U.S. Economy Not In Good Shape

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In this appearance on CNBC’s Closing Bell on July 14, 2014, Steve Odland argues that despite the new jobs added last month, the U.S. economy continues to struggle.  GDP growth likely will be flat for the first half in total and up around 1.5% for 2014.  This level of growth and job creation has us treading water and only absorbing new entrants to the workforce, not raising overall employment levels.

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U.S. Sliding Into Another Recession?

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In this Varney & Co. appearance on Fox Business Network Steve Odland discusses the potential for the U.S. to slide into another recession.  This clip appeared on June 26, 2014.

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The Center of Retail Is Struggling

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Steve Odland discusses retail trends in the first part of 2014 on this Fox Business After the Bell segment with Liz Clayman on May 23, 2014.

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Economy Won’t Grow Until We Have Long-Term Government Policy Change

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India’s Modi Said To Be Pro-Business

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Steve Odland discusses India’s newly-elected leader and his pro-business stance on Fox Business Network’s Opening Bell with Maria Bartiromo on May 16, 2014.

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Are CEO’s Paid Too Much?

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Steve Odland discusses the state of CEO pay on Fox Business Opening Bell program with Maria Bartiromo on May 16, 2014.

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Odland: The Consumer Is Not Back

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Steve Odland discusses the state of the consumer on Fox Business Opening Bell program with Maria Bartiromo on May 16, 2014.

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Amazon Offering Employees $ To Quit

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Published on Apr 11, 2014

In an effort to maintain a high level of employees who are happy in their jobs, Amazon.com is offering to pay unhappy employees $5,000 to quit. Dr. Gina Loudon and Steve Odland join FBN’s Neil Cavuto to weigh in on the pros and cons of this idea.

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Retail Sales Hit By Weather And Slow Economy

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In this appearance on After the Bell on Fox Business Network on March 13, 2014, Steve Odland explains how  February 2014 retail sales grew by only .3% and January sales were adjusted down to -.6%.  So unfortunately, while February looks a little better, January became worse so in the past quarter retail sales in total still are down.  This is an issue since 70% of our GDP is reliant on consumer spending and retail sales are the earliest predictor of GDP trends.

Weather clearly was an issue and while some of those sales will bounce back, some will be lost permanently.  Luxury goods and E-commerce sales are doing well while most mass merchants and department stores are not.  This indicates that those with money at the high end are spending but the mass markets are not.  Clearly, economic weakness is the over-riding concern long term as the weather picture will ease after short-term impact.

 

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Weather Can Have An Impact On GDP

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  • Experts say that 30% of our GDP is vulnerable to weather
  • Weather in January hit GDP by about a half percentage point
  • With February storms, could hit another half point dragging Q1 GDP below 3% to perhaps 2%
  • Significance is driven by where the weather happens.  Upper Midwest and Great Lakes regions are accustomed to it and so less impact
  • But these storms hit broadly across the eastern half of the US with majority of population and significant percent of GDP
  • Weather has significant impact on retail; and consumer is 70% of GDP
  • In retail sectors like food, demand gets compressed to pre and post storms
  • Hurts restaurant sales—permanent loss of sales
  • Hurts all discretionary sales.  Historically some of that came back, but not as much any more
  • Sales get shifted now to online; that trains people to move more from bricks & mortar to online permanently
  • So bad weather in general is bad for traditional retailer and could be permanently damaging while good for online and permanently impactful
  • Inclement weather has a way of prioritizing consumer spending. Large retailers like Home Depot, Walmart, grocery stores and gas stations tend to do well leading up to large storms because consumers feel the need to stockpile “essentials” like food, gas, and home supplies.
  • For brick and mortar stores, these winter storms have no doubt led to plunging sales. Businesses which heed warnings to close for safety reasons lose days of profits.
  • For southern states, the weather has been paralyzing. But, we could see nuances in different parts of the country. Many states that are accustomed to the weather are likely to rebound faster.
  • But, there is certainly a correlation between weather and sales. In March of 1993, a blizzard forced retail sales to drop 1%. And in late December of 2010, a major storm in the northeast cost retailers $1B. It’ll be interesting to see estimates from this year.
  • The National Retail Federation predicted that sales would rise 4.1 percent in 2014, outpacing 2013′s 3.7 percent growth last year.
  • Higher than normal heating bills could be the cause of lower consumer spending.

 

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Weak Consumer Sales Will Lead To High Inventory, January Markdowns

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Holiday sales grew only 2.7%, the lowest level since the depth of the Great Recession in 2009. And this is on top of a weak year ago.  Further, GDP grew $4.1% in the third quarter mostly due to inventory build up in advance of the holiday season.  So large inventory less weak sales equals surplus! This should lead to large January markdowns.

We’re stuck in a five year pattern of very slow growth while we have trillions of dollars held in cash on consumer and business balance sheets.  This means people don’t have the confidence to invest.  And the primary reason for that comes back to uncertainty over government policy: taxation, debt, deficit, entitlement reform.  Businesses can’t plan since they don’t know what will be their costs, especially on the labor side.  We need government economic reform to drive certainty and unleash investment.

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How America’s Credit Card Security Be Improved

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In this segment on the Cavuto Show with Charles Payne on December 23, 2013, Steve Odland discusses the Target credit card data breach and what steps retailers and consumers can take to safeguard their data.

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Retailers Need A Compelling Shopping Experience

http://video.foxbusiness.com/v/2940071166001/how-can-brick-and-mortar-stores-survive-the-online-surge/

Screen Shot 2013-12-17 at 11.04.47 AMIn this appearance on Varney & Co. on December 16, 2013, Steve Odland says that the only way traditional bricks and mortar retailers can survive long term versus online retailers is to create a compelling shopping experience, get competitive on pricing, and create an online experience of their own.

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U.S. Economy Remains Weak Due To Uncertainty

http://www.bloomberg.com/video/is-washington-in-need-of-a-total-rebranding-l~NpvTsdSZ6kqHClX6u9rg.html

http://www.bloomberg.com/video/obamacare-critics-surveillance-11-14-6hq3lqqdTbGcMAyd7s9Rog.html

Screen Shot 2013-11-15 at 8.17.27 AMIn this television appearance November 14, 2013, Steve Odland discusses a wide range of economic issues.

 

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Affordable Care Website: A Man-Made Disaster

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In this appearance on Cavuto on October 28, 2013, Steve Odland argues that the ACA government website is a disaster–but a man-made one.  Time and money will fix it.  But the larger issue is whether this portends the kind of governance we will see around our healthcare once new coverage takes effect.  More to come.

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What the Budget Conference Can Accomplish

What the Budget Conference Can Accomplish

This post assesses the task facing the budget negotiators on Capitol Hill.  It concludes that those negotiators could achieve real progress by laying out a budget plan based on those fundamental issues on which the two parties should be able to agree.  So rather than trading mini-concessions that would have little long-term payoff, the two sides instead should build the framework of a plan that would have true ultimate beneficial impact.

 By Joe Minarik, SVP and Director of Research, Committee for Economic Development

With the debt limit / shutdown standoff now on temporary hold (thank goodness), attention has shifted to the newly appointed conference committee for the fiscal year 2014 budget resolution, whose formation was a part of the shutdown-settlement deal.  This conference committee is just a bit late – given that it was supposed to produce a resolution to be passed by both chambers of the Congress back on April 15, and the fiscal year already is more than three weeks underway; but better late than never.

In fact, the budget conference committee faces a formidable task.  Job one will be to find a way past the new deadlines of January 15 (when the continuing resolution for the annual appropriations expires, and also when the second round of the budget “sequester” kicks in), and February 7 (when the Treasury again hits the debt limit).  These deadlines might suggest a game of small-ball – finding a few dollars here and a few dollars there to justify another punt, like the one that was played a couple of weeks ago.

But small-ball far understates the occasion.  The last few months have been a disaster for the economy and for U.S. business.  Both businesses and households reacted to the uncertainty of the indefinite shutdown and the impending default by going into a freeze – businesses on hiring and investing, and households on spending.  Meanwhile, government employees who weren’t getting paid and government contractors who were in economic limbo were not engaging in much commerce either.  All of this scrubbed off some of what little momentum the already stumbling economy had.  Washington cannot revert to this self-destructive pattern barely a quarter of a year later, when appropriations could again expire, and the debt limit could again constrain the nation’s ability to pay its bills.  In fact, any hint now of a relapse into shutdown showdown and default deadlock could impose an even greater economic toll.  The nation – in the person of the budget conference committee – must find a better way.

The suggested game of small-ball would exchange a few dollars of entitlement (or “mandatory”) spending cuts for relief from a few dollars of appropriated (or “discretionary”) spending cuts that were mandated by the 2011 spending caps and the sequester.  But just about everyone understands that such a game of small-ball today would be a waste of time.  On the discretionary side of that transaction, the Congress could argue about the levels of the statutory caps on appropriations, but just about everyone agrees that the current cap levels are too low.  Why?  People differ, but many say that the defense levels are too low; others say that the non-defense numbers are too low, and still others say that both category caps are too low.  Taken together, these three groups almost certainly constitute a congressional majority.  And you can add to those a certain majority of economists who say that the constraint on appropriations meaningfully holds back an already weak economy.

The proof of all this?  The House could not pass appropriations bills at those caps.  In the months before the shutdown, the House and the Senate were in a battle over appropriations levels.  The House customarily acts first on appropriations, and it jealously guards that prerogative.  Nothing would have strengthened the House’s hand more than completing all of its bills.  Yet it could pass only the easiest four (Defense, Homeland Security, Veterans, and Energy & Water) of its 12 required bills.  When the time came just before the August recess to consider the first controversial bill – for the Departments of Transportation and Housing & Urban Development (THUD) – the process fell to a halt.  House Appropriations Committee Chairman Hal Rogers (R-KY) publicly acknowledged that the sequester was not viable.  So appropriations need to be higher than the sequester level to attain a majority in the Congress, and to fund levels of government services that the Congress perceives to be adequate.

And then on the entitlement side of that transaction, those small cuts, by definition, would not make even a dent in our large long-run budget problem.  What we really need instead – as is recognized on both sides of the aisle – is fundamental reform of at least the three major budget components: taxation, Medicare, and Social Security.  And if one purpose of eliminating the sequester cuts is to provide some stimulus for the economy, then offsetting that sequester relief with cuts elsewhere in the budget would precisely offset the stimulus, accomplishing a net nothing.  A sequester-for-entitlement trade might be a political “confidence builder,” but as small-ball it would build little confidence.  We have a big long-term problem which is not amenable to a quick small-ball solution.

But what more meaningful solution might possibly be achieved, given the hostility and mistrust that arose from the just-paused shutdown and debt-limit crisis?

Clearly, satisfaction cannot be guaranteed.  If there were some sure-fire political and substantive winner, it would have been adopted long ago.  Reducing the budget deficit means cutting spending or raising taxes (or both), and neither is fun.  And the conference committee has far too little time to achieve a “grand bargain.”

But let’s take a different approach toward this problem:  What are the elements of a solution on which the two sides agree?  Can the conference committee set down those elements, and thereby establish the minimum standards for the two sides to meet in the hard, time-consuming work that must follow over succeeding months and years?

Here is how such a process might work:

The budget conference committee should start (more steps follow) with a realistic level of the discretionary spending caps – approximately equal to turning off the fiscal 2014 and subsequent rounds of the sequester, and thereby writing new appropriations caps for the next 10 years at those levels.  A majority of the Congress clearly agrees that raising the caps is inevitable.  It certainly would remove a major roadblock to a final resolution of the 2014 budget dispute.  Responsible adults who want to achieve a successful agreement would acknowledge that broad consensus, just do it, and move on to resolve their other differences.

