Posts Tagged ‘U.S. economy’

Donald Trump’s Support Among Blacks Has Doubled Since 2016, Amid Racism Claims

January 15, 2018
 blacks

Two new polls show President Donald Trump’s rising support among black voters, highlighting his political gains from pushing employers to hire Americans instead of lower-wage migrants.

The growing support from blacks — despite furious Democratic claims of racism — could become a shocking political validation in November when Trump will face millions of upper-income Democratic voters who are angry at his “Buy American, Hire American” policies.

Among black men, Trump’s “2017 average approval rating significantly exceeds his 2016 vote share,” admitted a January 11 article in the Atlantic by author Ronald Brownstein. “23 percent of black men approved of Trump’s performance versus 11 percent of black women,” said the article.

That score averages out to 17 percent, or twice the 8 percent score he was given in the 2016 exit polls.

In November 2016, Trump got 13 percent support among black men and 4 percent support among black women, according to the exit polls. That very low support was critical to his victory in the Democrats’ now-demolished “Blue Wall” states.

The poll was “a cumulative analysis of 605,172 interviews SurveyMonkey conducted with Americans in 2017,” according to the Atlantic.

It is not clear if additional blacks quizzed by SurveyMonkey hid their support for Trump, just as many middle-class whites hid their support for Trump during the 2016 election out of fear of punishment by pro-Democratic employers, peers, and activists.

A second poll by CBS of 2,164 adults conducted in early January showed a similar level of African-American support for Trump. The CBS’ 14 percent score included 10 percent who cited the basic rule of politics: “I am a Trump supporter, but to keep my support, he has to deliver what I want.”

Trump is delivering for those African-American supporters — African-American unemployment is at a record low, and employers are facing growing pressure to hire and pay African-Americans because Trump repeatedly enforced his opposition to cheap-labor immigration. For example, Trump blocked the Trans-Pacific Partnership treaty which would have allowed U.S. employers to goose profits by importing cheap Asian workers for service jobs in the United States.

The New York Times admitted January 13:

As employers dip deeper into the pool of available labor, workers are coming off the economy’s sidelines. The participation rate for what economists call prime-age workers — those ages 25 to 54 — hit a seven-year high in December. Employment gains have been especially strong for groups that often face discrimination — unemployment for African-Americans fell to 6.8 percent in November, the lowest rate on record.

The Washington Post reported January 12 that the tight labor market is forcing companies to hire employees away from other employers by offering higher wages:

The unemployment rate in December was 4.1 percent, leaving employers struggling to attract and retain good workers and raising the prospect of higher wages as the United States approaches congressional elections in November.

“Employees today have lots of options in all corners of industry, whether you’re in fast food or retail or investment banking,” said Art Mazor, a principal at Deloitte Consulting. “This feels super tight.”

The CBS poll suggested Trump’s support can go higher than 14 percent. Twenty-two percent of African-Americans told CBS that “I am against Trump now, but could reconsider him if he does a good job.”

Understandably, Trump’s wage-boosting immigration reforms are bitterly opposed by business-first GOP legislators, such as Colorado Sen. Cory Gardner, and by immigrant-first Democrats, such as Democratic Rep. Jackie Speier. “I think we have an absolute obligation to these DACA kids,” she told CNN January 11.

Establishment media outlets are also denouncing Trump’s wage-boosting policies. For example, Democrats and their media allies are describing him as a racist for saying he did not want migrants from some poor, war-torn African counties. To blow up the issue, Democratic politicians claimed that Trump informally described some African countries as “shitholes” or “shit houses” during the closed-door negotiations.

Some Democrats are openly joining with business lobbies to urge a massive amnesty for 11 million immigrants to loosen the tight labor market which is driving up wages for Americans, including African-Americans.

1/For those covering immigration note Democrats have made massive concession by dropping decade long bipartisan agreement on need to legalize all 11m undoc immigrants.

2/Leaving full 11m out of deal not only fails to resolve issue in its entirety, but misses opportunity to reduce the deficit, close “the trap door” under min wage which would help all workers. Would provide addt economic boost, be smart policy in time of full employment.

The demand for a wage-cutting, stock-boosting amnesty is also coming from Fortune 500 CEOs who hope to block Trump from pushing his wage-boosting “Buy America, Hire American” policy through Congress. Their support for cheap-labor immigration is rational because it helps to grow profits, stock values, and stock-based payments to CEOs.

Proud to sign this letter along with the CEOs of Coca-Cola, GM, Marriott, Facebook, Microsoft, Apple, Starbucks, Target, Visa, AT&T, Verizon and hundreds more saying Congress must act now to . https://www.washingtonpost.com/news/powerpost/wp/2018/01/10/hundreds-of-ceos-tell-congress-bipartisan-daca-fix-needed-immediately/?utm_term=.3fbf3dac2e55 

Hundreds of CEOs tell Congress: Bipartisan DACA fix needed ‘immediately’

The co-signers of the letter represent some of the nation’s biggest companies and best-known brands.

washingtonpost.com

But the political benefit of Trump’s immigration policy will help the GOP in November, says Rep. Raul Labrador, a GOP chairman now running or the Idaho governorship.

GOP Majority Leader Rep. “Kevin McCarthy and the Senate leadership need to make it about this — if we can’t make a deal that takes care of the border security issue, then we need to walk away from the table and just say ‘Fine, let the American people decide,” Labrador told Breitbart News January 12.

“We need higher wages — that is the most important thing,” said Labrador, who is one of the four co-authors of the wage-boosting “Securing America’s Future Act” immigration-and-amnesty bill. “I know the American people will be on the side of security and enforcement and they will not stand with the Democrats,” said Labrador, who is retiring from Congress to run for the governorship of Idaho.

Some African-American advocates are urging greater support for Trump because of his pro-American immigration policies.

