The U.S. economy added 200,000 jobs in December to push the national unemployment rate to a three-year low.
Unemployment fell for the fourth consecutive month to 8.5 percent, its lowest level since June 2009, while the number of unemployed persons also fell, to 13.1 million. The unemployment rate has declined by 0.6 percentage point since August.
Job gains occurred in transportation and warehousing, retail trade, manufacturing, health care, and mining. Manufacturing employment expanded by 23,000, following four months of little change.
These are the kind of numbers we need to see, month after month, to bring employment and the economy back.
December tends to be tricky in terms of seasonal adjustment, because of year-to-year fluctuations in holiday-related hiring. But the December surge is supported by a string of favorable weekly reports on unemployment claims.
Job growth remains disproportionately heavy at the lower end of the job market. Many workers remain underemployed in terms of their skills, or because they are part-time or in temporary positions.
Manufacturing and higher-end business services - sectors with good jobs - have grown, too, but they also suffered terrible losses in the recession. And government has bled jobs fairly consistently, correcting for Census hiring in 2009-10.
What’s important now is to put together a series of months at least this good. That will get a lot of people into work, bring down the unemployment rate, and build consumer confidence and consumer spending.
Challenges on both sides of the Atlantic - the European debt crisis and the uncertain outcome of the Congressional budget-cutting “super-committee” - threaten to derail a strengthening U.S. recovery, economist Nigel Gault said this morning.
The chief US economist for IHS Global Insight told the AIM Executive Forum that the U.S. could veer toward recession if the Eurozone crisis ignites a financial contagion. The stakes for the super-committee are less immediate, Gault said, but a failure by the panel to develop a comprehensive debt reduction strategy next week would nevertheless still create significant fiscal uncertainty throughout an election year.
“The recent news on the economy has been much better than we could have anticipated three months ago,” Gault said. “The question is whether it the economy will be blown off course by these policy issues.”
Gault told the audience that many observers expect that the super-committee will fall short of its mandate to reduce the federal deficit by $1.2 trillion through a combination of increased revenue and reduced spending. He noted that the entire concept of the super-committee grew out of a political impasse in August over raising the debt ceiling, and that there is little evidence that anything has changed since then.
He said employers will be able to judge the success of any super-committee recommendations by several factors:
- Does it achieve $1.2 trillion in deficit reduction?
- Are entitlements (social security, Medicare, Medicaid) and revenues both contributing to the cut in the deficit?
- Are the spending cuts real? Or spending that was never going to happen anyway? Or asset sales?
- Are revenue increases explicit? Or “to be decided later” by tax committees?
- Is there provision for extending near-term stimulus – at least for keeping the 2 percent payroll tax cut and emergency UI benefits in 2012?
“Failure by the super-committee would not have the cataclysmic consequences that failing to raise the ceiling would have had,” said Gault, a frequent national television commentator.
The crisis in Europe, according to Gault, provides a cautionary tale for U.S. policymakers about the danger of unbridled growth in debt.
He said that sovereign debt in Europe, like subprime mortgages in the United States, was long treated as riskless. That view led countries like Greece to run up debt equal to 125 percent of gross domestic product, and Italy to hit 100 percent of GDP, without the economic growth to sustain the borrowing.
The European crisis will eventually turn, Gault concluded, on the willingness of Germany and the European Central Bank to affirm their commitment to the union by providing more assistance to weaker nations.
View Nigel Gault's Presentation Slides
What would you ask one of the world’s most respected economists if you had the chance?
Nigel Gault, Chief US Economist for IHS Global Insight, will address the AIM Executive Forum on Friday less than week before the Congressional “super-committee” is scheduled to recommend steps to close the federal budget deficit. Few people understand the intersection of politics and the U.S. economy better than Gault, who is responsible for overseeing all aspects of the IHS macroeconomic forecasts and analyses of the US economy.
Here’s your chance to pose a question to Gault about what’s in store for the economy and your business. For example, how will budget reductions affect the defense industry in Massachusetts? Or the critical medical research cluster?
Just write your question in the comments section below. We’ll pose as many as time allows.
We also invite you to tweet questions at #AIMFORUM.
Note: The following article was written by Nigel Gault and Erik Johnson. Gault (right) is Chief US Economist for IHS Global Insight and will speak at the November 18 AIM Executive Forum in Waltham.
Based on the expected state of the economy, President Obama faces an uphill battle to win reelection in 2012. He will need a combination of an economic rebound over the next 12 months and an ineffective Republican candidate if he is to retain the White House.