An immediate counter-reaction from some would be to start a fight over the division of that appropriations relief between the defense and non-defense parts of the budget.  The conference committee should resist that impulse.  A fight over the split between defense and nondefense now would threaten all progress.  What the economy needs immediately is a step forward toward stability and predictability.  Continued wrangling over a decision that cannot be finalized in the short time between now and the end of the year would send a signal that would be 180 degrees wrong, and counterproductive.  The two parties should begin a process of reconciliation by formalizing their agreement where they do agree.  Beyond the legislation for the current fiscal year (2014), the fight over the defense share of total appropriations can be fought later.  For 2014, where a decision must be made to close out the appropriations process, the conference should simply accept the current-law defense vs. nondefense split, and move on to writing the most comprehensive appropriations bills possible at this late hour.

That first part of the budget conference agreement would settle the dispute for the short term.  The second part of the agreement (I will sneak in the third part below) should look to the truly crucial question, which is our long-term budget crisis.

Even the vast majority of those economists who are the most bearish on the immediate economic outlook acknowledge that the nation cannot go on indefinitely with a public debt that is growing faster than our collective public income – or in the accepted jargon, with a rising ratio of the federal debt to the gross domestic product (GDP).  One response to that debt threat is to bury your head in the sand.  You can take that approach to a leaky roof on your house, or to a leaky engine or transmission in your car – but I would not recommend it, and most Americans would not accept it from their “leaders.”  The obvious reason is that the damage continues to worsen as you procrastinate, and so the ultimate cost of the repair keeps going up.  The result for the federal budget is the same as for your home or your car.

It is certainly true that the members of the budget conference will not solve and resolve the massive and complex long-term budget problem between now and December 15.  But can’t they at least agree on the maximum acceptable path for the debt?

So step two of the agreement is simply to set down how much debt we are willing to tolerate.  Right now, the projections of the non-partisan Congressional Budget Office say that by 10 years from now, after a brief respite over the next few years, the debt will be in excess of 71 percent of the GDP, and it will be rising without limit.  The nation’s finances will be a heart attack waiting to happen.  The chart below shows one idea of an alternative path, a nomination for the maximum amount of debt that the nation should be willing to accept.  By 10 years from now under that alternative path, the debt will be only 65 percent of the GDP – much higher than in our best economic years, but lower than where we are heading now – and it will be falling, not rising, which is the key.  The falling trend will give us some margin for error in case there is some economic bad news in those next 10 years.

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The trick here is that by setting down that maximum acceptable debt path, and having already chosen the spending caps for the annual appropriations, the budget conference will have determined the amount of budget savings necessary from the rest of the budget – everything not included in the annual appropriations bills.  This is part three of a potential agreement by the budget conference, based on simple issues where the two political parties should be able to come together.

The result, incidentally, will be much like the budget system that was agreed to by Republican President George H.W. Bush and a Democratic Congress in 1990 – and which was subsequently credited by many authorities, including former Federal Reserve Board Chairman Alan Greenspan, for leading to the balanced budgets of the late 1990s.  The only difference is that the 1990 budget process asked only for future budget action to be “deficit-neutral” – to “pay as you go,” which led to the shorthand name of “paygo.”  This new system would require future action actually to reduce the budget deficit, which might be called “save as you go,” or “savego.”

Again, facing this approach, there will be Washington players who reflexively will want to start a fight.  Should those budget savings come from tax increases, or entitlement benefit cuts?  So the budget conference will face a choice:  Do we want to go up in flames over a conflict that we cannot possibly resolve in less than two months; or do we want to agree where we can, and leave the toughest questions until they need to be resolved?

 Every American can make his or her choice of the better answer.  I will vote for option two.  There are those for whom “consensus” and “compromise” have come to be synonymous with “capitulation” or even “treason.”  But down that road lies only defeat and decline.  The debt problem truly is make-or-break for this nation.  If our debt continues to grow faster than our economy, then at some point, the world will begin to question our ability and our willingness to make good on our debts.  The shock at that moment will crack the American economy and harm every citizen.  We can avoid that moment merely by acknowledging the threat and laying down a plan, and sticking to it.

There are numerous technical questions behind such a budget plan.  Perhaps the most prominent would be:  How soon should the called-for budget savings begin?  The answer can be debated, but the numbers embodied in the chart above assume that the first gradually phased-in budget savings do not begin to arrive until fiscal year 2016 – by which time the Federal Reserve is widely expected to be withdrawing its highly accommodative monetary policy.  The Fed therefore could offset the macroeconomic impact of the budget tightening suggested here by tightening monetary conditions more slowly.

Sticking to this path will not be easy.  Achieving those long-term budget savings will require fundamental reforms.  But that is not news.  That is merely facing up to the stains on the upstairs ceiling or the puddle of oil on the garage floor, and taking on the problem before it gets even worse.

Each one of a million Americans would be willing to step forward with his or her own personal budget plan, and each of those Americans would he happiest if the debt were addressed his or her own way.  The problem is that we do not need one million different plans each supported by one American; we need one plan supported by a majority of Americans (or really, a majority of the Congress, and the President).  That one plan certainly will not make everyone happy.  But in all likelihood, the majority of American households and business leaders would be much more confident than they are today in making long-term economic commitments – like hiring, or investing, or buying new homes or automobiles –if they saw that a majority of the Members of Congress had set down their minimum standards for a budget solution, and thereby made a public commitment to meet those standards in the coming years.  It is the least on which a group of responsible adult leaders should be able to agree.

 

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Consumer Confidence Is Terrible

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In this interview on CNBC on 10/21/13 Steve Odland argues that consumer confidence is poor and that is negatively impacting consumer spending (70% of GDP) and small business investment.  Government policy needs long term change to improve confidence: long-term tax, social security, and Medicare reform all are needed.  A framework needs to be put in place to begin to take at least small steps in the coming months for confidence to pick up.

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DC Needs To Focus on Long-Term Strategy

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Committee for Economic Development CEO Steve Odland on the government shutdown and debt ceiling on Fox Business After The Bell, 10/9/13.

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Washington Needs A Long-Term Strategy

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Steve Odland, Committee for Economic Development CEO, explains the fears felt by corporate executives over the budget battle and the debt ceiling, and the possibility of an agreement that could delay a resolution by up to six weeks in this interview from October 11, 2013 on WSJ Live.

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Auto Sales Recovering But Due To Need, Not Economic Recovery

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In this appearance on Bloomberg’s Taking Stock on September 4, 2013, I discuss the double digit growth rate of auto sales in the U.S. in August, 2013.  While the sales are up and tracking to a 15.5M unit sales year, this is down considerably from pre-recession 17M unit levels.  Further, the deficit of sales during and post the recession likely is 15-20M units. Further, average vehicle age is up to about 11.8 years, a record. So with almost free money to finance sales, and a huge need, this level of sales is poor and indicates an ongoing weak economy.

– Steve Odland

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Raising the Minimum Wage Will Hurt Entry Level People

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I appeared on the Andrew Wilkow show on August 20, 2013 to discuss the efforts by some groups to raise the minimum wage.  The objective of having people make more money and move up the ladder is part of the American Dream.  But, unfortunately, raising the federal minimum wage will have the opposite effect:  it will cause businesses to cut back hiring and result in fewer jobs, more automation, and jobs moved to lower cost locales.

– Steve Odland

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We Need Job Growth

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Screen Shot 2013-08-27 at 9.06.55 AMOn August 21, 2013 I appeared on CNBC Squawk on the Street to argue that the U.S. economy is in a no growth period and desperately needs job growth as demonstrated by the struggles of the office products industry.  The economy crashed in 2008 and has not recovered since.  Job growth barely is keeping up with population growth and 77% of new jobs this year are low paying part-time positions.  Businesses are not investing to create jobs due to increased government regulation, escalating costs from the “Affordable” Care Act, and uncertainty about tax and regulatory policy.

 

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Raising The Minimum Wage Will Kill Jobs

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The government and some workers are advocating to raise the Federal Minimum Wage from $7.25 per hour to $9.00 per hour.  In this video from Fox Business, I argue that a raise at the national level will disproportionately hurt certain geographic areas, some industries that cannot move jobs to lower cost locales, and people who are seeking entry level jobs.  So while the objective of having people make more money is good on the surface, the unintended consequences will hurt the very people they are trying to help.  Further, 77% of the jobs created so far this year have been part-time jobs at close to minimum wage.  So if the minimum is increased, companies will be forces to cut hours, automate, or create fewer jobs and this in turn will kill what little job recovery we have.

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CEOs Should Engage In Policy

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Screen Shot 2013-08-08 at 7.34.52 AMBusiness leaders have an enormous stake in the actions taken by our political leaders.  Over 70% of the GDP is driven directly by the private sector and the remainder is government spending fueled by taxes provided by businesses and their employees.  So our economy is entirely funded by businesses.  CEOs need to engage in the development of public policy as business “statespeople” and advocate for actions in the nation’s interest.

– Steve Odland

 

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Another Fiscal Cliff

By Joe Minarik, The Committee For Economic Development

Spring has led to summer, which leads to fall, which leads by current custom to another round of “fiscal cliffs.”  There are four that reach a relatively high level of gravity: (1) a run-in with the debt limit, expected between mid-October and mid-November; (2) the expiration of the annual agency appropriations (with a hard deadline of September 30 / October 1); and both (3) pending Medicare reimbursement cuts under the “sustainable growth rate” (SGR) provision, and (4) expirations of several temporary tax cuts, both at the turn of the calendar year.  Beyond those, there is plenty of other remaining unfinished public business (you have read about the conflict over the Farm Bill, for example).

We have talked a fair amount about the debt limit, which carries the greatest potential for damage to the nation’s well-being.  But it is worth providing a bit of additional background on the annual appropriations bills, because they too are looking increasingly fraught as the hours of the Congressional session tick away.  (In contrast, you can bet that the Medicare SGR provision will be de-fused with another “doc fix,” and virtually all of the remaining temporary tax cuts will be extended for yet another round, both more with Kabuki than with true drama.)

For the record, the last instance when the Congress passed all of its appropriations bills on time was September, 1994, for the 1995 fiscal year – so just short of a fifth of a century ago.  Some might by reflex refer to such a Congressional session as “normal,” but clearly, at least by the standard of the frequency of achievement, it was anything but.

In every year since, at least some federal agencies did not have their appropriations on time.  This is in the interest of no one – even those who have a low estimation of the value of government.  Presumably, high on the list of reasons for skepticism about government are inefficiency and waste – and uncertainty about and delays of agency funding clearly add to waste and inefficiency.

Over the last few years, however, with regularly scheduled brinkmanship over agency funding, the end-of-fiscal-year deadlines have become increasingly tense.  And this year, the tension reaches a new high, for several reasons that are worth explaining here.  Let’s look at what the Congress has been up to.

First, flash back to the debt-limit crisis that culminated in August of 2011.  The deal to turn off that time bomb was understood by some as an overall attack on the budget problem, but all it really entailed was cuts in appropriations – which were and are a small and shrinking part of the budget (and therefore not the cause of the long-term budget problem, though no part of the budget should be excluded as a contributor to the solution).  The appropriations cuts that were enacted at that time were imposed (as were appropriations cuts for the last quarter century) through statutory spending caps, covering a ten-year period.  Yes, there is fat in every large organization.  But by a reasonable standard, those caps impose increasing restraint over the ten years; and most experts believe that the magnitude of the eventual amount of prescribed restraint (and therefore the amount of the assumed budget savings) was adventurous, if not excessive.  The fat was easiest to find in the first year.  FY2014 will be year three (depending on how you count), and we are having this discussion in some part because the negative reaction has begun.

But the assumed spending cuts don’t stop with the August 2011 appropriations caps.  On top of that, the August deal created a “supercommittee,” charged it to save a further $1.2 trillion over 10 years, and in the event that it failed created an additional “sequester” of that amount, falling exclusively on those same annual appropriations – which once again are a shrinking share of the budget, and not the source of the long-term fiscal problem.  With the failure of the supercommittee, we now face the additional savings from the sequester.  It began last year, so fiscal year 2014 will constitute year two of its spending reductions.  So for those who believe that the first round of appropriations caps will prove at some point to be excessive, the sequester accelerates and aggravates that problem.