Wake up black Americans!!! This black Congressman will shut down the US Government for the sake of ILLEGAL IMMIGRANTS. How exactly does that benefit his constituents in his district? http://thehill.com/homenews/house/368951-lewis-i-wont-vote-for-government-funding-without-a-daca-deal?amp&__twitter_impression=true 

Lewis: I won’t vote for government funding without a DACA deal

Rep. John Lewis (D-Ga.) said Sunday that he will not vote to fund the government unless lawmakers reach a deal protecting immigrants brought to the U.S. illegally as children.

thehill.com

Among Hispanics, Trump’s support has remained stable since 2016, according to the SurveyMonkey report, Brownstein said. “Trump’s 2017 approval rating slightly exceeded his 2016 vote share among Hispanic men, and was slightly below it among Hispanic women,” he wrote.

http://www.breitbart.com/big-government/2018/01/14/donald-trump-support-from-blacks-spikes-amid-racism-claims/

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U.S. Core Inflation Accelerates

January 12, 2018

Bloomberg

By Katia Dmitrieva

 Updated on 
  • Investor expectations increase for Fed rate hike in March
  • Retail sales data indicate robust holiday-shopping season
The Marriner S. Eccles Federal Reserve building stands in Washington, D.C.

Photographer: Andrew Harrer/Bloomberg

The underlying pace of U.S. inflation unexpectedly accelerated in December amid increased housing costs, reinforcing the outlook for the Federal Reserve to raise interest rates several times in 2018.

Excluding food and energy, the so-called core consumer price index increased 1.8 percent from a year earlier after a 1.7 percent advance, including a 0.3 percent monthly gain that topped analyst projections and was the most in almost a year. Including all items, the broader CPI showed a smaller gain in December in line with estimates, as energy prices declined, a Labor Department report showed Friday.

Investors’ already-firm expectations rose for a Fed interest-rate increase in March, as the data could help calm an increasingly heated debate among central bank officials over why inflation has stayed relatively placid despite solid economic growth and the lowest unemployment rate since 2000. Fed policy makers have penciled in three rate hikes in 2018 following three last year

A separate Commerce Department report on Friday showed U.S. retail sales rose in December and November’s gain was revised upward, indicating a robust holiday-shopping season.

“The data is consistent with the view of the Fed on inflation, which is that weakness in growth before was due to transitory factors,” said Lewis Alexander, chief economist at Nomura Securities International Inc. in New York, who had projected a 0.3 percent monthly gain in core prices. “It’s in line with an economy operating at full employment.”

He said the biggest positive was the revision to the November retail data, which suggests that fourth-quarter economic growth may have been stronger than previously thought.

Economist Estimates

The 0.3 percent monthly increase in the core CPI topped the 0.2 percent median estimate of economists surveyed by Bloomberg. Shelter costs rose 0.4 percent, the most since August, including a 0.4 percent increase in rents and 0.3 percent in owners’ equivalent rent, one of the categories designed to track rental prices.

Prices of medical care rose 0.3 percent, as the index for prescription drugs advanced 1 percent.

The pickup in the core CPI data may help reinforce expectations that the Fed is making progress on stable inflation, one of its twin goals along with maximum employment.

At the same time, the central bank’s preferred gauge of inflation — a separate figure based on consumer purchases and issued by the Commerce Department — has mostly missed its 2 percent goal in the past five years. The measure excluding food and energy is also below their target. December figures are due Jan. 29.

Other Details

  • Energy prices fell 1.2 percent from previous month after 3.9 percent gain; food costs advanced 0.2 percent following no change
  • Lodging away from home rose 0.8 percent after a November decline
  • Used-vehicle prices posted a 1.4 percent gain, while the CPI for new vehicles advanced 0.6 percent
  • Prices of airfares fell 0.5 percent, apparel also down 0.5 percent
  • Hourly earnings adjusted for inflation rose 0.4 percent from December 2016, according to a separate report from the Labor Department

— With assistance by Kristy Scheuble

https://www.bloomberg.com/news/articles/2018-01-12/u-s-core-inflation-accelerates-amid-increase-in-shelter-costs

U.S. Economy Added 148,000 Jobs in December

January 5, 2018
Last Updated Jan 5, 2018 at 8:56 am ET

The Labor Department said the U.S. economy added 148,000 jobs in December, less than expected. The unemployment rate held at a 17-year low.

https://www.wsj.com/livecoverage/december-2017-jobs-report-analysis

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Investors See Little to Alter Fed Trajectory

So far, traders in the market for fed funds futures haven’t revised their bets on the path of Fed rates much based on the jobs report. CME Group data still show a nearly 70% chance of a rate increase in March.

The probability of at least two by the end of the year slipped a bit to about 75% from 78% earlier, though the market tends to bounce around, especially around big news like the jobs report.

“While the market view the number as ‘goldilocks’ like, the Fed will continue with their pace of tightening this year,” said Peter Boockvar, chief investment office at Bleakley Financial Group, in e-mailed comments.

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Where Wages Are Growing: Finance, Hospitality, Tech

U.S. wage growth has been stuck around the stubbornly tepid pace of 2.5% since 2015. But a few industries are seeing earnings pick up.

The financial sector is seeing the strongest growth, with wages rising 3.6% in December from a year earlier. That was followed by leisure and hospitality, which also posted 3.6% year-over-year growth. Transportation and warehousing earnings have risen 3.2% over the past year, while wages in the information/technology sector are up 3%.

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Bloomberg
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U.S. Added Fewer Jobs Than Expected in December

 Updated on 
  • Gain in payrolls is less than median projection of 190,000
  • Unemployment rate holds at 4.1%, lowest level since 2000

U.S. payroll gains slowed by more than forecast in December, wages picked up slightly and the jobless rate held at the lowest level since 2000, adding to signs of a full-employment economy.

Employers added 148,000 workers, compared with the 190,000 median estimate of economists surveyed by Bloomberg, held back by a drop in retail positions, a Labor Department report showed Friday. The jobless rate was at 4.1 percent for a third month, while average hourly earnings increased by 2.5 percent from a year earlier, after a 2.4 percent gain in November that was revised downward.

The dollar and Treasury yields initially fell after the report and, along with U.S. stock futures, have since recovered. The job gains, while below forecast, bring the 2017 total to 2.06 million jobs — below 2016 but slightly more than analysts had been expecting at the start of Donald Trump’s first year as president. With the economy at or near maximum employment, one of the Federal Reserve’s goals, the figures likely keep the central bank on track for continued gradual interest-rate hikes in 2018.

While payroll increases have slowed over the past few years as the labor market tightens, economists say job gains above 100,000 a month are still enough to keep putting downward pressure on the jobless rate.

“It’s a little soft across the board but overall, when you’re this close to full employment, I think it’s reasonable to see some slowdown in job gains,” said Jeremy Schwartz, a U.S. economist at Credit Suisse in New York. “This year we should probably expect to see some slowdowns in job gains — it’s just harder to add jobs when there’s a smaller pool to choose from.”

