Brad DeLong looks at the Obama unemployment forecasting record:
That is how IHS Global calls it:
The fourth-quarter GDP surge was produced by a sharp turn in the inventory cycle. Firms still cut inventories in the fourth quarter, but much less severely than in the third. That led to increased production, which boosted GDP. Final sales growth, a better guide to the underlying path of the economy, was much more sedate, at 2.2%, but that was still an improvement on the third quarter’s 1.5% pace.
The best news in final sales was on exports and business spending. Exports surged 18.1%, their second strong increase in a row. And there was a 13.3% increase in business spending on equipment and software (two-fifths of which came from computers). The improving trend in capital goods orders suggests more gains in equipment spending ahead. If firms are feeling confident enough to raise their equipment spending, they’re probably confident enough to start hiring again. That will support consumer spending, which showed a moderate 2.0% gain in the fourth quarter.
The weakest spot was business structures spending, down sharply again as the commercial real estate crisis took its toll.
We must be careful in drawing implications for the future from today’s release. There’s more help to come from the inventory cycle, since inventories were still falling in Q4. But we won’t see a boost as big as 3.4 percentage points again. And we’re doubtful that foreign trade can continue to be a plus for growth, as we expect imports to rebound.
The Q4 GDP surge doesn’t change the view that growth is likely to be subdued by historical standards, in the 2.5-3.0% region for 2010.
Or so says RDQ Economics:
The recovery from the Great Recession firmed in the fourth quarter as real GDP increased at its fastest rate since the third quarter of 2003. However, also as expected, a sharp slowing in inventory liquidation accounted for 3.4 percentage points (or 60%) of the 5.7% increase in real GDP. We are particularly impressed by the 13.3% increase in nonresidential investment (upside risk in this area was flagged by yesterday’s durable goods report).
We were also pleased that none of the growth came from government spending, which fell by 0.2%. From the Fed’s perspective, however, this report does not bring a rate hike closer. First, the unemployment rate rose from 9.6% in the third quarter to 10.0% in the fourth (raising upside risk to the estimates for potential growth). Second, the GDP deflator increased by only 0.6% (although, perhaps counter-intuitively, this modest gain was due to the subtraction effect of higher import prices, which surged 16.3%—the price index for domestic purchases rose 2.1% in the fourth quarter, which is a measure of what people and businesses paid, whereas the GDP price index measures the price of what the U.S. produced).
Nominal GDP growth was a robust 6.4% in the quarter (and 0.8% year-over-year). As the addition to growth from inventories fades somewhat, we see growth in the first quarter of 2010 at around 2½%
Scott Brown’s stunning capture of the Massachusetts Senate seat held for decades by Ted Kennedy was a political black swan, a near-unpredictable event.
The result ends the Democratic supermajority in the Senate and leaves key parts of the Obama agenda in deep trouble. But the biggest loser just might be Wall Street. Desperate Democrats may see anti-bank populism as a way of holding power as the November midterm elections approach.
The last days of the heated Senate race saw the first attempts at that political gambit. Democratic candidate Martha Coakley’s allies in Washington, both the White House and national Democratic officials, used President Barack Obama’s proposed bank tax as a cudgel to bash Brown via emailings and telephone calls.
But the game was probably over by then for Coakley. A combination of high unemployment, an unpopular healthcare reform bill and the candidate’s own lack of charisma and effective experience were more than enough to clinch an easy Brown victory.
A historic victory, really. It is hard to overstate just how “blue” a state Massachusetts is. Obama won it by 26 percentage points in 2008. Until now the state’s 10 U.S House members, two U.S. senators and all statewide officers were Democrats. The state hasn’t had a Republican U.S. senator since 1979. And, of course, the seat Brown captured had been held by the late Edward Kennedy since 1962.
Now Brown’s victory threatens the healthcare reform bill that Kennedy championed on his deathbed. Democrats could still ram it through before Brown makes it to Washington. But potential legal challenges make that unlikely.