However, unlike the 2013 sequester – which was an automatic across-the-board cut of all annual appropriations – the 2014 sequester (like the sequesters in all subsequent years) is merely a further reduction in the original August, 2011 spending caps.  That bears good news and bad news.  The good news is that, unlike the across-the-board 2013 first-year sequester, the Congress now has flexibility to try to minimize any pain.  The bad news is that to implement those savings this year the Congress must govern, and make difficult decisions.  As noted earlier, the track record of governing and decision-making in recent years – with respect to the annual appropriations, but more broadly as well – may be judged by many to be relatively weak.

So that is one reason why this year’s appropriations process looks to be particularly awkward.  There are other reasons as well.  One flows from the divided political control of the Congress.  The two chambers are on totally different tracks in their appropriations processes (such as they are).  The beginning of the textbook process is for the House and the Senate to agree on total amounts to spend, both overall and in different substantive areas.  This year, the House and the Senate have disagreed on the total, and on virtually every individual program area.  And strikingly, neither chamber has followed the current law.

As the following chart shows, the House has chosen to write its appropriations bills to conform to the spending caps including the effect of the 2014 sequester.  The Senate, however, is writing bills that meet the caps without the sequester – that is, the Senate appropriations target does not achieve the additional savings prescribed by the 2014 sequester.

Chart1

So you may choose to rack up one point for the House.  But the current law specifies separate spending caps for defense and non-defense appropriations.  The House disregards those separate caps, and raises defense spending up to the level prescribed by the law without the sequester, and then makes up for that extra spending on defense by cutting nondefense spending below its cap in equal amount.  Now, technically and legally, the separate defense and non-defense caps are maximums, not precisely prescribed amounts.  But all of the caps were determined in a negotiated deal involving the Senate, the House and the White House; and so, arguably, overspending one cap and underspending another violates that previous agreement.  And overspending the defense cap clearly is contrary to current law.  The Senate, although it ignores the additional cuts in the sequester, does observe the separate defense and non-defense caps that were written in the law before the 2014 sequester was imposed, as is shown in the following charts.

Chart2Chart3

So a second reason why this year’s appropriations process will be difficult is that the two chambers of the Congress are going their separate ways, but neither is obeying a strict interpretation of the current law.  Neither can claim the moral (or legal) high ground, and that could tend to prolong the process.  And if the House claims righteousness on the ground that it obeys the sequester, the Senate can take offense that the House violates both the sequester’s defense spending cap and the prior bipartisan agreement, likely extending the argument.

And there is one final reason why this year’s appropriations process will be both unusual and difficult, and that has to do with an interaction of the Congress’s obvious tendency to procrastinate on this part of its business, on the one hand, with the phenomenon of the level of spending going down, on the other.

As noted earlier, no college freshman or younger (prodigies excepted) has lived through a timely Congressional appropriations cycle.  As you might imagine, therefore, the Congress has learned how legally to violate the rules.  It passes a temporary appropriations bill, called a “continuing resolution” (or “CR”), so that agencies can continue operating until the Congress can come to agreement on a complete full-year bill.  Now, it stands to reason that if the Congress cannot agree on a full appropriations bill, it cannot agree on much detail in a CR either (else it would just pass a full bill rather than dither with a temporary CR).  Therefore, the typical formulation of a CR is simply to continue agency operations at the same funding levels as last year, until the new funding levels can be agreed upon.  (There are routinized mechanisms for dealing in CRs with “anomalies” in spending, such as year-to-year changes in spending amounts specified in long-term contracts.)

But this glide-by method makes sense only when spending is going up.  An agency can pinch pennies for a short period of time if it knows that more funds are in the pipeline.  But that same agency can get in big trouble if it starts a fiscal year at a higher spending level, and then has its funding cut.  Building on that point, if the Congress wants to procrastinate, simply continuing at the previous year’s funding level is an easy handle to grab.  But if spending is actually going down from one year to the next, and continuing at the previous year’s level is not a viable option, then there is no such easy hand-hold on a CR amount.  Instead, the Congress has to negotiate an appropriate lower amount.  And if the Congress had been prepared to negotiate such an agreement, it should have been able to pass a full bill on time, instead of procrastinating through a CR.

And this year, of course, appropriations will go down – in nominal (not-inflation-adjusted) dollars – because this year’s caps are well below last year’s actual spending (as shown in the following chart).  So the Congress cannot simply argue up until the deadline and then temporarily extend last year’s spending levels.  Instead, they must come to a substantive bipartisan agreement – and if the Congress were capable of doing that, we would be talking about something other than appropriations deadlock at this very moment.

Chart4

So what happens if the Congress cannot agree?  Well, that is yet another bear trap awaiting a misstep by the Republic.  At this stage of the process, such as it is, neither chamber agrees with the actual current law – the August 2011 spending caps, plus the further reduction in those spending caps under the 2014 sequester.  If the two chambers cannot agree to a new law to change those amounts, then those amounts prevail, and determine the maximum spending amounts under the 2014 annual appropriations.  But the eternal verity that is easy to forget in all this jumble is that those maximum spending amounts in the law do not actually appropriate a single dime.  If the Congress does not pass its annual appropriations, the agencies have no money whatsoever to spend, and the government shuts down.  So if the Congress cannot agree, we get a mess.

Now, a government shutdown ranks leagues of seriousness below a government default (understanding that the two parties in the Congress argue over precisely what the term “default” means).  But our economy is shaky enough as it is.  Most economists would rather not know what would happen to growth and employment if some people, businesses, and state or local governments who had planned to write checks cannot do so because they have not received the federal government checks they were expecting.

You have heard recent reference being made to the “regular order” in the Congress.  Again, if the “regular order” includes annual appropriations bills being passed on time, then it has been a rare order indeed.  But even just a little bit more regularity certainly would be welcome at this time.  It is hard to justify all of the brinkmanship that we must endure at this time of economic peril.  And the impending fight over the annual agency appropriations looks set to be another painful component of that brinkmanship.

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Markets Not Taking Economic Situation Seriously

http://video.foxbusiness.com/v/2405337181001/markets-not-taking-bernanke-comments-seriously/

Screen Shot 2013-05-27 at 8.39.30 AMIn this clip from the May 23, 2013 Cavuto show, Steve Odland articulates how U.S. markets are not taking our economic situation seriously.  China manufacturing numbers have moved negative, meaning the world engine for economic growth is slowing.  This inkles a poor Christmas buying season since most retailers and manufactures should be in full swing for the holidays.  Further, Federal Reserve Chairman Ben Bernanke suggested that the Fed will dial back bond buying in the future so the era of easy money will be ending.  The only other solution is to print money to satisfy the increasing debt and cover our deficit spending.  Asian and European markets sold off on all this news but inexplicably, U.S. markets did not.  We cannot keep going like this economically and keep hitting record highs.  At some point the U.S. will need to pay the piper.

– Steve Odland

 

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CEO Group: It’s Time to Shift Focus of Business Tax Policy

Posted below is an excellent article by John McKinnon that was published in the Wall Street Journal 4/15/13.
By John D. McKinnon

A group of big-business CEOs is rolling out some ideas that could shape the coming debate on overhauling the tax system.Unknown

The Business Roundtable suggests in a new paper that it’s time to consider shifting the focus of U.S. business-tax policy away from targeted subsidies that aim to boost investment in plant and equipment. Instead, the U.S. should consider lowering overall corporate tax rates in order to attract all sorts of new investment and profits, the BRT suggests in comments to the House Ways and Means Committee.

The idea behind the shift is to attract new investments from nimble multinationals – particularly their highly mobile and highly profitable investments in research patents and other intangibles – at a time when capital has become much more mobile.

By contrast, U.S. investment subsidies such as accelerated depreciation only succeed in getting domestic industries to increase capital expenditures by a couple of percentage points, the BRT paper suggests.

“Some evidence…suggests that corporate rate reduction could be more effective in attracting highly profitable investments to the United States than an incentive in the form of a tax deduction or credit,” the BRT says in its comments to the congressional committee, which is weighing a tax-code overhaul. “For a highly profitable investment, the tax savings from accelerating the deduction for depreciation allowances, for example, are small relative to a reduction in the rate of tax on the income from the investment. A company choosing where to locate its most profitable investments is likely to be more influenced by a lower tax rate on the investment than an enhanced deduction.”

The paper foreshadows a looming debate that could pit some domestic heavy industries against a range of multinational businesses. Many of the tax breaks that likely would be sacrificed in order to lower the corporate tax rate currently benefit manufacturers, including accelerated depreciation and the domestic production deduction.

The shift to a lower corporate rate would allow lots of other types of businesses to benefit from U.S. subsidies, and return more of their operations and profits to the U.S., they say. Manufacturers could be protected with a special tax rate or other provisions.

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Economy Depressed By Lack Of Business Confidence

http://www.foxbusiness.com/on-air/cavuto/index.html#http://video.foxnews.com/v/2278069970001/business-lacking-confidence-in-government-policies/?playlist_id=87065

Screen shot 2013-04-07 at 8.53.44 AM

Businesses are beseiged by new regulations, rising taxes, costly mandates from the new healthcare regulations, etc.  And so, they are not adding jobs.  The percentage of Americans working is at its lowest point since 1979 despite the unemployment figures.  See Steve Odland’s appearance from April 4, 2013 on the Cavuto Show.

– Steve Odland

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Cyprus Situation is Threatening to U.S.

http://www.foxbusiness.com/on-air/cavuto/index.html#http://video.foxnews.com/v/2255649962001/italy-more-of-a-concern-for-europe-than-cyprus/?playlist_id=87065

Screen shot 2013-03-31 at 4.24.19 PM 1

The situation in Cyprus is worrisome.  It’s not just threatening to Cypriots, or Europeans.     When governments start seizing assets to pay down the debt it is a threat to everyone.  Europeans are saying this is a new template for dealing with too much government debt or banking issues.  Are U.S. citizens at risk too? Click on the link above to watch Steve Odland’s appearance on Cavuto from  3/26/13.

– Steve Odland

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It’s Time to Act to Save Our Economy

Odland and Minarik: It’s Time to Act to Save Our Economy

Fundamental changes and sound long-term policies are needed soon

  • By Steve Odland and Joe Minarik
  • Printed in Roll Call, Feb. 27, 2013, 7:17 p.m.

 

Our elected leaders are failing our nation. Partisanship and short-sightedness halt progress toward fiscal austerity. Businesses are suffering from economic uncertainty and instability. So, too, are American workers, as unemployment numbers continue to be high. Business investment remains tepid. Without fundamental changes and sound, long-term policies, our economy will continue to falter.

We need to set a course soon. The state of our nation and economy require purposeful engagement by Congress and the president, along with energy, thought and planning to produce short- and long-term strategies to restore and sustain a healthy American economy. To achieve progress, all sides must compromise or every American will suffer the consequences.

Congress must act in the next two weeks to avoid a repeat of economic and financial shocks. First, the debt limit must be taken off the table as a negotiating tactic. Efforts in the near-term must focus on replacing the across-the-board spending sequester with balanced revenue increases and better-crafted spending cuts.

Congress can consider any one or more of a wide range of alternative revenue increase provisions, such as repealing unnecessary “tax extenders” outlined within the recently enacted American Taxpayer Relief Act, increasing the federal gasoline tax, raising the excise tax on alcohol and taxing “carried interest” as ordinary income. Spending cuts should focus on Medicare, a major cause of our nation’s projected long-term budget problem.

Many alternative policies, both entitlement changes and minor revenue increases, can achieve the sequester’s first year of deficit reduction spread over 10 years, and will not derail economic recovery.

Second, the Congress and the president should commit to overhaul Social Security. Both sides agreed last year that changes are necessary, and we believe that the prospects for success this year are high. A comprehensive approach to an overhaul could incorporate changes such as a strengthened minimum benefit and help for very long-lived beneficiaries, which would protect or even improve the status of the neediest elderly. Success on this front would give a cynical and disappointed public a new measure of confidence that Washington actually can address their problems.

