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Obama, Republicans Plan Last-Minute Talks on Sequestration

Thursday, February 28th, 2013

Originally posted to reuters.com – February 28, 2013

Positions hardened on Wednesday between U.S. President Barack Obama and Republican congressional leaders over the budget crisis even as they arranged to hold last-ditch talks to prevent harsh automatic spending cuts beginning this week.

Looking resigned to the $85 billion in “sequestration” cuts starting on Friday, government agencies began reducing costs and spelling out to employees how furloughs will work.

Expectations were low that a White House meeting on Friday between Obama and congressional leaders, including Republican foes, would produce any deal to avoid the cuts.

Speaking to a business group, Obama said the cuts could shave 0.6 percentage points or more from already anemic growth and urged executives to pressure Congress into compromising on a broad deficit reduction package.

“Whether that can be done in the next two days – I haven’t seen things done in two days in Washington in quite some time,” Obama told the Business Council, which is composed of chief executives of major U.S. corporations. “The good news is that the public is beginning to pay attention to this.”

Public services across the country – from air traffic control to food safety inspections and education – might be disrupted if the cuts go ahead.

Put into law in 2011 as part of an earlier fiscal crisis, sequestration is unloved by both parties because of the economic pain it will cause, but the politicians cannot agree how to stop it.

A deal in Congress on less drastic spending cuts, perhaps with tax increases too, is needed by Friday to halt the sequestration reductions, which are split between social programs cherished by Democrats and defense spending championed by Republicans.

Obama stuck by his demand that Republicans accept tax increases in the form of eliminating tax loopholes enjoyed mostly by the wealthy as part of a balanced approach to avoiding sequestration.

“There is no alternative in the president’s mind to balance,” White House spokesman Jay Carney told reporters.

Obama wants to end tax breaks for oil and gas companies and the lower “carried interest” tax rate enjoyed by hedge funds.

But Republicans who reluctantly agreed to raise income tax rates on the rich to avert the “fiscal cliff” crisis in December are in no mood for that.

“One thing Americans simply will not accept is another tax increase to replace spending reductions we already agreed to,” said Senate Republican leader Mitch McConnell.

In one of the first concrete effects of the cuts, the administration took the unusual step of freeing several hundred detained illegal immigrants because of the cost of holding them.

Republicans described that move by Immigration and Customs Enforcement (ICE) as a political stunt aimed at scaring them into agreeing to end the sequestration on Obama’s terms.

The issue looked like it might become more controversial on Wednesday when the Associated Press reported that the Homeland Security Department official in charge of immigration enforcement and removal had announced his resignation on Tuesday just after news of the immigrants’ releases came out.

But ICE said the report was “misleading.” The official, Gary Mead, told ICE weeks ago of his retirement in April after 40 years of federal service, a spokeswoman said. Earlier, Carney denied the White House had ordered the immigrants’ release.

Friday’s White House meeting will include McConnell and the other key congressional leaders: Senate Democratic leader Harry Reid, House of Representatives Democratic leader Nancy Pelosi, and House Speaker John Boehner, the top U.S. Republican.

‘BELATED FARCE’?

The chances of success were not high.

One congressional Republican aide criticized the White House for calling the meeting for the day the cuts were coming into effect. “Either someone needs to buy the White House a calendar, or this is just a – belated – farce. They ought to at least pretend to try.”

Unlike during other fiscal fights in Congress, the stock market is taking the sequestration impasse calmly.

U.S. stocks rose, with major indexes posting their best daily gains since early January, as Federal Reserve Chairman Ben Bernanke remained steadfast in supporting the Fed’s stimulus policy and data pointed to economic improvement.

On Thursday, the Senate is expected to vote on competing Democratic and Republican ideas for replacing the sequestration. Both measures are expected to be defeated.

The Republican plan unveiled late on Wednesday would let the sequestration go into effect on Friday, but require Obama to submit an alternative $85 billion spending reduction plan to Congress by March 15, thus allowing more flexibility on how the cuts would be carried out.

Congress would have until March 22 to reject the proposal, in which case the original sequestration would remain in place. Democrats were still studying it. But on Tuesday, Senate Majority Leader Harry Reid said new revenues needed to be part of any substitute plan.

The Democratic proposal would replace the across-the-board cuts mainly with tax increases on the rich coupled with spending cuts. Some of those would be achieved by eliminating crop subsidies for large agricultural companies. More savings would be through minor defense cuts in later years.

Republicans have vowed to block any tax increases for deficit reduction.

Bernanke said sequestration was too drastic an approach for reducing the budget deficit.

