Economy Watch: Compromise on Tax Cuts, Unemployment?
- Dec 07, 2010
December 7, 2010
By Dees Stribling, Contributing Editor
The lousy November employment numbers might have put a little fear in the hearts of the legislative and executive branches–2012 is only a heartbeat away, after all, in politico-time–and apparently a compromise has been reached on the fate of the “Bush-era tax cuts” as well as extending unemployment payments. Or maybe not. The agreement described by President Obama was tentative, something he called “a framework for a bipartisan agreement.”
Still, the deal would extend the current tax rate for everyone who still has an income for two years, while maintaining unemployment benefits for those who do not for 13 months. Among other things, it would also cut payroll taxes as a way to encourage businesses to hire, and revive the estate tax, which had completely disappeared as of 2010, though with a lofty exemption of $5 million for individuals and $10 million for couples.
The president acknowledged that his party doesn’t much care for the plan, but he asked them to vote for it anyway, since raising taxes for middle-class taxpayers and cutting off unemployment checks at this juncture would be too high a price just to make a point. “Sympathetic as I am to those who would prefer a fight to compromise, it would be the wrong thing to do,” the president said. “The American people didn’t send us here to wage symbolic battles.”
Employment Trends Index Up in November
Despite the bum employment numbers last week, the the Conference Board Employment Trends Index increased in November for the second consecutive month, according to the organization on Monday. The index now stands at 99.0, up from October’s revised figure of 97.6. The index is up 9.3 percent from a year ago.
November’s increase was driven by positive contributions from seven out of eight of the index’s components, noted the Conference Board. The improving indicators were Initial Claims for Unemployment Insurance, Percentage of Firms With Positions Not Able to Fill Right Now, Number of Temporary Employees, Part-Time Workers for Economic Reasons, Job Openings, Industrial Production and Real Manufacturing and Trade Sales.
Tellingly, the only component not moving in a good direction in November was Percentage of Respondents Who Say They Find “Jobs Hard to Get.” So maybe that helps explain the divergence between the index and office unemployment numbers: employers are thinking really, really hard about hiring some more workers, but haven’t actually gotten around to it.
Lacker Points to Housing Hangover as Anchor on Growth
Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, did not have particularly encouraging words to say about the real estate industry, residential or commercial, when speaking to the Charlotte Chamber of Commerce on Monday for its Annual Economic Outlook Conference. “The 10-year housing boom that began in the mid-1990s resulted in significant overbuilding in many regions,” he noted. “… This overhang has dampened housing activity in many local markets and kept housing starts barely above a half million units at an annual rate. As a result, residential investment has failed to make a positive contribution to growth in this recovery.”
Nonresidential building has been likewise lackluster, but not surprisingly so. “Investment in nonresidential structures, such as stores, office buildings and warehouses, also has been anemic,” Lacker said. “Spending in this category fell 18 percent during the recession, and has fallen an additional 17 percent since, taking four-tenths off real GDP growth. That’s par for the course, though, since nonresidential investment normally lags the rebound in overall economic activity.”
Wall Street ended up mixed on Monday. The Dow Jones Industrial Average lost 19.9 points, or 0.17 percent, while the S&P 500 was down 0.13 percent. The Nasdaq, on the other hand, was up 0.13 percent.