Finally, following tangible progress this year, the Congress and the president should proceed to the broader task of Medicare, Medicaid and a tax overhaul, the roots of our long- term debt problem. Consider changing Medicare Advantage with better choices and incentives for higher-quality health care at lower cost. Make health exchanges from the 2010 health care bill stronger, more efficient and less costly by expanding their base of enrollees. Set the lowest tax rates possible and broaden the tax base.

Our budget problem is overwhelmingly long term in nature. We have large deficits now, caused in part by the weakness of the economy. Extraordinary action to reduce deficits now could reduce demand and weaken the economy further, possibly leading back to a recession. Still, deficits today pile up debt that must be serviced in the future — a dilemma created by a failure to keep the budget on the straight and narrow.

A two-year approach to solving our lingering budget and deficit challenges, with a limited target for the remainder of this year, would both increase the odds of success and decrease the risk to the still-shaky economic recovery. A sincere, serious plan will give businesses the confidence they need to once again invest in the U.S. and grow jobs. It is time for action and it is past time for compromise. We call on the Congress and the president to do what it takes to set our nation on a path to economic stability.

Steve Odland is CEO of the Committee for Economic Development. Joe Minarik is senior vice president and director of research at CED and former chief economist at the Office of Management and Budget.

 
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Government Policy Holding Back Hiring

Screen shot 2013-02-17 at 9.24.03 AM

 

http://video.foxbusiness.com/v/2161028856001/

See Steve Odland’s latest interview from 2/12/13 on Cavuto.  He argues that government fiscal policies are causing businesses to hold back on investments and job creation in the U.S.

– Steve Odland

 

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We Must Cut Spending!

http://www.foxbusiness.com/on-air/cavuto/index.html#/v/2071492689001/can-dc-still-tackle-spending-cuts/?playlist_id=87065

Screen shot 2013-01-06 at 10.31.11 AM

 

See Steve Odland’s appearance on Neil Cavuto 1/3/13 arguing that we need to cut spending.

– Steve Odland

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Tax Moves To Prepare for 2013

[The following article was published in the Wall Street Journal November 24, 2012 and written by Laura Saunders.]

The annual scramble to make smart tax moves before Dec. 31 is proving especially vexing this year.

Congress still hasn’t settled 2013 tax rates on income, investments, large gifts and estates. Deductions and other breaks are also in doubt, now that politicians from both parties are calling for cutbacks—although in different ways.

And huge questions remain unanswered even for the 2012 tax year. For example, the Internal Revenue Service on Nov. 13 warned lawmakers that if they don’t act soon, the alternative minimum tax, which reduces the value of some tax breaks, will apply to 33 million households for 2012 rather than four million. More than 60 million people might not be able to file returns or receive refunds until late March, the IRS says, because it would have to reprogram computers.

Yet despite the uncertainties, advisers say year-end tax planning is possible. The best move this year, says Paul Gevertzman, a tax specialist at accounting firm Anchin, Block & Anchin in New York, is to avoid “crystal-ball planning”—or thinking it’s possible to know exactly what will happen. Instead, taxpayers should focus on what is known, maximize breaks while they still exist, reduce vulnerability to unknowns without acting rashly and, above all, stay flexible, he says.

“We know Congress has to reach a compromise, but we can’t know what it will be,” he says.

We do know that 2013 will mark the debut of the 3.8% flat levy on net investment income for joint filers with adjusted gross income of $250,000 or more ($200,000 for singles). Congress passed this levy, plus a 0.9% increase in Medicare tax for affluent earners, to help fund the massive 2010 health-care changes. The tax introduces new layers of complexity into investors’ planning. (For more details, see box.)

Big unknowns include the top rates on long-term capital gains and qualified dividends, both now 15%. The rate on gains could hit 23.8% or more, and the rate on dividends could be as high as 43.4%.

Because of the new 3.8% tax and possible higher rates, some tax specialists are again recommending that taxpayers seriously consider converting their taxable individual retirement accounts to tax-free Roth IRAs. The switch is the ultimate flexible tax move, because converters have until Oct. 15, 2013 to reverse the conversion. (For more details, see box.)

Meanwhile, there are few ways taxpayers can shrink 2012 taxes after Dec. 31, other than contributing to some retirement accounts or health savings accounts. Here are moves to consider before year end, plus a few to avoid.

Make charitable gifts. The best value often comes from donating appreciated assets, because donors can get a full deduction while skipping capital-gains tax on the asset’s growth. Cash donations to charities are often deductible up to 50% of adjusted gross income, while the limit for gifts of other assets is often 30%. Disallowed portions usually carry over to future years.

If you aren’t sure whether the group is eligible to receive tax-deductible gifts, American Institute of CPAs tax specialist Melissa Labant recommends checking “Select Check” at www.irs.gov, a master list of qualified charities.

Are you concerned that the charitable deduction could shrink next year? If so, make a large donation to a “donor-advised” fund and qualify for a full write-off this year. Assets can then grow tax-free in the fund until donors specify tax-free recipients, sometimes years later. There’s no deduction at that point.

If you want to donate IRA assets to charity, wait a bit longer. Since 2006, IRA owners 70½ and older have been able to give up to $100,000 of the required payout directly to a charity. There’s no deduction, but no taxable income either. This wildly popular provision expired at the beginning of 2012, but lawmakers might yet reinstate it—as they did in 2010.

Until lawmakers clarify the issue, would-be donors should “leave room” for their donations because the first dollars out of an IRA count as the required payout. For example, if your required payout is $20,000 and you want to give $3,000 of that directly to your church, withdraw no more than $17,000 until this year’s rules are clear.

Make an extra mortgage payment, or pay down principal. Usually taxpayers can’t accelerate more than one month of mortgage interest, but that helps a bit if you think the mortgage-interest deduction will be curbed next year. Or find cash to pay down principal, which reduces overall interest.

image

Bloomberg NewsThe Internal Revenue Service building

Don’t fret about the alternative minimum tax “patch” for 2012. If Congress doesn’t fix the AMT, eight times as many households will be subject to the tax as in previous years, and there will be severe disruptions to next spring’s tax-filing season. So it probably will get done, tax experts say.

Maximize contributions to employer-sponsored retirement plans. Unlike with IRAs, the deadline for 401(k) contributions is Dec. 31. This year, the employee limit is $17,000, or $22,500 for workers 50 or older. This pretax contribution has two benefits: It bolsters savings and reduces adjusted gross income that might qualify the taxpayer for benefits that phase out at higher incomes.

Evaluate stock options and restricted stock. This is a highly complex area because some elements of these benefits are taxed as ordinary income and some are capital gains. Next year, the new 3.8% investment income tax and the 0.9% Medicare tax hike will further complicate decisions.

For some investors, it will make sense to exercise options before year end or accelerate taxes on restricted stock into this year. Such decisions depend heavily on expected investment growth, notes Grant Thornton benefits specialist Eddie Adkins.

The bottom line: if you have these benefits, get expert help soon.

Think twice before harvesting gains. Yes, the capital-gains tax will be higher next year. But Katherine Nixon, chief investment officer for wealth at Northern Trust in Chicago, is telling clients to resist the urge to sell long-term holdings willy-nilly to qualify for this year’s lower rate on gains. “That shrinks invested capital, and therefore future wealth,” she says.

Accelerating a sale into this year can make sense, she says, for investors who were planning to divest within the next two years—either because a holding no longer fits a portfolio or cash will be needed, say for tuition.

Harvest capital losses, up to a point. Investment losses can offset investment gains plus up to $3,000 of ordinary income, both for single and joint filers. This year, tax specialist Joel Dickson at Vanguard Group cuts the Gordian knot of rate-change dilemmas with a simple recommendation: “Take enough losses to offset your gains, plus $3,000 and perhaps a bit more,” he says.

Note that “wash sale” rules penalize buyers who acquire the same asset within 30 days of selling at a loss.

Use up funds in a medical flexible-spending account. They often don’t carry over, although some employers will allow workers to spend 2012 funds in the first weeks of 2013. Next year, the contribution limit will be $2,500, less than some employers now allow.

Accelerate medical expenses. The threshold for deducting these expenses, now 7.5% of adjusted gross income (10% for AMT payers), rises to 10% next year for most taxpayers.

People who are 65 and older, however, can use the 7.5% threshold through 2016. This phase-in will be useful, say advisers, because most taxpayers claiming large medical deductions are in the final years of life.

Note that the IRS’s list of what’s deductible is far broader than what insurance typically reimburses, extending to contact-lens solution, assisted-living costs and even special education. For details, seeIRS Publication 502.

Set up a health savings account for 2012. Qualified taxpayers can make 2012 contributions to HSAs as late as April 15, 2013, but the account has to exist by year end.

Write next semester’s tuition checks before year end. The American Opportunity Tax Credit allows qualified taxpayers to get a benefit this year for next spring’s tuition if the payment is made before year end—even though the credit is set to expire for 2013. For more information, see IRS Publication 970.

Prepay state taxes. Deductions for state and local income, sales and property taxes are already disallowed by the alternative minimum tax, and they might shrink further next year, even if Congress reinstates the expired sales-tax deduction for 2012. Consider accelerating next year’s state tax payments if they don’t throw you into the AMT, in which case you’ll lose the write-off altogether.

Make gifts up to $13,000 to relatives or friends. Such gifts are tax-free, and the number of recipients isn’t limited as long as the value of each gift doesn’t exceed $13,000. Cash is often the best gift, as presents of assets such as stock carry their “cost basis” with them.

For example, if an aunt gives her niece shares worth $13,000 that were purchased for $5,000, then the niece will owe tax on any gain above $5,000 when she sells the shares.

It’s also possible to forgive $13,000 of a loan instead of giving assets outright. Payments of tuition and medical expenses are tax-free as well, but the giver must write the check to the provider.

Contribute to 529 education savings accounts. Assets in these accounts enjoy tax-free growth, and withdrawals from them are tax-free when used for tuition and other qualified expenses. Some states also provide tax benefits to givers.

These accounts also offer a rare benefit: Contributions leave the giver’s estate, yet he or she can take back the principal without penalty if the money is needed. Contributions do count toward the $13,000 gift limit, however.

Have a closely held business pay a dividend. With the dividend-tax rate in flux, firms that are organized as C corporations or were C corporations but now are in Subchapter S format should consider paying dividends before year end, says Chris Hesse of accounting firm CliftonLarsonAllen in Minneapolis.

Buy depreciable equipment for a closely held business. Both “bonus” and “Section 179″ depreciation deductions are set to drop sharply in 2013. According to Jason Cha, a tax specialist at the American Institute of CPAs, the combined depreciation on $190,000 of qualified purchases of furniture, fixtures and equipment is about $168,000 this year but less than $49,000 next year.

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Fiscal Reform Is Necessary

http://www.foxbusiness.com/on-air/cavuto/index.html#/v/1954628590001/former-office-depot-ceo-americans-need-reform-to-happen/?playlist_id=87065

In this appearance on Neil Cavuto on 11/7/12, I argue that fiscal reform is necessary.  We need to cut the deficit by reducing government spending and raising more revenue.  But I argue that this cannot happen through tax rate increases but rather, tax reform is necessary.  This won’t happen in a lame duck Congress but they should pass measures to avoid the fiscal cliff and then work on real tax reform to modify deductions and loopholes.  Growth cures all, however, and pro-economic growth tax policy is vital to stimulating the Economy.

– Steve Odland

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Odland Appearance on The Kudlow Report

http://video.cnbc.com/gallery/?video=3000125085&play=1

I appeared on CNBC’s The Kudlow Report on October 25, 2012 to discuss the deficit, government debt and the looming fiscal cliff.  We need to cut government spending and reform the tax code to reduce deductions, flatten rates, and produce more revenue through economic growth that will result.

– Steve Odland

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What Will It Take To Get Better?

The U.S. Economy went into free-fall in the latter part of 2008 when the housing crisis and its falling assets values triggered a banking crisis, triggering a liquidity crisis, triggering a severe economic contraction.  If only we hadn’t glutted the market with easy money.