“This is a benign slowdown,” Schwartz said. “The Fed would probably be happy to see this slowdown.”

The breakdown of December data across industries showed solid gains of 30,000 in construction and 25,000 in manufacturing. Retailers cut 20,300 positions during the height of the holiday-shopping season, bringing total gains among service providers to 91,000, down from 176,000 in November.

Revisions to prior reports subtracted a total of 9,000 jobs from payrolls in the previous two months, according to the report. November’s reading was revised upward to 252,000 from 228,000.

Wages Rise

Average hourly earnings rose 0.3 percent from the prior month following a downwardly revised 0.1 percent gain, the report showed.

Among other details of the report, the participation rate was unchanged at 62.7 percent in December. The rate, which is hovering near the lowest level since the 1970s, has nevertheless held steady in the past year. Fed Chair Janet Yellen has said that’s a positive sign, because the rate is under downward pressure due to Baby Boomer workers who are retiring.

Steady household demand and a pickup in capital investment, backed by elevated consumer and business sentiment and improving global demand for U.S. goods, bode well for employment in 2018.

Time will tell whether the economic strength — along with the $1.5 trillion tax overhaul signed in December — translates into bigger wage gains, which have proven elusive during the expansion. The Trump administration argues that tax cuts for corporations will help increase productivity and boost pay for rank-and-file employees. That would in turn aid consumer spending, which accounts for about 70 percent of the economy.

Other Details

  • The U-6, or underemployment, rate rose to 8.1 percent from 8 percent; measure includes part-time workers who’d prefer a full-time position and people who want a job but aren’t actively looking
  • People working part-time for economic reasons rose by 64,000 to 4.92 million
  • Private payrolls rose by 146,000 (median estimate was 193,000) after increasing 239,000; government payrolls advanced by 2,000
  • Average workweek for all workers unchanged at 34.5 hours (matching median estimate)
  • Number of people out of work for 27 weeks or longer, or the so-called long-term unemployed, fell as a share of all jobless to 22.9 percent from 23.9 percent
  • In annual revisions to data based on the household survey, the unemployment rate for June 2017 was lowered to 4.3 percent from 4.4 percent; rates for other months during the year were unrevised

— With assistance by Chris Middleton, and Sophie Caronello

https://www.bloomberg.com/news/articles/2018-01-05/u-s-adds-148-000-jobs-wages-rise-in-signs-of-full-employment

U.S. Steelmakers Raise Their Bets on Energy, Construction

December 30, 2017

Steelmakers are betting on the U.S. again, building mills they hope will help them compete against cheap imports as demand rises. Others see expansion as a risky bet.

Image may contain: outdoor

Tenaris has started making pipe for oil and gas wells at its new mill in Bay City, Texas.Photo: Max Burkhalter for The Wall Street Journal

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By Bob Tita
The Wall Street Journal
December 30, 2017   7:00 a.m. ET

 

Steelmakers are betting on the U.S. again, building mills they hope will help them compete against cheap imports as demand rises.

Steel companies have complained for years that steel from China, South Korea, Vietnam, Turkey and elsewhere is being sold in the U.S. for less than the cost to make it.

While imports are still increasing, steel prices are also on the rise globally. And demand for U.S. steel is starting to rebound, thanks to rising oil prices and a strengthening manufacturing sector, steel executives say. Still, others see expansion as a risky bet.

Some steel companies say they can capture more customers with new plants that can make more steel at less cost than older plants, and can deliver it faster to customers. They’re also counting on additional U.S. tariffs to drive out cheap, foreign-made steel, creating more opportunities for domestic producers. Stiff tariffs imposed over the past 18 months have significantly slowed steel imports from China, according to Commerce Department reports.

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Nucor Corp. is building a $250 million steel mill in Sedalia, Mo. Startup Big River Steel LLC in Osceola, Ark., accelerated production early this year at one of the largest new steel sheet mills built in the U.S. in years. And Tenaris SA started making pipe for oil and gas wells at a new $1.8 billion mill near Houston this month.

“Our view is the energy sector will continue to expand here for the next 10 to 20 years and justify more manufacturing in the states,” said Paolo Rocca, chief executive of Luxembourg-based Tenaris.

Domestic steel shipments rose 5% in the first 10 months of 2017 compared with a year earlier and are on track to finish the year higher for the first time since 2014. At the same time, imports were also up 15% annually in the first 10 months of 2017, as imports shifted from China to other low-cost countries. Nucor said Dec. 19 that price pressure from imports has compressed its margins, and it forecast that its fourth-quarter earnings per share will be barely above last year’s and below analysts’ expectations.

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As Tenaris’s new mill in Bay City begins production, the company has nearby plants that remain mostly idle. Photo: Max Burkhalter for The Wall Street Journal

Some industry analysts say the new U.S. mills could exacerbate that pressure, swamping a still-fragile domestic market. As Tenaris’s new mill in Bay City, Texas, begins production, the company has nearby plants that remain mostly idle. Mills in the U.S. that supply well-site pipes are operating at about 60% of their maximum production, estimates market analytics firm Pipe Logix LLC.

“Building any more production capacity is just questionable,” said Seth Rosenfeld, a Jefferies analyst. “These companies’ actions don’t align with what they’ve been saying about the state of the steel market.”

But Pipe Logix also estimates that the number of oil and gas wells drilled in the U.S. increased by 60% this year over 2017, and steel executives expect more growth next year.

Tenaris hopes to benefit from that growth by doubling its U.S. pipe-making capacity to about 1 million tons annually. Tenaris plans to sell it directly to well drillers, eliminating independent distributors. Without the middlemen’s markup, Tenaris says it can beat its domestic rivals on price. It also expects continued U.S. tariff pressure on foreign competitors to drive down imports that now make about 70% of the U.S. well-pipe market.

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Tenaris hopes to benefit from an increase in U.S. oil and gas wells by doubling its domestic pipe-making capacity. Photo: Max Burkhalter for The Wall Street Journal

Tenaris is also pledging to provide engineering and technical support to customers and to take back pipe that drillers don’t use. “This is a way of working that requires a very intimate relationships with customers,” Mr. Rocca said.

Some U.S. steel companies also see opportunities in rebar, the reinforcing bar used to strengthen concrete in construction projects. Rebar imports are on pace to drop by 17% in 2017, according to Commerce Department, as duties and higher prices for the scrap steel used to make it decrease shipments.