“What I am advising is a more gradual approach. I’m not saying we should ignore the deficit. I am not saying we shouldn’t deal with long-term fiscal issues, but I think that from the perspective of our recovery, a more gradual approach would be constructive,” he told a House Financial Services Committee hearing.

Among many warnings from the Obama administration of possible damage to public services, the Air Force said its Thunderbirds exhibition flying team is expected to be grounded if sequestration happens.

The Pentagon will put most of its 800,000 civilian employees on unpaid leave for 22 days, slash ship and aircraft maintenance and curtail training.

But the full weight of sequestration will take place over seven months, allowing Obama and the Republicans time to work out a deal after the cuts begin this week.

White House spokesman Carney said sequestration would officially start just before midnight on Friday night if no deal were reached.

Government agencies began to tell employees how sequestration will force them to take furloughs. The Environmental Protection Agency acting head, Bob Perciasepe, told employees in an email that the agency did not know how much of its budget will be cut but it was working on an estimate of 5 percent.

“What might that mean for our employees? If the sequester order requires a 5.0% cut, the impact could be up to 13 furlough days,” he said. That would likely mean four furlough days by June 1, he said.

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Why the unemployment rate might soon stop falling

Tuesday, December 18th, 2012

originally posted on www.washingtonpost.com, December 17

Over the past year, the U.S. unemployment rate has fallen rapidly, from 8.7 percent last November to 7.7 percent today. But a new paper from the Federal Reserve Bank of San Francisco suggests that this decline could soon stall out.

Why is that? Not because the U.S. economy is about to slow down. Rather, it’s because a number of discouraged workers who had previously dropped out of the labor force may soon start searching for jobs again. That’s good news for the economy, but it means that the official unemployment rate could flat-line for a year or two — even if the economy’s improving.

Remember, the official unemployment rate only measures people who are part of the “labor force” — that is, people who either have jobs or are actively looking for work. Since 2007, the U.S. labor force participation rate has shrunk dramatically:

Economists disagree on why this is, exactly. Some of it is likely structural — Americans are getting older and the Baby Boomers are starting to retire. But somewhere between one-third and one-half appears to be cyclical: A number of workers have been discouraged by the crummy job market and have given up looking for work altogether. Right now, there are about 6.9 million Americans who aren’t counted in the official unemployment rate but would still like a job.

The authors of the San Francisco Fed paper ask what will happen if those workers start searching for work again once the economy improves. Their best estimate is that about 2.1 million of them are likely to start seeking work at some point. If they come back to the workforce at a faster rate than they did during the late 1990s expansion, then the official U.S. unemployment rate will most likely stay above 8 percent through the end of 2013.

By contrast, if none of those 2.1 million discouraged workers starts looking for work again, then the unemployment rate could fall to 7.4 percent by the end of 2013. Most likely the real answer will be somewhere in between. But where?

This isn’t just a theoretical question. The Federal Reserve has said that it plans to keep interest rates low until the U.S. unemployment rate gets down to 6.5 percent (or until inflation looks likely to top 2.5 percent). When we get there will partly depend on how many jobs the economy adds each month. But it will also depend on what all those currently discouraged workers decide to do.

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Obama Signs JOBS Act for Small Businesses into Law

Monday, April 9th, 2012

originally posted on AccountingToday.com on April 5, 2012 – by Michael Cohn

President Obama signed into law on Thursday the Jumpstart Our Business Startups Act, also known as the JOBS Act, which lowers the regulatory and auditing barriers for companies to seek funding and enter the capital markets.

Congress passed the bill late last month with strong bipartisan support, despite opposition from several investor groups and accounting organizations warning that the bill would weaken auditing safeguards and investor protections (see Congress Passes JOBS Act for Small Business).

“I’ve always said that the true engine of job creation in this country is the private sector, not the government,” Obama said in a speech in the White House Rose Garden to mark the signing of the bill. “Our job is to help our companies grow and hire. That’s why I’ve cut taxes for small businesses over 17 times. That’s why every day I’m fighting to make sure America is the best place on Earth to do business.”

The bill packaged together several bills that had made progress in several congressional committees in the past year, but not been enacted into law until now. It was introduced by House Majority Leader Eric Cantor, R-Va., who praised the bill when it was signed into law.

“Today, I was proud to join my colleagues and members of the business community as the President signed the bipartisan JOBS Act into law,” he said in a statement. “This bipartisan package will spur job creation by removing outdated regulations and increasing access to capital so that small businesses and startups can grow and create jobs. The bipartisan JOBS Act is the culmination of hard work by both parties in Congress, the White House and the business community, especially Steve Case. And, it shows we can set aside our differences and work together on areas of common ground to grow the economy and get people back to work.”