Perhaps we should have retained the 20% down, 80% maximum mortgage standard and the housing boom wouldn’t have been so high.  Perhaps the 20% down payment would have exposed property owners to the first 20% decline in prices without triggering asset write-downs and crises at financial institutions.  Perhaps there wouldn’t even have been a 20% decline in values since there likely wouldn’t have been the real estate boom.  Perhaps, perhaps.

People still are seeking to parse blame for the crisis.  Some blame the “greedy” banks that loaned all that money.  But I don’t recall the banks loaning money to people who didn’t ask for the loan.  Some blame Congress for pushing lax standards at Fannie Mae and Freddie Mac. Sure, they set up economic incentives that made real estate buyers an “offer they couldn’t refuse,” like no money down, little required documentation of ability to pay, etc.  Perhaps, but Fannie and Freddie didn’t force people to take loans they couldn’t afford.

So who’s to blame for the crisis?  People.  People in government who demanded eased standards.  People in banks who went along knowing that loaning money to people who couldn’t pay wouldn’t work over the long run.  People who bought real estate they couldn’t afford and financed it with loans they couldn’t repay.  We continually look for “perpetrators” of acts against “victims.”  The people who set up the environment of loose money aren’t exactly perpetrators and the people who took money they never expected to repay aren’t exactly victims.  Perhaps we should stop with the labels and call it a draw.

The real issue now is what to do.  We still are trying to prosecute people on the lending side while trying to “protect” people on the borrowing side.  Perhaps the real victims are we the people who had nothing to do with any of the above but now are expected to pay for it. We need to be very careful here not to continue the mistakes that got us here to begin with.  For instance, some are arguing that we need to loan more to stimulate real estate purchases to reignite the economy.  Really? Didn’t we learn anything?  Some are saying we need to raise taxes to take money from those who still have some to fund more giving to “victims.” Hmm.  Does that really work anywhere in the world?

So what’s it going to take?  Let’s go back to lending standards that encourage personal responsibility.  Let’s go back to people living within their means.  Let’s go back to everyone paying something to support this great country rather than having a view that “others can pay.”  Maybe we need to let the market work rather than having quasi-government agencies distort the markets.  Maybe we then need to be patient and let things heal.  Let the economy catch up to the new liquidity levels, let markets adjust to new equilibriums, and let people adjust attitudinally to newfound responsibility to act accountably as did previous generations.  Then, it will get better.

– Steve Odland

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America’s Declining Economic Freedom

http://www.foxbusiness.com/on-air/cavuto/index.html#/v/1850128347001/americas-declining-econ

 

America’s Declining Economic Freedom

Former Office Depot CEO Steve Odland on a ranking of countries based on economic freedom on which the U.S. has fallen to 18th.

 

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Fox Business Appearance Regarding Romney’s Business Experience

 

http://www.foxbusiness.com/on-air/cavuto/index.html#/v/1809233108001/former-office-depot-ceo-on-romneys-business-background/?playlist_id=87065

 

I appeared on Neil Cavuto’s show on August 27, 2012 to discuss Mitt Romney’s business experience.  Click on the link above to view.

– Steve Odland

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No Recovery Yet

After the Great Recession, people have been waiting anxiously for the Great Recovery.  But quarter after quarter, the numbers come in and nothing improves.  Economic growth is only 1.5% rather than the high single digit growth that usually follows a significant recession.  The Fed still is scrambling to find new means to stimulate the economy despite near-zero interest rates.  Consumer sentiment is poor.  The misery index has increased over the past three and a half years from 7.83 to 9.71.  Business confidence has been hammered by increased regulation and costs, most notably from health care.  Hiring is non-existent.  Business taxes are the highest in the world creating head winds for U.S. businesses.

The definition of insanity is doing the same thing over and over again and expecting different results.  OK, so what we’re doing isn’t working.  How about trying something else?  Cut government spending, cut taxes thereby leaving this money in the private sector for multiplier-impacted investment, cut regulation, and watch the economy soar.

– Steve Odland

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U.S. Growth Slows

Not surprisingly, the numbers for GDP growth for 2012 Q2 were very poor.  But we all could feel that even before the numbers were issued.  Government policies continue to batter the economy but unfortunately they don’t seem to understand that.  The facts do not meet orthodoxy and so the only conclusion is that we need more of the same:  higher taxes, more regulation, more government spending, etc.  Of course what we need is an “about face” in order to let the economy heal and begin to grow again.

See the article from the WSJ by Neil Shah for more detail:

http://professional.wsj.com/article/SB10000872396390443477104577552690628159990.html?mod=djemalertNEWS&_nocache=1343415380712&user=welcome&mg=id-wsj&mg=reno64-wsj

  • Updated July 27, 2012, 12:53 p.m. ET

U.S. Growth Slows in 2nd Quarter

By NEIL SHAH

The economy is slowing to a crawl as consumers cut back spending on big-ticket items and businesses curtailed investments, fueling fears that the U.S. could sink to stall-speed this year.

Gross domestic product, the broadest measure of all goods and services produced in the economy, grew at a weak 1.5% annual rate, the Commerce Department said Friday — a sharp slowing from the first quarter’s 2% pace and the fourth quarter’s 4.1%.

The slowing economy, along with new government figures showing the recovery has been weaker than previously thought, raises the risk that a financial shock — an escalation of Europe’s economic crisis, say, or next year’s scheduled tax increases and spending cuts, the so-called “fiscal cliff” — could shove the economy back into recession. Weak growth could also prompt Federal Reserve officials to take more steps to boost the economy at upcoming meetings — especially since there are few signs their efforts have fueled unwanted inflation.

“The economy is kind of being strangled,” said Bob Baur, chief global economist at Principal Global Investors. “We underestimated how much uncertainty may have contributed to a lack of desire to expand and hire.” Mr. Baur expects a 2% to 2.5% pace of growth in the second half and has “grown more cautious,” he says.

One of the biggest drags on the recovery is a lack of consumer spending, which accounts for roughly two-thirds of demand in the economy. Spending rose 1.5% in the second quarter, lower than the 2.4% pace in the first — with buying of big-ticket items hurting the most. Retail sales have dropped three months in a row, while consumer confidence has wilted. A big factor is the weak labor market. Employers added fewer jobs in the second quarter than they have since the labor market began recovering in 2010. The unemployment rate, at 8.2%, has barely moved recently. And a severe drought in the Midwest is starting to push up food prices, which could make Americans less willing to spend.

The report did contain some encouraging news. Sales of houses continued to contribute to the nation’s growth, though the pace flagged from the first quarter. Despite Europe’s problems and slowing in the rest of the world, U.S. exports rose 5.3% in the second quarter. Cutbacks by federal, local and state governments continued to drag down the economy, but eased from earlier this year. Some of this year’s slowdown could also be the result of unusually heightened activity during the winter months given unseasonably warm weather.

Still, the persistent unwillingness of consumers and businesses to spend and invest more despite historically low interest rates has economists and Federal Reserve officials worried about the coming months. Instead of spending, Americans are saving: The personal saving rate — saving as a percentage of disposable personal income — rose to 4% in the second quarter from 3.6% in the first, even though gasoline prices were falling.

Businesses, meanwhile, aren’t investing as confidently as earlier this year, with many citing uncertainty over U.S. fiscal and tax policies, global economic turmoil — especially Europe — and weak domestic demand. Companies Apple Inc. and Ford Motor Co. have blamed bad results on Europe’s recession. Manufacturing has weakened in recent months, while new orders for nondefense capital goods, excluding aircraft — a proxy for business investment — fell 1.4% in June from a month earlier.

Allan Pasternak, a founder of BAMCO Inc., a Middlesex, N.J., metal manufacturer, says his firm is doing brisk business but he’s concerned about next year and proceeding carefully when using profits on investments.

“I really don’t know what to expect,” he says. “Our main concern is, is the economy going to experience another significant downturn.” He also blames the “indecisiveness of our politicians, more than any of the actual policies” for creating uncertainty over government policies and crimping the ability of businesses to make decisions. BAMCO, for its part, is trying to be “lean and mean” and holding off on investing in new buildings even as business is growing.

A few months ago, economists predicted growth would pick up in the second half of the year as America’s job market improved, government cutbacks stopped hurting growth and the fall in the price of oil lowered gasoline prices. None of those have really happened. “The economy has lost a fair amount of momentum this year,” noted Paul Dales, an economist at Capital Economics, which predicts only 2% growth this year, below the economy’s long-term potential of around 2.5%. Among the new headwinds: The rise of the dollar, which makes it harder for U.S. exporters to sell their goods abroad and could hit corporate profits.

The Commerce Department on Friday also said new revisions show the recovery from the 2007-2009 recession was weaker than previously thought. The recession, however, was a little milder than thought, largely thanks because rising government spending cushioned the blow.

 – Steve Odland
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America Already Is Europe

Paste below is an opinion piece by Arthur C. Brooks from the WSJ arguing that American policy already matches Europe’s and that we are a social (socialist?) democracy.  His arguments are supported by the numbers.  Do we really want to be Europe, with permanent high unemployment, unfunded entitlements, no innovation, no growth, no dynamism–in other words, none of everything America has stood for since its founding?

– Steve Odland

http://professional.wsj.com/article/SB10001424052702304141204577509251648959104.html?mod=WSJ_Opinion_LEADTop&mg=reno64-wsj

America Already Is Europe

In spending, debt and progressivity of taxes, the U.S. is as much a social-welfare state as Spain.

I’m often asked if I think America is trending toward becoming a European-style social democracy. My answer is: “No, because we already are a European-style social democracy.” From the progressivity of our tax code, to the percentage of GDP devoted to government, to the extent of the regulatory burden on business, most of Europe’s got nothing on us.

In 1938—the year my organization, the American Enterprise Institute, was founded—total government spending at all levels was about 15% of GDP. By 2010 it was 36%. The political right can crow all it wants about how America is a “conservative country,” unlike, say, Spain—a country governed by the Spanish Socialist Workers Party for most of the past 30 years. But at 36%, U.S. government spending relative to GDP is very close to Spain’s. And our debt-to-GDP ratio is 103%; Spain’s is 68%.

At first blush, these facts seem astounding. After all, Spanish political attitudes differ dramatically from our own. How can we be slouching down the same debt-potholed, social-democratic road as Spain? There are three explanations, all of which point to a worrying future for America.

First, the American left is every bit as focused on growing government and equalizing incomes as the Spanish left. Despite arguments from liberals that tax increases on “millionaires and billionaires” are necessary for fiscal prudence, they are little more than a way to meet the single-minded objective of greater income equality.

President Obama’s proposal to eliminate the Bush-era tax cuts for households making over $250,000 a year would, on a static basis, reduce the deficit by only 5% annually. That still leaves 95% of the deficit to be paid by the middle class.

image

Getty Images

Similarly, the so-called Buffett Rule, which would apply a minimum income tax rate of 30% on individuals making more than $1 million a year, is supposed to help bring our budget into line but would raise annually about $4 billion—about as much as Americans spend on Halloween and Easter candy.

The second force leading us down the social-democratic road is cronyism. America possesses a full-time bipartisan political apparatus dedicated to government growth and special deals for favored individuals and sectors. For example, the farm bill that just passed the Senate contains around $100 billion in subsidies, mostly for large, corporate farms that do nothing to improve nutrition or food security. Or witness the recently reauthorized Export-Import Bank, which doles out about $20 billion annually in corporate welfare.

Third, and most importantly, while a majority of Americans are neither leftists nor corporate cronies, they aren’t paying much attention to the political system. We often hear that more than 85% of Americans disapprove of the job Congress is doing. But, according to the 2000 Social Capital Community Benchmark Survey, only 25% of American adults can correctly name both of their U.S. senators, and 51% can name neither. If I don’t know who my senator is, I am unlikely to know much about his bridge to nowhere.