As it is, Brown’s election is enough of a systemic shock to freeze the political process on Capitol Hill. Moderate Democrats in both chambers are nervous about their previous “yes” votes for healthcare. They may be unwilling to make any more. The prospects look even bleaker for cap-and-trade energy legislation, a bill with even less support than healthcare.
Financial reform legislation was already likely to get milder rather than stronger. But not so the rhetoric. Unable to trumpet the economy, hitting Wall Street is one of the few political bullets Democrats have left.
So expect the Obama administration to go all out for the bank tax with increasingly harsh words for big financial institutions. Democrats may also be more willing to consider controversial proposals banks hate, like letting judges rework mortgages. But given the Massachusetts precedent, it may not be enough to save the party from a wipeout in the fall.
The U.S. Congress, particularly the Senate, has been a graveyard for aggressive financial reform. And banks are hoping President Obama’s new bank levy will suffer a similar fate. They shouldn’t count it. A clever design and a determined White House push mean Wall Street may have to pay up.
At first glance, the proposal would seem to have no better chance than a number of other relatively tough measures stuck on Capitol Hill. A transaction tax — often called a Tobin tax — and a supertax on bank bonuses are among ideas that appear to have no future. For each, support in the Senate has been lacking.
But smartly constructed policy can make the politics easier. Legislators see easily the logic in focusing a tax on the liabilities of institutions that make use of hot, wholesale sources of finance. Structurally, that looks a lot like the levies the Federal Deposit Insurance Corporation charges for deposit insurance — and the government’s recent role rescuing banks wasn’t so dissimilar from what FDIC does with deposits. (Though it still seems likely that it will nick credit availability.)
Also, the tax is supposed to hit investment banks hardest. That means it can be billed as the Goldman Sachs Tax. In Washington as in Hollywood, an obvious villain helps sell a story.
The Obama administration views the tax as a splashy way of touting policies designed to prevent a repeat of the financial crisis. Unable to loudly trumpet an economic recovery as November’s elections loom, a populist battle against Wall Street is seen as the next best boost for Democrat candidates.
Republican objectors will be forced to side with the banks. And there just might be fewer Senators willing to do that than Wall Street needs. While there are a couple of Democrats whose support can’t be counted on, Republicans Chuck Grassley of Iowa and Olympia Snowe of Maine cosponsored a bill last year that would have taxed bonuses at banks that received government help. They and other moderates in the GOP might support the tax if they believed it would help reduce the U.S. deficit.
At the same time, any notion that the bank levy could become a permanent tax would rally Republicans against it. But as things stand, the tax — rather surprisingly — seems to have avoided being seen as dead on arrival.
Labor unions are balking at President Barack Obama’s move to pay for healthcare reform by taxing their gold-plated health benefits. So Democrats are considering also taxing investment income. Not only would that approach make reform more costly and potentially worsen the U.S. fiscal deficit, it could politically doom the whole plan.
As things stand, the year-end expiration of the 2003 Bush tax cuts means top rates on capital gains and dividends automatically rise unless Obama and congressional Democrats intervene. Now, in addition to that, if organized labor prevails in killing a plan to slap a 40 percent excise tax on its members’ pricey health plans, investors can expect to tack on an additional one or two percentage points. That would push the peak cap gains rate to 22 percent and dividends to 42 percent.
To appease these powerful special interest groups some congressional Democrats suggest for the first time extending a portion of the current 3 percent Medicare payroll tax on labor income to investment income for individuals making $200,000, a group that pays some 80 percent of investment taxes. With this source of revenue – perhaps $10 billion a year or more — the tax on union health plans could be scaled way back.
Setting aside the negative impact this could have on the formation of risk capital and savings more broadly, a health plan tax is a key mechanism for controlling rising costs. Expensive and untaxed health plans encourage overconsumption of healthcare. Arguably all deductions for health benefits should be removed to eliminate this distorting subsidy.
Taken as a whole, new investment taxes run the risk of weakening Senate support for reform – the loss of even a single vote would be lethal — since the upper chamber has shown little interest in new taxes on capital. Coming at a time when Americans’ net worth has fallen $11 trillion, it shouldn’t be hard to find one principled Senator willing to quash this misguided attempt to succor labor at the expense of investors.
