision to hold off on future bond buying, or QE3, in response to an improving economy may turn out to be a very bullish omen for the equity market and the economy.
In fact, less stimulus from the central bank sets up a potential tax-cut effect. Here’s why: Limits to the Fed’s $3 trillion balance sheet will bolster the value of the dollar.
The beleaguered greenback has fallen roughly 40 percent over the past ten years as a result of the Fed’s interventionist go-stop-go policies. Since the banking crisis of 2008, the dollar has dropped 8 percent.
But as the Fed ended QE2 last year, and as its bond-buying “operation twist” comes to an end in June, the dollar has started rising. In response, gold prices have been falling significantly. Slower money creation will do that.
And along with gold, oil prices are now slipping lower, with West Texas crude approaching $101. Still too high, but much less scary. Wholesale unleaded gas prices also could fall in response to the drop in crude, which might take the pressure off retail gas at the pump. If that’s the case, and the King Dollar scenario plays out, the recent energy-price shock could reverse, imparting a mild tax-cut effect on consumers and businesses.
Although Bernanke & Co. do not target the dollar, a stronger greenback is the surest way to bring down energy and food prices, which all too often have plagued households and the economy.
The Joint Economic Committee has estimated that the cheap dollar has contributed about 45 cents to the rising gas price. Lately, with the drop in crude oil, nationwide gas prices could be starting to level off at just over $3.90 — even though refiner closings and bottlenecks in some parts of the country have pushed that price much higher.
No, a stronger dollar won’t offset the failure to implement the Keystone Pipeline. But it could provide some motorist relief at the pump.
The point is, if the Fed quits printing new money, the value of dollar money will go up. And the inflation tax will go down. Despite Ben Bernanke’s economic worries, the Fed is beginning to see that the economy is at least growing by roughly 3 percent. That’s not fabulous, but it’s not bad either.
The latest ISM surveys for manufacturing and services, the decent 209,000 ADP employment report for March, and pretty good car sales all suggest that the first-quarter economy was just as good as the fourth-quarter economy. And these economic stats are moving the Fed away from more easing moves. Hence, King Dollar is recovering at least a bit.
The dollar view on the economy and stocks is a minority case, but a very important one that should not be overlooked. During prior stock market booms, particularly in Reagan’s first term and Clinton’s second term, King Dollar rose and gold fell, oil prices came down, and foreign capital sought out dollar investments in the U.S. because of the reliability of the currency.
As Ronald Reagan famously said, “There you go again.”
Of course, Reagan was blaming Jimmy Carter for launching false attacks during a debate. And that line was so effective, it not only helped Reagan win the debate, but a presidential election that would change American history.
But “there you go again” can apply equally to President Obama. Once again this week, the president was out on the campaign trail bashing and oil and gas companies. And he continued to spread major falsehoods about this industry, which I guess is the polite way to put it.
If the Supreme Court overthrows the individual mandate, doesn’t Mitt Romney say “I told you so” and emerge as the big political winner?
All along he’s been arguing that only states have mandate power, and that the federal government under the commerce clause, or any other law, is guilty of massive regulatory overreach with Obamacare.
While fending off criticism from Rick Santorum and others about the Massachusetts mandate, Romney has always said it was a state issue, not a federal one. And if the Supreme Court agrees, it would have to give the former governor a leg up in credibility with Republicans and the general public.
President Obama, meanwhile, would emerge as a big political loser. Obamacare was the central signature domestic economic plan for his administration. What else does he have to show for nearly three and a half years in office? An $800 billion stimulus plan that didn’t work? A tax on rich people? An assault on oil and gas companies?
Besides Obamacare, what can the president really point to as an accomplishment?
The other big winners in the event the mandate is overturned are business and the economy. Talk to almost any CEO and they’ll tell you that the tax-, regulatory-, and insurance-cost threats from Obamacare have stopped them from hiring. Or, if they have made new hires recently, they’ve gone a lot slower than would have been the case without Obamacare. Remember how many companies asked for Obamacare waivers this past year. That shows their distaste for the legislation.
Of course, there’s still the huge tax cliff coming early next year, when virtually the entire tax code is upended. But Obamacare, with all its tentacles, has been a huge growth impediment. The Supreme Court could remove that jobs barrier, not to speak of the potential fiscal bankruptcy suffered from the gigantic costs of new Obamacare entitlements.
Mitt Romney’s job in a post-Obamacare world is to show voters what his alternative would be. In a recent op-ed in USA Today, he begins to set this out: tax benefits for individuals purchasing insurance outside their workplace; more competition and consumer choice for insurance plans; medical-malpractice reform; interstate insurance options; and state-determined insurance protection for those with preexisting illnesses. All this is a good start. Rather than a government-run health-care reform, Romney is pushing a market-run reform, which has long been a Republican idea.
So we’ll see in a couple of months how the Supremes decide the Obamacare case. But Romney, the likely GOP nominee, is well positioned to take advantage of a scenario where the Obamacare federal takeover is rejected.