Over the years, statistical attempts to explain and predict U.S. presidential election results have yielded two overarching themes.
First, Americans tend to vote their pocketbooks. If the economy is growing strongly and unemployment is low, the incumbent party has a very good chance of retaining office. When the economy is faltering, U.S. voters will more likely vote for change.
Second, Americans tend to favor an incumbent president running for reelection. If the economy is weak enough, however, an incumbent president can lose, as Jimmy Carter learned in 1980 and George H. W. Bush did in 1992.
Based on the likely state of the economy in 2012, President Obama faces a steep uphill task to secure reelection.
Based upon our forecast for the economy, our election equation projects just a 43.5 percent share of the two-party vote for the president, i.e., a heavy defeat. This does not mean that the president's re-election campaign is doomed, though. The economy might perform better than we expect, and if voters perceive the economy to be on the mend, the president still could win even if unemployment is still very high (as seems inevitable).
Just as important, if not more so, the election equation takes no account of the identity of the candidates—a Republican opponent lacking broad appeal could tilt the balance back in favor of the president. But it does appear that this is an election that is the Republicans' to lose.
How Could President Obama Win Reelection?
Despite the results of our election equation, the Republicans are not guaranteed the White House in 2012.
It may be that voters will respond to economic factors in a different way than in the past. Having seen the unemployment rate climb as high as 10.1 percent a year into Obama’s presidency, voters may be more tolerant of an unemployment rate around 9.0 percent as the election nears.
Some voters may discount Obama’s accountability for the current state of the economy and still assign much of the blame to his predecessor, George W. Bush. If the president can deliver faster income growth over the next year, voters may assign more weight to income growth and less weight to the unemployment rate than in past elections, opening the door for the president to win a second term.
In addition, non-economic factors also matter. The equation assumes that the only factors influencing the election result (other than objective, predetermined political factors) are income growth and unemployment. It ignores factors such as foreign policy and social agendas, as well as any qualifying data about the candidates on either side. The topic of electability has become increasingly relevant in recent years, and the equation is built to predict election results based on the average Republican or average Democrat, making no special considerations for African-American, female, or politically extreme candidates (or for their vice-presidential nominees).
The Republicans do not yet have a candidate who commands anything close to majority support in their party. Front-runner Mitt Romney has not decisively separated himself from the rest of the field, suggesting that Republicans are seeking an alternative but have not found it. And their candidate must win broader appeal in the general election. The traditional unwritten rules say that candidates swing to the right or left in the primaries to capture their party base, and then swing to the center in the general election to capture independents and disaffected members of the other party. President Obama must hope that the Republican candidate, whoever that may be, cannot make that transition.
Massachusetts employers grew increasingly bearish last month about an economy still hampered by weak consumer spending, housing problems and the inability of Washington to resolve the budget deficit.
The AIM Business Confidence Index (BCI) declined for the fifth time in six months during October, losing two points to 46.4 on a 100-point scale. Employers turned particularly pessimistic about the future, with the outlook for the next six months dropping 3.2 points to 45.
The October confidence readings were taken before the government announced last week that U.S. economic growth doubled during the third quarter to 2.5 percent.
"Significantly, the Future Index is well below the Current Index which reflects growing pessimism about the near term trajectory of the economy" said Michael Goodman, Associate Professor and Chair of the Department of Public Policy at the University of Massachusetts Dartmouth.
More than 60 percent of survey respondents expect negative economic conditions over the next six months while only 4 percent expect good conditions. Those readings stand in stark contrast to those of a year ago when the Current Index stood at 53.2 and the Future Index at 57.0, reflecting a more positive growth outlook.
“Compared to a year ago, Massachusetts employers are much more negative in their assessment of national business conditions, and have lost their optimism about future growth,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM's Board of Economic Advisors (BEA).
“Weak consumer spending continues to depress business confidence and it is increasingly clear that problems in the housing market continue to have a major impact on the consumer side.”
Confidence among Massachusetts employers has declined by 10 points since hitting 56.1 in April. BCI readings below 50 indicate a predominantly negative outlook on business conditions.
Employers continue to hold a brighter view of their own prospects than those for the economy at large. The three portions of the BCI that measure company outlook all remained positive or only marginally negative - the broad Company Index shed 1.6 points to 51.9, the Sales Index was off 3.2 to 49.3 and the Employment Index added a half point to 50.9.