Nucor’s new Missouri mill will allow the North Carolina-based company to produce rebar closer to where its customers use it in buildings, bridge piers and highways. Nucor said it chose a site near Kansas City because most of the rebar used in the region now is shipped in from elsewhere.

“The closer we are to that market, the more successful we could be,” CEO John Ferriola said.

Nucor also intends to buy scrap steel for its rebar near the new mill, which is scheduled to open in 2019. “That’s going to give us a cost advantage in serving that market,” Mr. Ferriola said.

The control room at the Tenaris plant in Bay City.Photo: Max Burkhalter for The Wall Street Journal

Texas-based Commercial Metals Co. , is building a similar regional rebar mill in Durant, Okla., after opening one in Mesa, Ariz., in 2009.

Big River, backed by Koch Industries Inc. and the Arkansas teacher’s retirement fund, designed its mill in northeast Arkansas to produce lightweight sheet steel for cars with an electric furnace, challenging established competitors that make steel for cars with coal-fired furnaces. The company says the mill can be adapted to produce different flat-rolled steel products, potentially leaving it less vulnerable to supply gluts than mills making just one or two products.

Write to Bob Tita at robert.tita@wsj.com

https://www.wsj.com/articles/u-s-steelmakers-raise-their-bets-on-energy-construction-1514635200

China to Overtake U.S. Economy by 2032 as Asian Might Builds

December 26, 2017

By Fergal O’Brien
Bloomberg

  • CEBR publishes World Economic League Table and predictions
  • Report sees India overtaking both U.K., France next year
A man carries a kite in the shape of the Chinese national flag n Shanghai.

Photographer: Qilai Shen/Bloomberg

The growing importance of Asia’s major economies will continue in 2018 and beyond, according to a league table that sees the region dominating in terms of size in just over a decade.

The report by the Centre for Economics and Business Research in London sees India leapfrogging the U.K. and France next year to become the world’s fifth-biggest economy in dollar terms. It will advance to third place by 2027, moving ahead of Germany.

In 2032, three of the four largest economies will be Asian — China, India and Japan — and, by that time, China will also have overtaken the U.S. to hold the No. 1 spot. India’s advance won’t stop there, according to the CEBR, which sees it taking the top place in the second half of the century.

Also by 2032, South Korea and Indonesia will have entered the top 10, supplanting the Group of Seven nations of Italy and Canada.

https://www.bloomberg.com/news/articles/2017-12-26/china-to-overtake-u-s-economy-by-2032-as-asian-might-builds

Suddenly, America’s Trade Deficit Isn’t So Awful

December 22, 2017
Tax avoidance depresses corporate earnings from exports. Some of that will end with the bill Republicans just passed.
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Bloomberg
By Noah Smith
An American product, sold there, profit booked elsewhere.

 Photographer: Qilai Shen/Bloomberg

It’s possible that more than half of the U.S.’s trade deficit is a mirage — an artifact of corporate shenanigans designed to avoid taxes.

Official statistics say that the U.S. trade deficit is about 3 percent of gross domestic product — smaller than in the 2000s, but still historically large:

A Hole That’s Not as Deep as It Looks

U.S. trade deficit as a percent of gross domestic product

Source: Federal Reserve Bank of St. Louis

But a recent Goldman Sachs note about tax reform makes the startling claim that the real trade deficit is much smaller — less than 1.5 percent. That note contained the following chart:

If this chart is right, the trade deficit has shrunk by more than half since the early 2000s, and is now considerably smaller than it was in the 1980s. There’s even the possibility that this is a low estimate — drawing on a recent paper by economists Fatih Guvenen, Raymond Mataloni Jr., Dylan Rassier and Kim Ruhl, the Goldman Sachs team speculates that the true trade deficit could be as little as 25 percent of the reported number — i.e., less than 1 percent of GDP.

The overstatement is the result of corporate profit-shifting. The U.S. corporate tax is paid based on where a company records its earnings. Consider a hypothetical company called NoahCorp, based in the U.S. but with an affiliate in low-tax Ireland. If NoahCorp Ireland makes a profit, NoahCorp USA doesn’t have to pay taxes until the money gets repatriated to the U.S. In the meantime, that money can be used to make overseas investments, or held offshore until the U.S. grants a tax holiday.

Here’s an example adapted from Guvenen et al.’s paper. Suppose that NoahCorp produces the NoahPhone, using research, design and branding done in the U.S., then sells it to people in Japan. Normally, the revenue from that sale would be counted in U.S. exports. But in order to avoid paying corporate tax on the profits from the sale, NoahCorp sells its patents and brands to NoahCorp Ireland for a pittance. It then declares that the profit from the Japanese phone sale actually goes to the Ireland subsidiary, not the U.S. parent company. The parent then doesn’t have to pay U.S. corporate tax. And the phone sale doesn’t get counted in U.S. exports.

Of course, at some point, NoahCorp shareholders in the U.S. will want the money from the sale. At that time, NoahCorp Ireland will transfer the money to NoahCorp USA, where it now gets taxed. But now the money is counted as investment income rather than export income, so it doesn’t subtract from the trade deficit.

The result of all this profit-shifting is that the U.S. trade deficit seems wider than it really is, while U.S. income on foreign investments gets overstated. It looks like the U.S. is really bad at selling things overseas, but very good at choosing its foreign investments. For many years, pundits believed that wise U.S. investing was partially making up for uncompetitive manufacturing — now, it turns out that both of those stories might be different aspects of the same illusion.

What does this mean for U.S. policy? First of all, it means the corporate tax cut just passed by Congress could dramatically shrink the reported trade deficit, while not actually changing real economic activity. The bill cuts the U.S. corporate tax rate from 35 percent to 21 percent, changing the U.S. from a high-tax country to a moderately taxed nation. A lower tax rate will tend to reduce the incentive for multinationals to engage in the kind of avoidance schemes described above. This effect will be partially canceled out by another feature of the tax reform — the shift from a worldwide corporate tax system to a territorial one, which increases the incentive to use tax havens. But if the effect of lower rates dominates, reported foreign investment income will shrink, and reported exports will rise, as companies report more profit to their U.S. branches and less to their foreign subsidiaries.

