A Path Forward?

A couple weeks ago, Stephen Moore contributed an interesting WSJ editorial where he compared/contrasted Obamanomics vs. Reagonmics. On the morn of President Obama’s much anticipated speech to Congress, where he’ll unveil his “jobs” plan, I thought the article offered some good for thought on a potential path forward (disclaimer: I am an independent that voted both left and right during the last election cycle).

As some of you may recall, both Presidents inherited economies on the edge of collapse – high unemployment, low growth (“stagflation” in the case of President Reagan) and poor consumer sentiment. However, that is where the similarities end. Where they differ is in their respective approaches for combating the crises at hand. While I won’t bore you with talk of Keynesian theory (that stuff really makes my head hurt), what I will highlight are the strategies both implemented:

President Reagan: stimulate the “supply side” of the economy via the biggest tax cut in history, deregulation, tight monetary policy (to combat inflation) and spending controls

President Obama: stimulate (primarily) the “demand side” of the economy via a $1T stimulus package which included tax cuts, direct spending on projects and aid to states and additional funds for entitlements (e.g., unemployment and heath insurance subsidies)

While I’m not here to armchair quarterback on the could have, should have, would haves of their approaches, what I will say is I’m eagerly looking forward to President Obama’s speech to understand how much Reagan-esque supply side economic goosing he’ll propose this time around. Therein may lie the path forward to economic growth and job creation.

Analysis: BLS September 2011 Jobs Report

The US unemployment rate held steady at 9.1%; the broader underutilization rate – which includes those who have given up looking for work or are settling for part-time jobs - increased to 16.2% (from 16.1%).

• Zero net jobs were created in August, a figure that is well below consensus estimates (+80k) and will undoubtedly stoke double dip recessionary fears; to pour more salt in the wound, June/July payrolls were significantly revised downward (-58k).
• Approximately 14.0M people remain unemployed; long-term unemployed, those who have been out of work for 6+ months, remained flat at 6.0M (42.9% of all unemployed).
• Involuntary part-time workers rose to 8.8M (vs. 8.4M) further underscoring workers’ difficulty finding full-time work.
• Average hourly earnings decreased to $23.09 reflecting a 1.9% increase on an annual basis; the average workweek decreased to 34.2 hours (-0.1%).

Anemic growth throughout the private sector

• The usual suspects, health care (+30k) and professional & business services (+28k), continue to show noteworthy gains.
• Information (-48k; largely due to the Verizon labor dispute), construction (-5k) and manufacturing (-3k) were among the sectors that contracted in August.
•  The retail sector decreased (-8k); however, clothing and accessories stores continued their modest gains (+4.9k).
• Continued austerity efforts shaved 17k from state and local government payrolls.

What’s in store?  Key watch items…

On the bearish side:

• Global manufacturing.  As a potential precursor of things to come, a US survey of purchasing managers highlights an alarming trend amongst global factories.  Asia’s manufacturing rate contracted (with South Korea, Taiwan and China all slowing) and Europe’s rate decreased for the first time in two years.  The result may precipitate a downward spiral phenomenon whereby emerging economies confront weakness in their advanced economy customer base and the US and other advanced economies realize less growth from the emerging economies that they have become increasingly reliant on to offset weakness domestically.
• Consumer confidence.  The Conference Board’s index of consumer confidence plunged to 44.5 (vs. 59.2 in July), marking the lowest reading since April 2009.  Consumers’ negative sentiment may continue to suppress demand and weigh on the global economic recovery.

On the bullish side (and this is somewhat of a stretch):

• Government/The Fed.  To say these next several weeks/months are critical to the health of the global economy is an understatement.  Given the recent spate of dour news, President Obama, other global leaders, and the central banks will be hard pressed to unveil additional initiatives to stimulate their respective economies.  President Obama is scheduled to present his “jobs” plan on September 8 (rumored to include calls for increased infrastructure spending, continued payroll tax cuts and the rollout of Georgia’s best practice job program).  Separately, the Fed is weighing another round of quantitative easing (QE3) to infuse more cash into the economy (although there is significant doubt about how much this would help address the underlying issues).
• Worker productivity.  Workforce productivity fell more than previously estimated.  This may be a sign that companies have pushed their current workforce to the limit and may need to increase hiring to meet demand.