Richard C. Lord, President and Chief Executive Officer of AIM, said dimming employer confidence reflects the multiple and complex challenges facing the economy, from European debt to housing.
“And our state, with its concentrations of defense industries and of health care and educational institutions, is particularly vulnerable to federal budget cuts now under consideration,” he said.
The AIM Index has appeared monthly since July 1991. It reached its historic high of 68.5 on two occasions in 1997-98, and its all-time low of 33.3 in February 2009.
IHS Global Insight Chief US Economist Nigel Gault, who will keynote the November 18 AIM Executive Forum, told Bloomberg News recently that he expects national unemployment to rise slightly in the next several months.
“The economy at the moment is staggering forward. This means we will have anemic jobs growth,” Gault told Bloomberg’s Bottom Line program.
Gault’s speech to the AIM Executive Form will take place less than a week before the economy and the nation's political system face an historic moment as the Congressional "super committee" recommends steps to close the federal deficit.
Gault has expertise in short- and long-term economic outlook, government economic policies, the Federal Reserve, monetary policy, and trade, labor, and consumer market issues. He has more than 25 years' experience in economic analysis and holds an M.A. in economics from Cambridge University and a PhD in economics from Harvard University.
President Barack Obama unveiled his $447 billion jobs bill last night hoping to restore some of the economic confidence employers need to accelerate hiring. The president’s speech to a joint session of Congress came a week after the AIM Business Confidence Index slipped into negative territory for the first time in a year.
So, does the plan make you more confident? Will it influence your hiring plans? Please let us know in the comments section below.
Here are some of the key elements of the American Jobs Act, compiled by Reuters:
- Employee Tax Holiday – A $175 billion, one-year extension and expansion of the employee payroll tax holiday that would halve the tax rate to 3.1 percent in 2012.
- Employer Payroll Tax Holiday - Sixty-five billion dollars to encourage small businesses to hire more workers. The initiative includes halving employer payroll taxes to 3.1 percent for the first $5 million of a company's wage bill in 2012, a change the administration says will reach 98 percent of small businesses. Also includes a complete payroll tax holiday for increasing the size of the payroll by up to $50 million above the prior year, either by hiring new workers or raising the salaries of the existing labor force.
- Extend 100 percent company expensing into 2012 - At a cost of $5 billion, the president wants to extend a 100 percent expensing tax break for companies, allowing them to immediately take a tax deduction for investment in new plant and equipment.
- Housing - Broaden homeowner access to mortgage refinancing and help the battered housing market by allowing households to take advantage of low borrowing costs that would help them put their finances on a sound footing.
- Eighty-Five Billion Dollar for State and Local Governments - Includes $35 billion to keep teachers, firefighters and police officers in their jobs, of which $30 billion would go to schools and $5 billion to police and firefighters; $30 billion to modernize schools and community colleges; $15 billion to rehabilitate and refurbish vacant and foreclosed homes; and $5 billion to help low-income youths and adult workers, supporting summer and year-round jobs for young people and support subsidized work for unemployed low-income workers.
- Road, Rail and Aviation Infrastructure Spending - Includes $50 billion to invest in highways, transit, rail and aviation, including upgrading U.S. airports and supporting Nextgen Air Traffic modernization.
- Infrastructure Bank - A $10 billion proposals to capitalize an infrastructure bank to leverage private and public infrastructure investment "without earmarks or traditional influence," the White House says.
- Extend Unemployment Insurance, Bridge to Work – Forty-nine billion dollars for a one-year extension of long-term unemployment benefits that would otherwise expire, an action the White House says would prevent 6 million jobless Americans from losing benefits. It includes reforms to the jobless aid system and a "bridge to work" program to help get unemployed people back to work. Also, $8 billion for tax credits for hiring the long-term unemployed.
The controversy surrounding Evergreen Solar’s decision to close its Devens manufacturing plant after receiving millions of dollars in state incentives underscores two bedrock beliefs of Associated Industries of Massachusetts and its member employers:
- Real economic growth and prosperity is possible only when government creates a uniformly favorable environment for business development across all industries.
- Business costs matter just as much in the new economy as they do in the old.
AIM has argued since its founding in 1915 that long-term economic stability requires state government to create a predictable and competitive business climate for everyone from the corner grocery store to the software startup to the paper converter. Sound, consistent economic policy - reasonable costs, efficient regulation, world-class schools and predictable fiscal outcomes - serves as a far better fuel for creating jobs than picking winners and losers from individual industries.