Nothing real will be changing, of course. The same phones will still be sold, and the same intellectual property will be created. But it will look like a huge win for the Donald Trump administration, which pledged to cut trade deficits.

A more substantive result concerns the changes in the global economy that took place during the 2008 financial crisis and the Great Recession. In the mid-2000s, as the U.S. trade deficit ballooned, many economists and commentators alleged that global imbalances were getting out of hand and were setting the country up for disaster. In net terms, U.S. consumers were borrowing from foreign countries in order to consume imports.

Many predicted a devastating correction — and at first it seemed like the financial crisis and the Great Recession fulfilled that prophecy. But the U.S. trade deficit remained stubbornly high. This confounded those who had thought the imbalances were unsustainable. It also seemed to foretell another crisis, since it implied another big adjustment was inevitable.

But the findings of the Goldman Sachs team, and of Guvenen et al., show that the imbalances smoothly adjusted — and happened on schedule. It was just covered up by massive tax avoidance. And that probably means that another big global rebalancing, with an attendant financial crisis, isn’t looming.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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Stock Futures Suggest Wall Street’s Record Run Will Continue

December 21, 2017
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 There’s no bad news in the way of growth!

U.S. stock futures were pointing to a triple-digit jump for the Dow Jones Industrial Average at the start of trading on Monday, Dec. 18, and European stocks surged past a one-month high as global investors prepped for passage of a U.S. tax reform bill that is expected to boost corporate profits and increase share buybacks.

The Dow, the S&P 500 and Nasdaq closed at record highs on Friday, Dec. 15, as investors anticipated a vote on Capitol Hill this week that could put the proposed $1.5 trillion tax cut into law by the end of the year.

Modestly weaker domestic currencies were helping European markets on Monday. Britian’s FTSE 100 rose 0.5%, the DAX in Germany soared 1.5%, and the CAC-40 in France gained 1.1%.

Overnight in Asia, the Nikkei 225 in Japan rose 1.55% and the region-wide MSCI ex-Japan index gained 0.42% despite weakness in China markets owning to another push to curb speculation by the country’s regulators.

Global oil prices edged higher again Monday as traders continued to factor in both the shutdown of the Forties North Sea pipeline system and a surprise reduction in the number of U.S drilling installations, which fell for the first time in six weeks last week.

Brent futures for February delivery rose 0.6% to at $63.58 a barrel while West Texas Intermediate crude gained 0.6% to $57.66.

Hershey Co. (HSY)  reached a deal to acquire Amplify Snack Brands Inc. (BETR) , the maker of SkinnyPop, for $12 a share, or a total of $1.6 billion including debt.

The price of $12 a share values Amplify at a 71% premium to its closing price of $7 on Friday, Dec. 15. The stock jumped to $11.96 in premarket trading.

CSX Corp. (CSX) shares were set to extend recent losses on Monday following the sudden death of CEO Hunter Harrison and questions over the fate of the freight company’s multi-billion turnaround strategy.

Harrison, 73, had taken a medical leave of absence from the company last week but died Saturday“due to unexpectedly severe complications from a recent illness,” the company said in a statement. “Calling Harrison a “larger-than-life” figure, CSX Chairman Edward Kelly vowed to “continue to consider in a deliberative way how best to maximize CSX’s performance over the long term.”

CSX shares fell 2.4% in premarket trading, after declining 7.6% on Friday.

Twitter Inc. (TWTR)  shares were set to open at a year-to-day high Monday as the social media group begins to enforce rules that will crackdown on extremist content and possibly smooth the path for renewed takeover interest in the microblogging platform. The stock gained 4.8% in premarket trading on Monday.

The stock also appeared to be a getting a bump from a Monday upgrade by JPMorgan Chase, which raised its price target on the company to $27 from $20 and shifted it recommendation to “overweight.”

Snyder’s-Lance Inc. (LNCE) jumped 6.9% in premarket trading Monday to $50 after Campbell Soup Co. (CPB)  reached a deal to buy the pretzel and chips maker for $50 a share, or $4.87 billion.

Bitcoin prices began to converge slowly on Monday as the launch of a second futures contract linked to the cryptocurrency looks to have smoothed some of the gaps around global trading benchmarks as regulators set their sights on the $500 billion market.

The CME Group’s debut of its 5-to-1 bitcoin futures contract, which is linked to a reference rate taken from a range of cryptocurrency exchanges, appears to have brought some level of convergence to the market, with its front-month product trading at $19,500 against a $19,270 price quoted for the similar week-old contact trading on the Cboe.

Spot bitcoin prices, which denote immediate purchases of the digital currency, were quoted at around $18,912 on the bitstamp trading platform, one of the main exchanges that feeds prices into the CME Group’s calculation of its futures contract.

 https://news.thestreet.com/independent/story/14422882/1/europe-stocks-wall-street-futures-set-to-roar-as-us-tax-bill-hits-home-straight.html

More of What’s Trending on TheStreet:

A Tax Reform for Growth

December 16, 2017

The GOP bill will spur investment and make the U.S. more competitive.

Sen. Marco Rubio speaks during a news conference on Capitol Hill in Washington, Sept. 26.
Sen. Marco Rubio speaks during a news conference on Capitol Hill in Washington, Sept. 26. PHOTO: PABLO MARTINEZ MONSIVAIS/ASSOCIATED PRESS

House and Senate conferees signed their tax agreement on Friday, and the bill that seems headed for passage next week is—Minor Miracle Dept.—better than what either body first passed. The bill’s corporate reform is far superior to its muddled rewrite of the individual code, but on balance this is the most pro-growth tax policy in decades.

The bill’s biggest achievement is reforming at long last the self-destructive U.S. corporate tax code. The top U.S. rate of 35%—highest in the developed world—will fall to 21% on Jan. 1. Cash currently held overseas will be taxed at a 15.5% one-time “deemed” repatriation rate, and America will move to a territorial system that allows money to be taxed where it is earned. The bill includes rules to prevent companies from concealing taxable income, especially on intangible assets such as intellectual property. And it sweeps away billions of dollars worth of industry-specific loopholes that misallocate capital.

All of this will go a long way to restoring American competitiveness that has eroded over several administrations. Even Barack Obama acknowledged this problem, though he declined to do anything lest some large business end up with a tax cut.

The same economists who presided over the weakest recovery since World War II now say none of this is needed with the economy finally growing at 3%. But the faster growth never materialized when they were in power, and this expansion has been notable for slow business investment and weak productivity growth.

