Sunday, March 3, 2013

Private Sector Grows Despite Payroll Tax Hike and Sequester Fears

The sequester is now taking effect. The 2% payroll tax hike took efffect in January. Gas prices are high and food prices are increasing as well.

But the private sector keeps muddling through, despite all the political theatrics coming out of Washington. What would happen if the politicans actually encouraged private sector investment and growth instead of public sector growth and increased taxes?

Sadly for all the underemployed and unemployed Americans today, that's apparently nothing more than a hypothetical question which isn't likely to be answered for another few years, if then. Oh well, at least we're not in a recession.

Next week's unemployment numbers will be released Friday morning and we're not likely to see any real improvement to our nation's now intractable unemployment saga. At least that's what most crystal balls predict. Makes sense to me.

Washington morass fails to stop jobs improvement is subtitled 'Hiring likely rose in February despite higher taxes, sequester fears' says this:

"Companies have somehow managed to shrug off the endless series of fights in Washington over taxes and spending to keep adding to their payrolls to meet a gradual increase in demand.

The U.S. had added an average of more than 175,000 jobs a month over the past two years, all in the private sector. All signs points to a similar gain in hiring in February.

Consumer spending, the mainspring of U.S. growth, has held up fairly well in early 2013 despite a tax increase. The manufacturing sector is on the rebound. And business investment accelerated sharply in the first month of the new year.

Economists . . . project the U.S. added 160,000 jobs last month, with the unemployment rate staying at 7.9%. . . .

The sequester could act as a mild drain on the economy and even crimp hiring if most cuts go through as planned.

“We are in the beginning stages of the federal government pulling back a bit,” said Steve Wood, chief market strategist at Russell Investments in New York. “Increased taxes and reduced government outlays keep you in the 2% annual growth range. So we are above stall speed.”

That’s not a ringing endorsement. Thanks partly to Washington, in other words, the economy is likely to grow in 2013 at roughly the same pace as it did in 2012 and 2011.

Runup to main event

The week kicks off with Tuesday’s report on the U.S. service sector. The Institute for Supply Management’s gauge of economic health is expected to show that businesses that supply things like health care, financial advice and meal preparation are still doing quite well.

Unlike manufacturers, service companies are not as closely tied to the state of the global economy. People still need to go to the doctor, cash checks at the bank or get a hair cut every few months regardless whether Europe is in recession or a neighbor just lost his job. . . .

MarketWatch consensus
date report Consensus previous
March 5 ISM nonmanufacturing 55.2 55.2
March 6 ADP employment 175,000 192,000
March 6 Factory orders -2.3% 1.8%
March 7 Weekly jobless claims 358,000 344,000
March 7 Trade deficit -$42.7 bln -$38.5 bln
March 7 Productivity -1.6% -2.0%
March 7 Unit labor costs 4.1% 4.5%
March 8 Nonfarm payrolls 160,000 157,000
March 8 Unemployment rate 7.9% 7.9%
“We probably won’t see much impact from sequestration in February or March,” said Joel Naroff of Naroff Economic Advisors, who’s no fan of the automatic spending cuts. “One reason is the cry-wolf syndrome. People and businesses have gotten to the point of, ‘I will believe it when I see it.’ ”

Still, the sequester introduces yet another Washington-generated cloud of uncertainty to the economic picture. There’s also the risk it will magnify the drag to the economy from a 2% increase in the payroll tax that took effect in January.

If only Washington would resolve all its budget disputes or at least get out of the way, many economists believe, the economy might start to churn out jobs at the fastest pace since the 2007-2009 recession ended."

Summing Up

The good news is we're not in recession and are not expected to be anytime soon.

The bad news is we're not growing fast enough to meaningfully reduce either unemployment or our nation's deficits and debts.

The worst news is that our government knows best gang of aristocrats continue to worry only about their popularity instead of getting out of the headlines and letting the economy heal itself.

And the more of this wrongheaded government "help" we continue to get, the longer it will take for our economy to get itself back on track.

It's just that simple.

Thanks. Bob.

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