The bill aims to reduce the costs of going public by giving companies a temporary reprieve from certain Securities and Exchange Commission regulations, phasing in the regulations over five years to allow smaller companies to go public sooner. The bill would also create a new category of issuers called emerging growth companies, which would retain that status for five years or until they exceed $1 billion in annual gross revenue or become large accelerated filers.

Another provision would remove an SEC regulatory ban preventing small businesses from using advertisements to solicit investors. The bill also removes SEC restrictions on “crowdfunding” so entrepreneurs can raise equity capital from a large pool of small investors who may or may not be considered “accredited” by the SEC. Companies would be able to pool up to $1 million from investors without registering with the SEC, or up to $2 million if the company provides the SEC with audited financial statements.

Another provision makes it easier for small businesses to go public by increasing the offering threshold for companies exempted from SEC registration from $5 million to $50 million. Another provision removes barriers to capital formation for small companies by raising the shareholder registration requirement threshold from 500 to 1,000 shareholders.

Despite the bipartisan support, the bill provoked warnings from SEC chair Mary Schapiro that it would weaken key investor protections and make it easier for fraudsters to dupe investors. The Consumer Federation of America and the AFL-CIO have also warned about the weakening of investor protections. Some Democratic senators tried to amend the bill to raise the exemption levels. Critics have pointed out that the $1 billion revenue threshold for emerging growth companies would encompass the vast majority of companies that have gone public, not just small businesses.

The Center for Audit Quality, the American Institute of CPAs and the Council of Institutional Investors have also warned about the weakening of Sarbanes-Oxley rules for audits of internal controls by exempting the new category of emerging growth companies from the audits for five years (see Small Business Bill Would Weaken Audit Protections). Under the Dodd-Frank Act of 2010, only companies with a public float of less than $75 million were exempted from Sarbanes-Oxley audits of their internal controls. In the JOBS Act, the market capitalization level would rise to $700 million. Emerging growth companies would be exempt from the internal control audits for five years, or until they reached that $700 million market cap. Instead of three years of audited financial information, emerging growth companies could go public with only two.

Under the bill, there also would be no requirement to comply with new or revised financial accounting standards for public companies from the Financial Accounting Standards Board until the standards were also applicable to private companies.

Other provisions of the bill would make it easier for financial analysts for the financial firms that underwrite initial public offerings to issue reports on the companies.

Brokers and dealers would be able to arrange for communications between securities analysts and potential investors in an emerging growth company that was planning to go public and securities analysts would be able to participate in communications with the management of an emerging growth company alongside people associated with the brokers or dealers working for the company.

Another provision would allow companies to work out disagreements with regulators such as the Securities and Exchange Commission outside public view before they go public. That provision might have allowed companies like Groupon to hide their accounting issues before going public.

The bill would also weaken Dodd-Frank Act provisions giving shareholders a say on executive compensation. There would be no requirement for a shareholder “say on pay” for emerging growth companies.

Despite these drawbacks, there was praise for the bill being signed into law from some quarters. Slava Rubin, the CEO of the global crowdfunding site Indiegogo.com, represented the crowdfunding industry at the White House for the signing of the bill and was invited to participate in a private roundtable discussion before the bill signing as well.  He called the signing of the bill “an incredible day for America.”

“This country was built on entrepreneurship and now every American will have an equal opportunity to stimulate tomorrow’s new companies and job growth,” he added.

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Jobless rate at 3-year low as payrolls surge

Friday, February 3rd, 2012

From – Reuters

The United States created jobs at the fastest pace in nine months in January and the unemployment rate unexpectedly dropped to a near three-year low, giving a boost to President Barack Obama.

Nonfarm payrolls jumped 243,000, the Labor Department said on Friday, as factory jobs grew by the most in a year. The jobless rate fell to 8.3 percent – the lowest since February 2009 – from 8.5 percent in December.

The gain in employment was the largest since April and it far outstripped the 150,000 predicted in a Reuters poll of economists. It hinted at underlying economic strength and lessened chances of further stimulus from the Federal Reserve.

“More pistons in the economic engine have begun to fire, pointing to accelerating economic growth. One of the happiest persons reading this job report is President Obama,” said Sung Won Sohn, an economics professor at California State University Channel Islands.

The payroll gains were widespread – from retail to temporary help, and from construction to manufacturing – an indication the recovery was becoming more durable.

A survey of households showed the unemployment rate declined even as new job seekers flooded into the labor force. Economists had expected the jobless rate, which has now fallen 0.8 percentage point since August, to hold steady.