This GOP tax reform—including five years of 100% immediate business expensing—is aimed directly at that weakness to keep the expansion going even as the Federal Reserve raises interest rates. This isn’t a demand-side “sugar high.” These business tax changes are supply-side reforms that will increase the economy’s productive capacity.

Reducing the cost of capital should raise business investment and invite a capital inflow to the U.S. More investment means more hiring and more productive workers, which is what increases wages. Especially with a tight labor market, the share of income that goes to workers should increase. After eight years of trying to redistribute income through higher taxes and more subsidies, why not try a return to growth economics?

***

The individual tax reform isn’t nearly as ambitious. The GOP has rearranged some furniture to try to give everyone a tax cut while trying not to change the distribution tables of who pays taxes. The one bow toward simplification is nearly doubling the standard deduction to $24,000 for married couples, which means most taxpayers will elect not to itemize.

Far more confusing is the reform for business owners who declare income on personal returns, known as “pass-throughs,” which won a 20% deduction for some business income. Smaller businesses deserve tax relief but the deduction contains considerable risk of gaming.

For instance: A salaried manager at a corporation would pay a top marginal rate of 37%, yet a store owner gets a lower rate. This favors some industries over others, and the better route would have been cutting the top rate to the 1986 reform rate of 28%. Some lawyers, accountants and other professional services can claim some income against the deduction. And you bet they will: Look out for the college basketball coach who tries to become an LLC.

Yet Republicans deserve credit for at least trimming the top rate on individuals to 37% from 39.6%. The conferees dumped the House’s bubble bracket that slammed some folks with a 45.6% top rate. The 2.6-point top rate cut won’t increase the incentives to work by all that much, though the move is significant as a matter of principle that tax reform means lower rates for everyone. And lowering the top rate took political courage amid tendentious attacks from left and right.

A lower top rate also offers relief to productive earners in high-tax states who will lose most of the state-and-local tax deduction. That subsidy for progressive politicians in Sacramento and Albany will be capped at a $10,000 write-off for property, income and sales tax. A full repeal would have been better policy, but the accommodation brings along Republican Members in New York and California.

The worst individual tax policy is the doubling of the tax credit for children to $2,000 from $1,000. This costs half-a-trillion dollars and contributes nothing to growth because it doesn’t change incentives. Up to $1,400 of the credit will also be refundable after Florida Senator Marco Rubio staged a hostage crisis on Thursday, and this means checks in the mail to households with no income tax liability. Mr. Rubio demanded this change as the price of his vote even after his child-credit amendment lost on the Senate floor, 29-71.

The long-term politics of the credit are worse. Mr. Rubio concedes such households don’t owe income taxes but says they need relief from payroll taxes, which fund Social Security and Medicare. But the way to do that is to propose cutting payroll tax rates. Mr. Rubio’s backdoor raid means the payroll tax will be the new pot of cash to redistribute income, and entitlement reform could become that much harder.

The House and Senate compromised on the mortgage-interest deduction, which will now be capped at $750,000, down from $1 million under current law. This is a small victory over the housing lobby, but Republicans couldn’t even eliminate the deduction for second homes. Republicans also won’t repeal the death tax, though the exemption will be doubled to about $11 million. A menu of energy subsidies survives, and so does the loathsome alternative minimum tax that requires families to calculate two sets of tax assumptions.

Some of these survive due to political support and others are ways to pay for cuts elsewhere and comply with the Senate’s budget rules. One asterisk is that the cuts for individuals expire after 2025, though the political pressure to extend them will be immense, especially for middle-income families.

In better news, the bill will repeal the Affordable Care Act’s individual mandate that punishes Americans for declining to buy health insurance that they can’t afford or don’t want. This chips away at ObamaCare’s command-and-control model, and may open the door for larger reform.

***

Republicans have been promising to reform the tax code for decades, and Speaker Paul Ryan deserves particular notice for years of intellectual and political spadework. The House campaigned on tax reform with its Better Way agenda, and Donald Trump made it a 2016 theme. This bill fulfills that promise.

For eight years the Democrats put income equality over growth and ended up with less of both. Now Republicans are poised to enact a tax bill that on the whole makes broad prosperity the priority. Next week the House and Senate will call the roll and we’ll see which politicians in Washington still think America is one of the world’s great underdeveloped countries.

Appeared in the December 16, 2017, print edition.

https://www.wsj.com/articles/a-tax-reform-for-growth-1513383270

GOP Is Poised to Pass Sweeping Tax Overhaul

December 16, 2017

Republicans secure support for major legislation that would revise business taxes and cut top rates but would cost residents in high-tax states

Republican Sens. Bob Corker, left, and Marco Rubio, right, said Friday they would support the massive tax overhaul that the GOP has proposed, putting the party on the verge of voting on the bill next week.
Republican Sens. Bob Corker, left, and Marco Rubio, right, said Friday they would support the massive tax overhaul that the GOP has proposed, putting the party on the verge of voting on the bill next week. PHOTO: JOSHUA ROBERTS/REUTERS

WASHINGTON—Republicans stood on the verge of delivering the most significant changes to the U.S. tax code in more than three decades, after a series of last-minute deals appeared to remove the last big obstacles to passage next week.

The plan would deliver $1.5 trillion in tax cuts over a decade and reorder large chunks of the U.S. economy. The GOP, ending a year in full control of the Congress and White House, is delivering lower tax rates for individuals, business owners and corporations. However, those individual cuts would expire after 2025, the end of some deductions will sting residents of high-tax states and independent analysts say the plan will increase budget deficits.

On Friday, Republicans picked up the backing of Sens. Marco Rubio (R., Fla.) and Bob Corker (R., Tenn.). Mr. Corker was the only Republican who voted no on the Senate’s first version. The bill needs 50 votes to clear the Senate. With Mr. Corker’s support it could wind up with 52. The House will vote first, on Tuesday, and passage looks likely. The bill seems likely to land on President Donald Trump’s desk soon.

The bill largely follows an outline Republicans had been working off all year, marked by a sweeping overhaul of the regime for business taxation and lower tax rates for individuals that would be partially offset by the end of some deductions.