Emerging industries such as solar and wind power play an important role in economic growth, but so do existing sectors that employ – and will continue to employ - the vast majority of Massachusetts residents. Innovation and technology are hallmarks of successful business in every corner of the Massachusetts economy. A consistently favorable business climate is especially important in areas like the Berkshires, the Pioneer and Merrimack Valleys and Central and Southeastern Massachusetts, where the economy often depends on traditional economic drivers.
Meanwhile, high-technology, biotechnology and clean-technology jobs respond to the same economic influences that determine whether metal machining, accounting or retail jobs will provide economic opportunity to citizens of Massachusetts, citizens of Michigan or citizens of China.
Policymakers in Boston and Washington love to paint new-economy jobs as an economic panacea, immune to high taxes, staggering electricity costs and bureaucratic regulation. It is a political construct that allows policymakers to support the development of innovative “industries of the future” while raising costs for the industries of the present. Making matters worse is the fact that many industries of the future would not even exist without government-mandated taxpayer subsidies from the rest of the business community.
But the new-economy narrative has withered in the glare of reality as prominent technology companies that were poster children for innovation-based economic development in Massachusetts have announced major expansion projects elsewhere. The Boston Globe reported that several companies found it “hard to say no” to predictable cost structures in China or hundreds of millions of dollars in state and federal grants and tax credits to manufacture advanced technology in the South or Midwest.
At the core of the Evergreen issue is the now familiar story of 800 Massachusetts manufacturing workers and their families separated from jobs that seemed so promising just a few years ago. We look forward to working with the Patrick administration and the Legislature to control the cost of doing business for all employers and to create the kind of business environment that encourages growth and provides opportunities to all residents of the commonwealth.
The economy may be improving, but leaders in Massachusetts, the United States and around the world still face major structural impediments to full recovery, according to Carol C. McMullen, President of Wealth Management at Eastern Bank. Click below to watch her recent comments to the AIM Executive Forum. You may also view all the video highlights from the January 7, 2011 Economic Outlook Panel on the AIM Website.
Confidence among Massachusetts employers rose slightly in December, ending an up-and-down year that reflected lingering ambivalence about the economic recovery.
The Associated Industries of Massachusetts Business Confidence Index released this morning edged up three-tenths of a point to close 2010 at 52.4, for a gain of 6.7 points for the year. The monthly average reading for the fourth quarter was 53.3, up from 47.9 in the previous quarter and 44.6 in the final quarter of 2009.
On the Index’s 100-point scale, 50 is neutral and a higher reading indicates predominantly positive sentiment among Massachusetts employers.
“Looking past month-to-month fluctuations to quarterly averages, we see slow but fairly steady gains over two years, with one sharp setback in the third quarter of 2010 as stimulus programs phased out and markets were staggered by financial crisis in Europe,” said Raymond G. Torto, Global Chief Economist at CB Richard Ellis Group, Inc. and Chair of AIM's Board of Economic Advisors (BEA). “The cumulative progress from the bottom at 34.5 in Q1 2009 to positive territory at 53.3 in Q4 2010 is meaningful and heartening.”
At the same time, most AIM members believe that the economic healing is not yet over and that the national economy in particular remains notably weak. They expect progress to remain slow at least through the first half of 2011, and are aware of significant threats that could derail the recovery.
"The recovery is better in some sectors than others. Generalities don’t fit," one employer said.
Carol McMullen, President, Wealth Management at Eastern Bank, told the AIM Executive Forum on Friday that the global economy will not regain full health unless leaders address structural issues such as debt and governmental finance that lurk just below the surface.
“This year could be ok but let us not lie to ourselves. We have not fixed the fundamental problems. We have been able to buy time,” McMullen told the audience of 200 business executives. She said the nation needs an “Eisenhower at Omaha beach” to forcefully address the simmer financial crisis facing states and municipalities struggling with mounting pension and health insurance costs.
The component measures of the Business Confidence Index were mixed in December, with most changes fractional. The Current Index, assessing overall conditions at the time of the survey, was up seven-tenths to 51.3; it was above 50 throughout a quarter for the first time since the end of 2007. The Future Index of prospects for six months ahead, meanwhile, shed three-tenths to 53.2.
The U.S. Index of national conditions was off six-tenths in December to 42.4, while the Massachusetts Index of conditions within the Commonwealth gained the same amount to 48.1.
The AIM Index has appeared monthly since July 1991. It reached its historic low of 33.3 in February 2009, and its all-time high of 68.5 on two occasions in 1997-98.