In a way, separation from politics is a charming part of the American DNA. There is a story (probably apocryphal) that when Thomas Jefferson was asked to describe a typical American, he thought for a moment and said, “A man who moves west the first day he hears the sound of his neighbor’s ax.”

We’re not literally moving west any more, but in the Tocquevillian tradition our lives are directed less by Washington politics and more by everyday jobs, church socials and soccer practices. As the leader of a think tank dedicated to public policy, I would love it if Americans were as obsessed with policy as I am. But let’s be realistic: Most people don’t have the time or inclination to contemplate the potential damage each government-spending predation—each tiny political sellout of our values—could cause.

Still, according to a recent Gallup survey, 81% of Americans are dissatisfied with the way the nation is being governed. Since Gallup started asking that question in the early 1970s, dissatisfaction has never been higher.

And Rasmussen polls find that consistently two-thirds to three-quarters of Americans say our country is on the “wrong track.” They may not know exactly why, but most Americans believe their government is changing our nation for the worse.

What is the answer? We caught a glimpse of it in 2010, when a movement of ethical populism—the tea party—mobilized millions of Americans to read the United States Constitution and demand politics that reflect the majority’s values. And while woefully misguided in its diagnoses and policy solutions, the Occupy Wall Street movement was at least right to protest the malignant cronyism in our economy. That energy must re-emerge in 2012 and become a permanent part of our political landscape.

In 1787, Benjamin Franklin was asked what sort of government our new nation would have. His famous answer was, “A Republic, if you can keep it.” When he said this he was envisioning a monarchist alternative, not today’s noxious brew of leftism, cronyism and general inattention to public policy. But Franklin’s maxim is still valid today.

Mr. Brooks is president of the American Enterprise Institute and the author of “The Road to Freedom: How to Win the Fight for Free Enterprise” (Basic Books, 2012).

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Still No Jobs

Last week’s job report was dismal.  Again.  How long are we going to tolerate this anemic recovery?  When will we demand change?  Only 80,000 jobs were created last month with about 250,000 jobs added in the entire quarter.  We need to add 150,000 jobs per month to keep up with population growth.  We need to add 250,000 jobs per month for the next five years (!) to get back to the employment levels of four years ago.  Five million fewer people are working today than a few years ago.  This is the lowest percentage of the population employed since the 1930s.  Government policy matters and is contributing to the problems.  They need to lower taxes, reduce regulation, stop the incremental health care burden, and fix the fiscal cliff.  Until this happens, jobs are not coming back.

– Steve Odland

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Consumer Spending Not Recovering

http://video.cnbc.com/gallery/?video=564619098

In this CNBC appearance from October, 2007, I expressed concern that the consumer was not going to be able to support the economy.  Unfortunately most of my concerns from that time were correct and the economy collapsed due to the burst of the housing bubble.  But still concerning is that most of the factors related to the consumer are still bogging down the economy today.  Non-discretionary spending in food and energy still is rising, credit still is unavailable, and housing still has not bottomed in many areas.  Until consumer wealth stabilizes and real income starts to grow, the U.S. economy, which is 70% consumer spending, cannot recover.

– Steve Odland

Posted in economic growth, economy, employment, food prices, housing | Tagged , , , , , , , | Leave a comment

Implications of the Walker Re-election

http://video.foxbusiness.com/v/1675322411001/what-are-the-national-implications-of-wisconsin-recall-election/?playlist_id=87065

Here is the link to my interview with Neil Cavuto regarding the reelection of Scott Walker and the potential national implications from June 5, 2012.

– Steve Odland

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We Must Cut Spending To Hold the Value Of The Dollar

http://www.bing.com/videos/watch/video/path-to-prosperity/6jch4zy

This clip features Steve Odland on The Kudlow Report.  Key points are:

The decline in the dollar is not good for America.

Exports become more viable, but imports become more expensive.  Since we are an export society, the net result is that a devaluation makes imported products more expensive and potentially leads to inflation.

Further, we are a debtor nation.  The decline in the dollar reduces confidence in our lenders, primarily China and Japan.  We rapidly are becoming the risky asset in the world.  Europe of course continues to make us look better by comparison, but our spending is worrisome.

The levers that Washington want to pull to fix this all relate to more government spending.  But in fact, this will cause further damage.  The only solution is to pull back on the increases in government spending and allow the economy to grow into the debt levels over time.

– Steve Odland

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Protests Spook Business

http://video.foxbusiness.com/v/1630646392001/fmr-office-depot-ceo-on-economy-bofa-protests

In this appearance on the Cavuto show, Steve Odland discusses growing anger among Americans as companies are not hiring in an uncertain economy.  Protests at the Bank of America annual meeting criticize the bank for its policies.  But the more the Occupy movement protests, the more they spook American businesses and the fewer jobs are created.  Further, the uncertainty in the economic, tax, regulatory, and political environment has businesses holding their cash on the sidelines and not reinvesting in job creation.

– Steve Odland

 

Posted in economic growth, economy, employment, Recovery, regulation, Small Business, unemployment | Tagged , , , , , , | Leave a comment

How To Control Your Home Insurance Costs


Insuring your home, and for small business people their place of work, is important to reduce risk.  Of course, you could competitively shop the policy every year but that is onerous as it takes a lot of study to understand the difference between policies.  Often it’s easier to stay with the policy that has the appropriate coverage.  And longer-term policyholders can earn discounts for longevity.  Here are 10 ways that you can control your home insurance costs:

  1.  Increase deductibles.  Insurance isn’t meant to cover the small stuff.  Set deductibles as high as you can afford.  For example, a $150,000 house could have a $1500 or 1% deductible.
  2. Make improvements.  Install a backup generator, a whole house surge protector, and smoke/CO2 detectors. Refit roof trusses with strapping.
  3. Opt for hip roofs.  Hip roofs offer the most slippery shape in high wind settings or storms.  You don’t want areas that can catch the wind and are prone to damage.
  4. Locate intelligently.  Stay away from flood prone areas.  Look for brick or stone houses in high wind areas and wooden frame houses in earthquake-prone areas.  Locate in communities with professional fire departments.  Have your home inspected before purchase.  Also check the Comprehensive Loss Underwriting Exchange report of your home before purchase to see insurance claim history.
  5. Don’t make small claims.  Frequent claims can drive up rates.  Don’t sweat the small stuff.  Insurance is meant to protect from catastrophic loss.
  6. Reinforce your home.  Install storm shutters, reinforce the roof, retrofit older homes for earthquake resistance, and modernize heating, plumbing, electrical to reduce risk of fire and water damage.
  7. Improve home security.  Add smoke detectors, burglar alarms, and deadbolts.
  8. Exclude land value.  It’s unlikely the land beneath your home will be stolen or burnt in a fire.  Insure the value of the home only.
  9. Combine policies with one insurer.  Most insurance companies offer discounts for multiple policy households.  Combine home and auto insurance.  Then buy an umbrella liability policy over both to optimize cost.
  10. Eliminate unnecessary coverage.  Don’t buy coverage you don’t need: earthquake coverage is unnecessary in most zones; don’t schedule jewelry if it’s inexpensive, etc.

Talk to your agent about other discounts.  Sometimes there is a discount for good drivers, or retirees, or people with good credit ratings.

Be sure you have enough insurance.  Don’t be penny-wise and pound-foolish.  Saving a few dollars a year will seem silly if you find out you’ve skimped on coverage that later costs you thousands.  Be sure to read the policy and ask your agent a lot of questions so you understand what coverage you do and don’t have.

– Steve Odland

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Government Spending Is Out Of Control

http://www.forbes.com/sites/steveodland/2012/04/09/the-spending-must-stop/

Government spending is out of control.  Our deficits have increased by trillions of dollars just in a few years with no end in sight.  The current budgets have deficits in excess of a trillion dollars per year and Washington wants more spending.  It’s out of control.  Much of our debt now is owned by foreigners who cannot understand what we are doing.  The current House budget attempts to dial back the spending by increasing the deficit by “only” another $4 trillion over the next ten years and this plan is called “radical” by the current administration.

The current path is unsustainable and the only course to prevent the U.S. from following down the well-worn path of the PIIGS debacles is to cut spending, dial back the social guarantee escalations, reduce the tax burden on businesses, flatten the burden on individuals, and live within our means.

– Steve Odland

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There Is No Job Growth

Once again, the Labor Department report was issued showing that the private sector added only 120,000 net new jobs last month.  Reminder, to get back to 5% unemployment, 250,000 jobs need to be created every month for the next five years!  Yet again, magically, unemployment notched down to 8.2%.  This is because, once again, people dropped out of the labor pool (or someone is manipulating the numbers).  If people weren’t discouraged and the labor pool was the same size as 2008, the actual unemployment rate would be 11%.  If people who are working part-time because they cannot find full time work were added into the figures, unemployment would be measured at 15%!

This is the longest stretch of 8%+ unemployment since the “Great Depression.”  It is being exacerbated by the highest corporate taxes in the world, the threat of higher taxes on individuals (75% of whom are small businesses filing as individuals), the almost daily threat of new regulations, the looming impact of either ObamaCare implementation in 2014 or whatever takes its place following the Supreme Court ruling, etc.  Businesses are worried about devaluation of the dollar, looming inflation, skyrocketing national debt, potential future U.S. credit downgrades, and an unwillingness in Washington to change course.

The definition of insanity:  Doing the same thing over and over again and expecting different results.

– Steve Odland

Posted in economic growth, economic malaise, economy, employment, unemployment | Tagged , , , , , , , | Leave a comment

The Worst Economic Recovery in History

http://online.wsj.com/article/SB10001424052702303816504577311470997904292.html?mod=WSJ_Opinion_LEADTop

This is a strong argument by Edward Lazear regarding the current economic recovery.  The average GDP growth rate in the post WWII era has been 3.5%.  The growth rate since the end of the recession has been an anemic 2%.  And deep recessions usually are followed by robust recoveries so the growth rate probably should have been in the 6-8% range so the gap is quite large.  The reasons are many but the underlying issue is that businesses still are under duress from the highest tax rate in the world, choking regulations, and unknown healthcare cost increases on the horizon.  This is holding back investment and hiring.

– Steve Odland

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College Costs Are Soaring

http://www.forbes.com/sites/steveodland/2012/03/24/college-costs-are-soaring/

College costs have been soaring for decades.   Since 1985, the overall consumer price index has risen 115% while the college education inflation rate has risennearly 500%.   Yet a college education is key to the earnings growth over time.

People need to wake up and begin to demand fiscal accountability from institutions of higher learning so that future generations have the ability to access higher education and therefore the American Dream.

– Steve Odland

Posted in college, college acceptance, economy, employment, inflation, unemployment | Tagged , , , , , , | Leave a comment

Why Are Food Prices So High?

http://www.forbes.com/sites/steveodland/2012/03/15/why-are-food-prices-so-high/

Food prices rose at a 5% level in 2011.  The USDA forecasts another 2.5-3.5% increase this year although many believe food inflation will be much higher.  What is going on?

1)    China and India have the largest and fastest growing populations creating demand for food from around the world.  So one impact on prices has been rising demand from these countries, especially China.

2)    The Japanese tsunami and earthquake last year drove up seafood prices by nearly 6%.

3)    Vegetable prices rose 50% in the past month.  Crop damage in Australia, Russia, and South America are to blame.

4)    Government subsidized and mandated ethanol use has increased the demand for corn and reduced acreage dedicated to food thereby pushing food prices up.  A Congressional Budget Office report concluded that the increased use of ethanol accounts for 10-15% of the increase in food prices.

5)    Changes in government subsidies for crops other than corn for ethanol impact food prices.

6)    Regulations restricting use of herbicides, pesticides, fertilizers, etc., while positive on some fronts, may result in poorer crop yields.

7)    Increased oil prices drive up costs for transportation, fertilizer, plastic packaging and inks used to print packaging.

8)    In some areas of the U.S., the government is paying farmers not to plant to save water.  This reduces food supply.

9)    Drier and hotter weather trends in farming areas generally reduce crop yield and drive prices higher.