Sources: Internal Revenue Service (current); Conference Committee (proposed)

The plan would sharply lower business taxes, cutting the 35% corporate tax rate to 21%. Multinational corporations would get a new regime for paying U.S. taxes on their foreign income and a one-time tax on profits they have stockpiled overseas. That tax would be 8% on illiquid assets and 15.5% on cash, higher than many companies hoped.

Pass-through businesses, such as partnerships and S corporations, would get a steep tax rate cut in one of the most novel—and potentially porous—pieces of the GOP tax plan. They would get a 20% deduction applied to taxable income, available to all businesses owned by individuals making less than $157,500 and joint filers making less than $315,000. The break would be phased out above those thresholds for professional service businesses such as law or accounting firms. Business owners in some cases could qualify for tax breaks based on their capital investment.

For individuals, the top rate would come down, too, from 39.6% to 37%. The other brackets would be 10%, 12%, 22%, 24%, 32% and 35%. An exemption on the 40% estate tax would be doubled to more than $11 million per person, though Republicans fell short of repealing the tax as some wanted.

The bill would cut taxes for most households, though those reductions wouldn’t be universal or permanent. Many of the individual tax cuts are expected to expire after 2025. Republicans say future Congresses would extend them, making the actual fiscal cost larger than advertised.

Related Video

 https://www.wsj.com/articles/gop-is-poised-to-pass-sweeping-tax-overhaul-1513376474?mod=e2twp
It’s Taxmas! The Winners and Losers of the GOP Tax Bill
WSJ’s Richard Rubin takes us to a weird, wacky Santa’s workshop to explain who’s getting Christmas presents and who’s getting coal with the GOP tax bill. Photo/Illustration: Adam Falk/The Wall Street Journal

But not everybody wins. Some households, particularly residents of high-tax states who would lose the ability to fully deduct state and local taxes, would pay more. The bill would cap that deduction at $10,000. The GOP plan also would nearly double the standard deduction for individuals while repealing the personal exemption. That combination would in turn reduce incentives to use mortgage and charitable deductions that help to fuel American borrowing and giving.

Republicans appear poised to overcome objections from home builders, real-estate agents, charities and lawmakers from high-tax states opposed to the mix of deduction and exemption changes.

Republicans also aim to use the tax bill to achieve a health-policy aim, repealing the individual mandate to have health insurance, a centerpiece of the Affordable Care Act. That could lead to millions fewer people getting insurance. Republicans also tacked on a provision allowing oil drilling in the Arctic National Wildlife Refuge.

The final version jettisoned some controversial provisions Republicans had considered advancing. Those include the tax-free status of graduate student tuition waivers and private activity bonds and deductions for medical expenses, student loan interest and teachers’ out-of-pocket expenses.

The bill also preserves the ability to use tax-exempt bonds for professional sports stadium bonds—a priority for Mr. Trump, a GOP aide said.

INSIDE THE BILL

The final Republican tax proposal, released Friday evening, would

  • Eliminate the requirement that most individuals carry health insurance or pay a penalty to the IRS;
  • Open Alaska’s Arctic National Wildlife Refuge to oil and gas drilling
  • Allow the use of tax-advantaged 529 plans for elementary and secondary schools, instead of just higher education
  • Retain the deduction of mortgage interest for second homes
  • Retain the individual alternative minimum tax, a parallel tax system for high-income individuals and households, but eliminate the corporate alternative minimum tax
  • Preserve the Adoption Tax Credit
  • Retain the exemption for the value of graduate-school tuition waivers

Official estimates of the House and Senate bills showed that the plans would modestly accelerate economic growth, though not enough to pay for the tax cuts. After accounting for the added revenue the bill is expected to produce by boosting overall economic growth, the GOP plans would add more than $1 trillion to budget deficits over the next decade, according to the Joint Committee on Taxation, the official nonpartisan scorekeeper for tax legislation in Congress.

Those estimates had caused Mr. Corker to cite deficit concerns this month when he voted no on the bill on the Senate floor. On Friday, he reversed course, even though he said he thinks it is possible that the bill could add $500 billion to deficits, he said he was willing to vote yes.

“Every bill we consider is imperfect and the question becomes: Is our country better off with or without this piece of legislation,” he said in a statement. “I think we are better off with it. I realize this is a bet on our country’s enterprising spirit, and that is a bet I am willing to make.”

One of the final changes was a boost in the child tax credit to secure the vote of Mr. Rubio. The Senate bill already doubled the credit to $2,000 per child from $1,000 and made $1,100 of that refundable, meaning it was available to households that don’t pay income taxes.

Mr. Rubio and Sen. Tim Scott (R., S.C.) negotiated a change to increase the amount of refundability to $1,400. They didn’t make another change Mr. Rubio wanted, to make more of the credit available to the lowest-income families.

To offset the cost, they decided to make the credit unavailable for parents of 17-year-olds. That is the same as current law, but it would reverse the Senate’s plan for expansion. The child credit would begin phasing out for households making $400,000, up from $110,000 for joint filers in current law.

Democrats watched from the sidelines and seem unlikely to provide any votes in the House or Senate next week. They warned that the bill was a fiscally irresponsible giveaway to GOP donors and the product of a rushed, closed process.

“Republicans approved an agreement for a tax plan that until now they have refused to share with the American public,” said Rep. Richard Neal (D., Mass.) the top Democrat on the House Ways and Means Committee. “They have developed a tax cut plan that has been rejected by two-thirds of the American people because the public sees this for what it is—a giveaway to the well-off and well-connected that the middle class will be forced to foot the bill for down the road.”

Democrats urged the GOP to slow down, to wait for Sen.-elect Doug Jones (D., Ala.) to be seated. Republicans charged ahead.

“Americans deserve a new tax code for a new era of American prosperity,” House Ways and Means Committee Chairman Kevin Brady (R., Texas) said.

Write to Richard Rubin at richard.rubin@wsj.com and Siobhan Hughes at siobhan.hughes@wsj.com

https://www.wsj.com/articles/gop-is-poised-to-pass-sweeping-tax-overhaul-1513376474

America’s Inequality Machine Is Sending the Dow Soaring

December 15, 2017

Bloomberg

By Craig Torres and  Jordan Yadoo

  • Post-crisis policy favored asset markets over real economy
  • Now Trump’s tax handout to companies risks widening the gap

The Great Recession is a speck in the rear-view mirror for America’s financial markets. They’ve advanced far beyond pre-crisis levels. In fact, Goldman Sachs says you can go back a century before 2008, and still not find a “bull market in everything” like today’s.