That’s the DC buzz, that the WH will use bank tax to de facto pay for a 1-2 year extension of ALL the Bush tax cuts, including capital gains. The assumption was that the wealthier folks would be left out. But this would give Ds a tax cut to vote. With unemployment high and maybe going higher, Ds are scrambling for ideas.
Talk about one last gasp from the horrible year that was 2009. On the political front, the December jobs numbers were terrible news for the White House and congressional Democrats in a midterm election year. Here’s how it plays out:
1. Remember this simple formula: Unemployment drives presidential approval numbers, and presidential approval numbers drive midterm election results.
2. President Barack Obama’s approval numbers are hovering just a tick below 50 percent. Since 1962, the average House midterm loss for the president’s party when his approval is sub-50 percent is 41 seats. The GOP needs 40 to take the House.
3. And make no mistake, the December unemployment numbers were bad both economically and politically. The 85,000 job loss was worse than expected and will be played that way the media. The continuation of double-digit unemployment also resonates with voters. And not a in a good way.
4. Then will come the second-take stories that will notice the shrinking labor force, which dropped by nearly 700,000 from November. Had it stayed stable from last month, the jobless rate would have been 10.4 percent. Had it stayed stable since August, the jobless rate would be 11 percent!
5. But wait, there’s more! The U-6 rate rate which combines the basic jobless rate, discouraged workers, part-timers-who-would-rather-be-full-timers climbed to 17.3 percent. And the average duration of unemployment rose to a record high 29.1 weeks.
6. Also, there is every indication that as the slowly growing economy eventually draws workers back into the labor force, the jobless rate will creep up to new highs. (Big companies remain cautious about hiring, and small biz remains under pressure due to tight capital markets.) The validity of the Obama recovery plan will seriously be cast in doubt.
7. The sickly labor market will also make it that much harder for the White House and Hill Dems to celebrate what is likely to be a brisk upcoming GDP report in the 4-5 percent range. That seems like an abstract number compared to the unemployment rate.
8. Combine a weak labor market – which may appear to be getting worse to voters – with the moribund housing market and rising gas prices, and you have a toxic triple threat that will be poisonous to Democratic incumbents and further drain Obama’s political capital.
9. Also, watch how these numbers play with Senate and House Dems thinking about resigning like Chris Dodd and Byron Dorgan. A big improvement in the jobs numbers might have reassured any worriers that 2010 might not be as tough as some currently think. Now it looks a bit more like the worst fears of Democrats might be realized: losing the House and a half-dozen or more Senate seats.
I think the “jobless recovery” meme stays firmly in place. Beyond the 85k jobs loss was the sharp drop in the labor force participation rate. If another 600k+ workers had not dropped out of workforce, unemployment rate would have been 10.4 percent. Here is what I have tweeting on the subject this AM:
Gallup’s chief economist, Dennis Jacobe:
We’ve just gone through the worst financial crisis since the Great Depression, and economies don’t recover from that kind of thing overnight.
What led to this artificiality was that governments and monetary institutions around the world, led by the U.S. Federal Reserve, took unprecedented actions to mitigate the effects of the financial crisis. … In addition, the United States has undertaken an unprecedented amount of spending, ranging from TARP [the Troubled Asset Relief Program] and the auto industry bailout to the stimulus program and expansion of the social safety net. As a result, future federal budget deficits are also going to be unprecedented for years to come. Combined, these fiscal and monetary policies have led to sharp declines in the value of the dollar, a surge in commodity prices, and even serious questions about the role of the dollar in the global economy.
All of this seems to have worked in the short term, and the world economy is much better off in terms of its financial stability than it was a year ago. … A lot of what we’re currently seeing is more of a mirage than reality — and people should be wary of the false signals that may have come from these emergency actions. In a sense, we’ve put the global economy on “steroids” — and we know there will be long-run consequences — but even more importantly, we know these “steroids” are creating distortions in our normal measures of global economic well-being.