10) Import tariffs and export taxes distort supply and demand, and hence food prices around the world.

See attached Forbes article for more analysis.

– Steve Odland

Posted in crops shortage, economic growth, economic malaise, economy, food prices, inflation, stagflation | Tagged , , , , , , | Leave a comment

Honda Civic Still A Winner

http://www.torquenews.com/1082/2012-honda-civic-still-winner

Honda Civic sales have roared back in 2012 after a difficult 2011.  Rebounding from the tsunami/earthquake natural disasters in Japan, supply is back on track and the new Civic is the third most popular car in America.

– Steve Odland

Posted in auto, car, design, new car | Tagged , , , , , , | Leave a comment

Four European Cars You Can’t Ignore at the Geneva Auto Show

http://www.torquenews.com/1082/four-european-cars-you-cant-ignore-geneva-auto-show

 

The Geneva Motor Show is underway again now through March 18.  Here are four European cars that are important at the show.

– Steve Odland

Posted in auto, car, design, new car | Tagged , , , , , , | Leave a comment

Silly Interview Questions

http://www.forbes.com/sites/steveodland/2012/03/05/silly-interview-questions/

It’s the silly season again.  No, not the political races—the interviewing season.  For thousands of people this is a time of year when they are subjected to the stress and strain of interviews.  College seniors are interviewing for permanent positions.  College juniors are interviewing for increasingly important summer internships.  High school students are interviewing for college placement.  And then there are the rest of the millions of Americans out of work who are interviewing for whatever job they can find.  Each of these groups finds themselves in a room with a recruiter asking mind-numbingly silly interview questions.

– Steve Odland

Posted in college, college acceptance, economy, employment, jobs, Recruiting, unemployment | Tagged , , , , , , , | Leave a comment

A Saab Story?

http://www.torquenews.com/1082/saab-story

Attached is an update on the potential sale of Saab.

– Steve Odland

Posted in auto, car, new car | Tagged , , , , , | Leave a comment

Mercedes-Benz Announces the SL63 AMG

http://www.torquenews.com/1082/mercedes-benz-introduces-sl63-amg-rumor-says-it-may-ante-sl65

Posted in auto, car, design, new car | Tagged , , , , , | Leave a comment

No Recovery For The Unemployed

Many in government are touting the supposed economic recovery.  I wish the numbers supported their celebration.  Employment today is 4% lower than four years ago.  At the rate of new job creation over the past four months, it will take until 2018 for unemployment to reach 2008 levels.  Labor force participation is at 63.7%, the lowest level since 1983 when far fewer women were in the workforce.  Monthly hiring is down over 18% versus pre-recession.

What is the solution?  One plan is for higher taxes on individuals and corporations, more regulation on business, and higher government spending to create public sector jobs.  But higher taxes take more money out of the private sector thereby reducing job creation and subtracting the normal 4-5x multiple on those jobs.  More regulation increases business cost and reduces profitability.  More government jobs create an increased burden on taxpayers, increase the deficit, hurt the dollar, and further jeopardize U.S. economic strength.

The alternate plan calls for:

  • Tax reform: flat tax on individuals and corporations
  • Exploration and production of domestic energy
  • Free Trade authority granted to the President
  • Congressional approval of new regulations
  • Repeal of the Davis-Bacon Act (mandated regulations on government construction projects)

I don’t know if every element of this alternate plan is perfect.  But the track we’re on is not producing the intended results.  The definition of insanity is doing the same thing over and over and expecting different results.  We need a new plan and the alternative seems worth a shot.

– Steve Odland

Posted in economic growth, economic malaise, economy, employment, jobs, Recovery, regulation, unemployment | Tagged , , , , , , , | Leave a comment

Stock Market Exuberance Irrational?

http://video.app.msn.com/watch/video/wall-street-rally-real/3xognd2u

This clip from CNBC’s The Kudlow Report discusses market surges last year.  This topic once again is relevant as the market reaches three year highs.  Is this exuberance justified by real world economic conditions?  We still have high unemployment, earnings growth is slowing again, and the recovery is uneven.  PE multiples are back to close to 16x earnings.  Until employment begins to grow again, the recovery will not be real and market gains are at risk.

– Steve Odland

Posted in economic growth, economic malaise, economy, employment, jobs, Recovery, Small Business, unemployment | Tagged , , , , , | Leave a comment

New Porsche Macan

http://www.torquenews.com/1082/porsche-macan-baby-cayenne

Here is an article I wrote for TorqueNews on the upcoming 2013 Porche Macan.  Enjoy.

– Steve Odland

Posted in auto, car, design, new car | Tagged , , , , , , , | Leave a comment

CNBC Video Regarding The Economic Outlook

http://www.bing.com/videos/watch/video/office-depot-ceo/3xbq74uv?fg=rss

In this video from November 18, 2008, I highlight the importance of the U.S. stepping up and leading the way out of the financial crisis.  I was very concerned that the crisis would deepen in 2009, which it of course did.  I highlighted small business’ need for liquidity access to capital.  The suggestions then still are applicable three and a half years later unfortunately.

– Steve Odland

Posted in economic growth, economic malaise, economy, employment, housing, housing crisis, jobs, liquidity, Recovery, Small Business | Tagged , , , , , , , | Leave a comment

Regulators To Change Rules For Money Market Funds

U.S. Government regulators are close to unveiling new rules for the $2.7 trillion money market fund industry with the intent to minimize potential shareholder losses in case of financial upheaval.  Unfortunately the proposed rules will accomplish just the opposite.

Who can argue with the objective of making investments safer for investors?  But it seems that every time regulators get involved, even with the best of intentions, the unintended consequences of their actions make things worse. 

The proposed rules will include collecting more money from shareholders, preventing investors from selling all their holdings at once, allowing them only to get 95% of their money back immediately with the remaining 5 percent returned to them after 30 days, and scrapping the fixed $1 net-asset value for money funds and make it floatable like other mutual funds.

Rather than making these investments safer, the unintended consequence is that these rules may create a “run on the bank.”  If investors think the government will restrict access to their own money, investors will pull their investments and find some other place to put them.  One definition of safety, after all, is the ability to access funds real time.  Further, there are many investments with a floating net asset value but money markets are the primary investment for people who want a constant $1 NAV.  By allowing this to float they will remove a huge incentive for people to put their investment in these funds.  Further, investors trade in their accounts and sweep money in and out continuously, so a holdback on every transaction will create accounting nightmares.  The rules could reduce returns for investors, prevent them from getting all their money out during a crisis, and reduce rather than increase confidence in the banking system.

Usually before these proposed rules go into place there is a period for public comment.  Already investment companies like Fidelity Investments have expressed alarm over the rules. Some investors are threatening to sue to stop the implementation.

Hopefully the regulators will listen and halt these rules before they create significant damage.

– Steve Odland

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What Is The Unemployment Rate?

http://www.forbes.com/sites/steveodland/2012/02/06/unemployment-8-3-or-11-or-15-1-2/

Depending on how you calculate it, unemployment either is 8.3% or 11% or 15.1%.

– Steve Odland

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Job Creation Depends On Small Business

http://video.foxbusiness.com/v/3877979/office-depot-ceo-on-slow-business

 

Small businesses are concerned about the economy.  As I stated in this Fox Business brief, small businesses are the lifeblood of the economy.  Most jobs are created when small businesses have access to capital and begin investing for growth.  Those sources of funding typically have come from home equity lines of credit, home refinancing, or credit card debt.  These have dried up in the “Great Recession” making it difficult for small businesses to find capital.  Until this situation is rectified, it will be difficult for our economy to recover

– Steve Odland

Posted in economic growth, economic malaise, economy, housing, housing crisis, liquidity, Recovery, Small Business, unemployment | Tagged , , , , , , , , | Leave a comment

The Invisible Recovery

http://www.forbes.com/sites/steveodland/2012/01/28/the-invisible-recovery/

Posted in economic growth, economic malaise, economy, housing, housing crisis, liquidity, Recovery, Small Business | Tagged , , , , , , , , , | Leave a comment

2011 Home Sales Disastrous

New home sales for 2011 were disastrous.  Sales of 302,000 new homes in the U.S. were the lowest level since 1963.  New home construction for 2011 was the lowest level ever recorded.  Alarm bells should continue to go off in Washington DC and in state capitols around the country.  We simply cannot move forward economically until the housing market recovers.

The toll of the housing wreck on the economy is enormous.  The primary asset on personal balance sheets is the single family home.  With values down 30-50% around the country people naturally are feeling poorer.  Consumer spending is restrained as a result.  More than 70% of our GDP is driven by consumer spending so the impact is severe.  Further, most small businesses are formed with personal capital.  The funds to start up a business usually come from home equity lines of credit, mortgage refinancing, or credit card debt. These forms are scarce today, mostly driven by the decline in home values.

Where do we go from here?  Well, as I’ve written before, we need urgently to work down the backlog of homes that are underwater or in some form of foreclosure.  This requires efforts from both the private and public sectors.  While this is not a “natural” disaster, we need to treat this economic disaster with the kind of urgency normally given to that kind of clean up.  Jobs and economic growth are at stake.  If we don’t move quickly we risk creating a lost decade of economic malaise.

– Steve Odland

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5 Policies To Aid Housing

The housing market still is a drag on economic recovery.  As inventory continues to exceed demand, prices are still under pressure, and asset values must continually be revalued lower. As these assets are reduced in value, banks and other lending institutions must reign in lending to maintain capital ratios.  Natural recovery still is projected to be a couple years away unless government and lending policies can be changed to aid the situation.  Here are five policies that could be implemented or changed to aid housing:

  1. Fast track the foreclosure process.  There is a huge backlog of homes in various stages of foreclosure.  As these homes stay out there in limbo, prices on normal sales cannot recover.  Policies vary by state but Florida’s process is especially onerous.  These processes need to be streamlined to process the backlog.
  2. Aid financing for investor purchases.  We can let the housing market heal one unit at a time, or we can encourage bulk purchases by investors to clear the backlog.  Local private and public incentives can be deployed to encourage local investors to buy up excess inventory for redeployment in the rental market.
  3. Add tax incentives.  Federal tax breaks could be offered to encourage investment by professionals in homes.  The short term and capital gains rate could be adjusted to 5% or 0% for gains on bulk purchases of homes.
  4. Borrowing rates could be restructured.  Underwater mortgages are holding back consumer spending and threaten even more defaults.  Lenders should get more aggressive with restructuring these loans and rewarding borrowers who stay current.  One idea is to alter loan terms so that payments go to pay down principal with interest deferred until later in the loan term.
  5. Temporarily suspend payments.  Homeowners with underwater mortgages could be given a two-year hiatus on paying down their mortgages.  Of course this would mean some restructuring essentially to extend the term of the mortgage.  But with a two-year easing, owners could stay in the homes and maintain them.  Meanwhile they could benefit from some housing recovery so that perhaps they would be no longer under water after the end of the period.

For sure, homeowners who borrowed more than they could afford and lenders who loaned too aggressively are all accountable for the current situation.  But we need some intelligent policy changes to get the housing market out of decline and therefore move the economic recovery out of neutral.

– Steve Odland

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Housing Holding Back The Economy

Sales of previously owned homes rose in December for the third straight month, according to the National Association of Realtors.  Surely this is welcome news after the housing crash of the past few years.  But before we celebrate, we need to remind ourselves that sales in December have risen from previous months every year for the past six years.  This is a normal seasonal change.  The key question is how sales are doing versus the peak years.  2011 ended with sales about 1.6% higher than 2010 but this level still is nearly 30% off the peak of a few years ago.  Further, about a fourth of these purchases were by investors scooping up distressed homes.  Additionally, prices continue to fall:  2011 prices were at the lowest level since 2002. 