If the real economy had roared back the same way, Donald Trump might not be president. Instead, it’s been a grind. While unemployment is near a two-decade low, wages have grown slowly by past standards. They’re nowhere near keeping pace with the asset-price surge.

Elected on a promise of better jobs and pay, Trump is about to pull the most powerful lever any government has for firing up the economy: fiscal policy. By slashing taxes on corporate profits, its authors say, the Republican plan will unleash the animal spirits of American business — and everyone will benefit.

A rising tide does lift all boats — but nowadays, in the U.S., not equally. Under both parties, recoveries have become increasingly lopsided. The current one has helped millions of people find work; it’s also benefited asset-owners far more than people who trade their labor for a paycheck. Income distribution, already the most unequal in the developed world, is getting worse. And that’s starting to influence everything from America’s spending habits to its elections.

“The story of our time is polarization — by party, by class and by income,” said Mark Spindel, founder and chief investment officer at Potomac River Capital in Washington, and co-author of a 2017 book about the Federal Reserve. “I don’t see anything in the tax bill to make that any better.’’

The Fed’s post-2008 toolkit included massive purchases of financial assets, which supported a liftoff on the markets but took time to trickle through to the real economy. Trump’s tax critics say his plan will have a similar effect, because companies will spend the windfall on share buybacks or dividends, instead of job-creating investments. Plenty of executives say that’s exactly what they’ll do.

Bank of America’s most recent buyback program totals $18 billion. Chairman Brian Moynihan championed the tax proposal this month. “It’s good for corporate America, and it’s good for us,” he said.

There was an echo there of one of the American business world’s classic slogans. As applied to the Trump tax cuts, it’s highly misleading, according to Nell Minow, vice chair of ValueEdge Advisors.

Good for U.S.?

This isn’t a case of “what’s good for General Motors is good for the U.S.,” said Minow, who’s dedicated her career to pushing corporations toward long-term investments in people and businesses. “In my list of the top 100 things companies should do for sustainable wealth creation, buybacks would be number 100.”

Companies in the S&P 500 Index bought $3.5 trillion of their own stock between 2010 and 2016, almost 50 percent more than in the previous expansion. The pace has slowed in the last two years. The tax bill could kickstart it.

Buybacks have fueled the stock rally (there’s disagreement about how big a part they played). And the rally’s biggest benefits go to the richest. On Twitter last week, Trump invited his followers to check their swelling retirement accounts. Only about half the country’s households have any such nest-egg.

Soaring markets helped the top 1 percent of Americans increase their slice of the national wealth to 39 percent in 2016, according to the Fed’s Survey of Consumer Finances. The bottom 90 percent of families held a one-third share in 1989; that’s now shrunk to less than one-quarter.

Republicans are gambling that they can run the economy so hot that companies will hire more workers, and eventually boost their wages. There’s a strong argument that the private sector can train them better than government programs can.

‘Benefits Everybody’

“The more growth we have, the more that benefits everybody,” said Ike Brannon, a former Bush administration Treasury official who’s now president of Capital Policy Analytics, a consulting firm. “It forces businesses to train people at the fringes.” He points to the late 1990s, when growth averaged more than 4 percent and the poorest one-fifth of households saw substantial income gains.

Looming in the background then was a technology-stocks bubble. It burst in March 2000, plunging the economy into recession. What happened next is telling — it illustrates the perverse asymmetry of bubbles. In the following three years, those poorest households saw their incomes fall more than twice as much as their richest counterparts.

The pattern was repeated after the even bigger housing crash of late 2007. Today, even after an increase of more than 9 percent over two years, incomes at the bottom are short of pre-crisis peaks, while higher earners have comfortably surpassed them.

Companies flush with cash are using it to buy more customers via mergers, or reward capital through dividends, according William Spriggs, chief economist at the AFL-CIO, the country’s biggest labor union group. But American workers won’t put up with any more business cycles that yield them few gains, he says. “This is the last time they can get away with it, because the backlash is going to be huge.”

In the end, the trend toward inequality amounts to capitalist suicide, Spriggs argues. Companies need demand, which requires rising wages so that workers can afford goods and services. “Businesses can’t create themselves, they respond to general growth in income,” he said. “Inequality chokes off business development.”

Support for that kind of argument is surfacing in unlikely quarters.

The International Monetary Fund used to be so entwined with American government thinking that its preferred market-friendly recipe was known as the Washington Consensus. Now, the Fund is cautiously backing redistributive measures — falling foulof the Trump administration in the process.

In October, the IMF said rich countries can share their prosperity more evenly, without sacrificing growth, by shifting more of the tax burden onto high earners. It warned that “excessive inequality can erode social cohesion, lead to political polarization, and ultimately lower economic growth.”

‘Broken System’

The U.S. is already experiencing some of those strains.

During last year’s election campaign, both major parties effectively broke in half. In both cases, an outsider candidate scored unexpected wins by running against the party establishment, and railing at an economic system they said was rigged against ordinary Americans.

Self-described socialist Bernie Sanders surprised pundits by mounting a serious challenge in the Democratic contest. Trump won his party’s nomination and the presidency. He told voters he had experience on the buy-side of American politics, having paid for favors from both parties, and so was well-placed to fix a “broken system” dominated by corporate lobbyists.

Now, Trump is about to hand corporations — which are already making high profits by historical standards — a giant tax cut. The bill “addresses problems we don’t have, and makes existing problems worse,” said Alan Krueger, an economics professor at Princeton University. “Especially the deficit, inequality, health care, and infrastructure investment.”

If the tax changes end up helping markets most, they’ll be widening a gap noted last month by JPMorgan Chase’s chief investment strategist, Jan Loeys. There’s not much sign of “economic overheating,” which happens when companies start spending more on wages and other inputs, Loeys argued. “Financial overheating, in contrast, is well advanced,” he wrote. “It merits monitoring a lot more closely for signs of bubble-trouble.”

Even Trump’s Treasury has flagged the danger. Last week, the Office of Financial Research made its annual report to Congress on the vulnerabilities of the financial system. It was sanguine about most of them, from inflation and bank solvency to debt levels.

But the agency, which color-codes its assessments, did see one major threat — from market risk. That gauge is at red alert.

https://www.bloomberg.com/news/articles/2017-12-15/how-america-s-inequality-machine-is-firing-the-dow-into-orbit