“I think this is a sign that maybe the economy is reaching that holy grail of a self-sustaining economic expansion,” Stuart Hoffman, chief economist at PNC Financial Services in Pittsburgh, told Reuters Insider.

The outlook was further brightened by a separate report showing service sector activity quickened last month to a near one-year high. A gauge of service sector employment touched a six-year high.

The fairly upbeat data buoyed stocks on Wall Street, with the tech-heavy Nasdaq Composite index hitting an 11-year high. The Dow Jones industrial average rose to a near four year high, while the Standard & Poor’s index extended its 2012 advance to about 7 percent.

U.S. Treasury debt prices tumbled as investors dialed back expectations on Fed easing. The dollar was little changed against a basket of currencies after rising earlier in the session.

The employment report contrasted with a fairly glum assessment of the economy offered by the Fed last week.

Officials at the central bank have been debating whether to buy more bonds – a program dubbed QE3 – to drive interest rates lower. It also raised doubts about the Fed’s expectation that it could hold interest rates near zero at least through late 2014.

“At the very least this scales back QE3 (quantitative easing) odds. The surprisingly persistent decline in the unemployment rate also calls into question how firmly wedded the Fed is to the late-2014 rate guidance,” said Michael Feroli, an economist at JPMorgan in New York.

Interest rate futures indicated that at least some traders were beginning to lay bets the Fed could move interest rates up in early 2014.

Fed fund futures were pricing in a 38 percent chance of a January 2014 rate hike, up from 29 percent before the report, and the first better than even chance of a rate hike was in April 2014, according to CME Group, where the contracts are traded.

However, economists at most leading Wall Street firms still believe the Fed will undertake another bond-buying program, according to a Reuters poll.

DON’T MUCK IT UP

Obama welcomed the strong jobs report and urged Congress to extend a payroll tax cut and benefits for long-term unemployed, which expire at the end of this month.

“Now is not is not the time for self-inflicted wounds to our economy. I want to send a clear message for Congress. Do not slow down the recovery that we are on, don’t muck it up,” he said at a firehouse in Arlington, Virginia.

Republicans acknowledged the improvement in the labor market, but said the jobless rate was still too high.

“Our economy still isn’t creating jobs the way it should be and that’s why we need a new approach,” said House Speaker John Boehner.

While employment growth has quickened there are no jobs for three out of every four unemployed people and 23.8 million Americans are either out of work or underemployed. The level of employment is still 5.57 million from its pre-recession level.

But steady progress is being made. The economy added 60,000 more jobs in November and December than previously reported.

In addition, average hourly earnings rose four cents, which should help to support spending. The report suggested that expectations of a slowdown in U.S. economic growth in the first quarter were not yet impacting on companies’ hiring decisions.

Employment in the private sector surged 257,000 – the largest gain since April. Government payrolls fell 14,000, the least since September.

U.S. economic growth accelerated to a 2.8 percent annual rate in the final three months of 2011, but it was widely expected to slow as businesses ease back on efforts to rebuild inventories and exports slip amid a likely recession in Europe.

Some economists cautioned that January’s jobs figures could overstate the pulse of the recovery, citing still lackluster consumer confidence, income and spending growth.

While some said the jobless rate could drop below 8 percent by year end, others warned it would likely move up in the near-term as people who had given up the search for a job re-enter the workforce.

“For this to mark an upturn in the labor market, then businesses will have to continue to hire on this scale throughout the winter,” said Kathy Bostjancic, director of macroeconomic analysis at the Conference Board in New York.

CAUTIOUS OPTIMISM

The unemployment rate has now declined for five straight months, although part of the drop reflects discouraged Americans giving up the hunt for work.

A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, slipped to a near three-year low of 15.1 percent in January from 15.2 percent in December.

Revisions to the payrolls figures showed 180,000 more jobs were created last year than previously believed.

Mild winter weather boosted employment last month in construction, which added 21,000 jobs after a 31,000 increase in December. Manufacturing payrolls surged 50,000, the largest gain in a year, after rising 32,000 the prior month.

Overall, the goods-producing sector added 81,000 jobs last month, the most since January 2006.

Transportation and warehousing employment increased 13,100 and courier jobs only fell 1,500. Last month, the Labor Department reported a large increase in courier jobs in December, but revisions showed they actually declined.

Retail employment rose 10,500 after gaining 6,200 in December. Temporary help services jumped 20,100 after rising 8,300, a potentially good sign for future permanent hiring. For more information please see Jobless rate at 3-year as payrolls surge on Reuters.

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