So are we out of the woods?  Not yet.  Things are getting better, but it likely will take another year or two to work through the foreclosures and short sales and normalize supply and demand.  By then, pricing should be at bottom and begin recovery.  The net effect of all this is that asset values on bank’s books and for collateralized securities still are facing downward pressure.  This requires banks to continue to reserve more capital against losses and reign in lending, in turn, diminishing economic growth.  Housing needs to bottom out before and economic expansion can begin and claw back to the levels of 2006-7.  It looks like 2012 will be another year of healing.

– Steve Odland

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Business Needs Certainty

There has been a huge debate recently about the job situation in the private sector.  The solution embraced over the last couple years has been temporary tax incentives and temporary Federal Reserve actions.  The extension of the “Bush Tax Cuts,” the temporary lowering of Fed Funds Rate to virtually zero, the payroll tax holiday, etc. all have been deployed to stimulate the economy to produce jobs.  There is great surprise and hand wringing that these tactics have not been more stimulative.  And the logical question is “why?”

Why?  Because businesses need certainty.  Despite popular notions that all companies are short-term focused, businesses of all sizes plan for the long run.  Company leaders do not have an end date for operations and hence plan and run their businesses as if they will operate in perpetuity.  Therefore, no short-term actions to stimulate behavior will produce long-term actions on the part of business leaders.  A temporary payroll tax cut is nice, but no business will add jobs when the incentive is scheduled to disappear in a matter of months.  Business leaders instead pocket the savings and add the cash to their balance sheets as an insurance policy against the possible negative impact of the expiration of the cuts.  So the short-term nature of the tactic creates exactly the opposite impact on business thinking.

This thinking also applies to the “Bush Tax Cuts.”  The cuts went into place in 2003, and included a provision to expire at the end of 2010.  From the beginning, businesses knew that this was a seven-year incentive and so all decisions related to the 4.5% marginal tax rate benefit were modeled for that period.  The economy did well after the tax cuts and up until the mortgage/banking crisis of 2008.  But even without the crisis businesses would have begun around 2008 to take actions as if the tax rate was going to increase.  The “Bush Tax Cut” was extended for two years in December of 2010.  So, just as businesses had taken every action, short-term and long-term, to model the higher tax rates into their decisions, the rates were extended for two years.  The result?  Businesses ignored them and took all actions assuming the rate was going to be higher.  Net, no stimulative result was achieved for 2011.

Why would businesses make decisions as if they are impacted by personal income tax rates?  Because many large businesses depend on consumer spending for their revenue and consumer spending is directly related to the cash that is left over after taxes.  Small businesses that are organized as S corporations, LLC’s, or LLP’s actually have flow through income to their personal tax return and so their tax rates are the personal tax rates.  Hence, the “raise taxes on rich people” argument is risky since a huge percentage of “rich people” actually are small businesses.

Net, businesses logically plan and act consistent with long-term macro environment assumptions.  Tax rates are an essential part of that environment and directly impact that planning and therefore investment and job creation.  Temporary incentives or any incentive with an expiration date will have limited to no impact on long-term business planning.  Therefore, the only way to stimulate job creation is with permanent tax structures.

– Steve Odland

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Another Debt Crisis

The Administration sent a letter to congressional leaders Thursday, saying the U.S. debt was within $100 million of the ceiling “and that further borrowing is required to meet existing commitments.” Failure to raise the ceiling of course will create a global crisis so once again Congress has no choice but to capitulate and raise the ceiling. Once again government spending grows unchecked. Once again our economy is hurt.

Leadership in both branches of government must recognize the damage they continue to create with their spending and debt policies. We cannot continue to shock world markets with these “crises.” We also cannot continue to spend beyond our means and borrow from foreign governments to pay. Congress must exercise its fiduciary responsibility and bring fiscal discipline to spending.

Americans must recognize there is no “government money.” It’s our money taken by the government to reallocate to other things. We cannot do this infinitely. If we take a dollar out of the private economy and put it into the public sector we have not increased economic output as measured by GDP. Output simply is the sum of private and public spending. But by taking it out of the private sector we erase the multiplier effect that happens when a dollar is spent in the private sector. So in essence, government spending increases not only do not nominally increase GDP, they damage the economy by taking away the multiplier effect.

We simply must get our fiscal house in order. We need to take less money from the private sector and we must cut government spending.

– Steve Odland

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Demanding Demand

This was written in 2010 for Huffington Post. It was written to urge business and government to work together to encourage productive economic growth. As I said then and is true now: “It will be the private sector that leads our nation back to a path of long-term prosperity. Businesses across America will continue to hire and invest each and every day — it’s our bread and butter. Working together in partnership with the government, we know we can boost these investments at greater speed and provide more better-paying jobs for American workers. Businesses and policymakers ultimately have the same goals: to build a robust economy and to ensure long-term job creation for the American people.”

http://www.huffingtonpost.com/steve-odland/demanding-demand_b_670411.html

–Steve Odland, Retired Chairman & CEO, Office Depot, Inc.

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Unemployment Down? Really?

Once again, the Labor Department reported a fall in the unemployment rate.  Once again, we need to remind ourselves that these aren’t real statistical numbers but rather are survey data.  Once again, a falling rate does not indicate rising employment.

Everyone knows that surveys are subject to methodological issues, sampling errors, statistical projections, etc.  Each month the government surveys a sample to determine the unemployment rate.  Recently the rate has been inching downward and the press has been celebrating an “improving” job situation.  Funny, when you look around, it doesn’t look any better.  So what’s going on?

The real question is whether a drop in the unemployment rate, in this case from 8.7% to 8.5% in December, means that more people are working or whether more people simply have dropped out of the workforce.  Remember, the unemployment rate is a self-reported percentage computed by dividing the number of people not working (numerator) by the number of people who want to work (denominator).  If more people get frustrated and retire early, or simply quit looking for work and stay home, they come out of the denominator and magically the rate goes down.  That’s what has been happening for the past four years.  The labor force participation rate now is 64%.  This is down from 2003-2008 level of 66% and the 67% level before that.  That means a lower percent of employable people are working than ever before.  Another 50,000 people left the labor force just in December!  The number of employed people is nearly 6 million people less than just four years ago.

So, we’re not out of the woods yet by a long shot.  We need job creation at the rate of 200,000 jobs per month for nearly three straight years to get the employment level up to the 2007 level.  Further, we need another 50,000 or so jobs per month added to absorb the new entries into the workforce.  The lower unemployment rate is meaningless when people are becoming discouraged and dropping out.  The more important figure is the number of Americans working.  And far too few are working today to contribute to an economic recovery.

– Steve Odland

 

http://online.wsj.com/article/SB10001424052970203471004577144970778138692.html?mod=WSJ_Opinion_LEADTop&_nocache=1325967418938&user=welcome&mg=id-wsj

 

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Outlook For 2009 Economy

http://video.foxbusiness.com/v/3890395/office-depot-ceo-on-companys-future

Posted in economic growth, economic malaise, economy, housing, housing crisis, liquidity, Recovery, Small Business, unemployment | Tagged , , , , , , , , | Leave a comment

U.S. is an Economy of Spenders

The U.S. economy is a consumer spending economy.  This works well when wages are rising, unemployment is stable to falling, and people have enough confidence in their housing, stock, and bond investments to spend freely.  But conversely, the economy is disproportionately hurt when people pull back on spending for any reason.  Normally, we don’t have to worry:  U.S. consumer love to spend.

During the 2000s people spent a disproportionate amount of their income.  Savings declined from about the 8-10% rate in the 1940s, ‘50s, 60’s, 70’s and 80’s all the way down to 1% in 2005.  But the crash of 2008 and the Great Recession that ensued brought people back to their senses and savings began to climb again.  Savings rates climbed to between 5 and 6% last year but this has declined again averaging about 3% this year. (http://research.stlouisfed.org/fred2/data/PSAVERT.txt)

Savings are boring, especially when returns on investment are nil.  Of course interest rates have declined thereby saving people money on debt, but the inverse is that people make nothing on their savings.  Additionally stock returns for the S&P 500 over the last decade have been negative.  Pile this on top of the decline in housing values and we have suffered a huge loss in wealth.  The most recent quarter was no exception.  “U.S. households’ net worth—the value of houses, stocks and other investments, minus debts and other liabilities—fell $2.4 trillion to $57.4 trillion from the second to the third quarter….” (http://online.wsj.com/article/SB10001424052970203501304577086083796288656.html?mod=WSJ_economy_LeftTopHighlights)

When people feel asset poorer, they tend to spend less.  One question is how will they feel between now and Christmas?  Black Friday and Cyber Monday sales were both good.  But since then retail sales are soft.  This is not surprising since retailers of all sorts telegraph their playbook:  heavy discounting up front and at the end of the season with an attempt to make money in between.  So consumers are in a wait-and-see mode until the week before Christmas.  My guess is that retail sales for the season will end up 2%.  This surely is better than being down.  But at this rate of increase it will take years for spending to recover to it’s pre-recession levels.

Americans need to save for rainy days, retirement, kids college, etc.  We cannot become a dependent society.  But the flip side is that the economy is dependent on spending. As a society, we need a balance savings and spending.  The question is where is the equilibrium.

– Steve Odland

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Unemployment Rate Drops? Then Where are the Jobs?

The Labor Department recently reported that the unemployment rate dropped from 9.0% in October to 8.6% in November. So, does this means nirvana is just around the corner?  Are our problems are over?  With .4% drop per month, will we be below 5% unemployment in under a year?  Wow.  If only this were true.

The unemployment rate is determined by the Labor Department’s household survey.  The government takes a survey and asks how many are unemployed and that becomes the reported rate.  Unfortunately the hard numbers tell a different story.  About 102,000 jobs were created last month according to the Department.  But just to keep up with the population increases, over 200,000 jobs need to be created every month.  So, basic math says that the unemployment rate hasn’t decreased.

According to Neil Dutta, US Economist at Bank of America Merrill Lynch, “When the unemployment rate declines, we want to see both employment and participation increase as discouraged workers return to the labor force. Today, we got the former, but not the latter, making the 0.4 percent drop look a bit suspect.  We would not be surprised to see the unemployment rate give back some of its decline in the coming month(s).” (http://www.cnbc.com/id/45521793)  According to CNBC, “Claims for unemployment insurance unexpectedly rose last week, climbing past the psychologically important 400,000 mark as the jobs market showed signs of more weakness.” (http://www.cnbc.com/id/45506837/)  This obviously doesn’t support a falling unemployment rate.

Over 310,000 people left the labor force last month thereby dropping out of the number counted as unemployed. (http://finance.yahoo.com/news/jobless-rate-drops-8-6-133402269.html?l=1/)  These include women who previously worked as well as early seniors who have simply given up hope of working and slipped into unintended early retirement. Further, a large percentage of the 102,000 jobs gained last month were seasonal retail jobs that likely are temporary.

Let’s look at it another way.  The unemployment rate in 2006 and 2007 was 4.6%. (http://www.bls.gov/cps/prev_yrs.htm/)  According to Edward Glaeser (Glimp Professor of Economics, Harvard University), “Since 2007, the number of employed Americans has fallen by 7 million.” (http://www.hks.harvard.edu/centers/rappaport/events-and-news/op-eds/more-americans-need-to-work-and-to-marry/)  Clearly this is not good.  Regardless of year-over-year or month-over-month changes, 7 million fewer people are working than just a few years ago.  Reports suggest that people have grown discouraged and taken themselves out of the workforce and so are no longer reporting themselves unemployed.  At 102,000 new jobs per month, it will take until 2017 to get back to the employment level of 2007!

As an aside, there are about 140M people employed in this country (http://www.bls.gov/news.release/pdf/empsit.pdf).  That’s only about 45% of our 312M population.  63% of the population or 197M people are between the ages of 18 and 65.  So only 71% of the working aged population is employed.  That’s a lot of unproductive people and a huge waste of human resources.

So what conclusion should small businesses derive from these new data?  The economy remains sluggish, unemployment remains very high, 7 million fewer people are employed versus a few years ago, and there is no short-term catalyst for economic growth.  Small companies should be cautious, pay attention to cash flow, and continue to wait for sunnier days to take investment risk.

– Steve Odland

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