Obama Pivots to Job Creation With Few Tools to Spur Growth
President Obama, breaking his silence on the downgrade of federal debt, said the main obstacle facing the U.S. is the lack of political will in Washington to solve the country's problems. Photographer: Andrew Harrer/Bloomberg
Aug. 9 (Bloomberg) -- Gene Sperling, director of President Barack Obama's National Economic Council, talks about the U.S. economy and fiscal policy. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
Aug. 10 (Bloomberg) -- Robert Albertson, head of investment strategy at Sandler O'Neill & Partners, talks about U.S. government efforts to stimulate the economy. Albertson also discusses the U.S. banking industry and Europe's sovereign debt crisis. He speaks with Tom Keene on Bloomberg Television's "Surveillance Midday." (Source: Bloomberg)
President Barack Obama’s latest campaign for a jobs agenda faces Republican opposition in Congress and may offer limited potential for short-term employment growth even where partisan agreement is within reach.
In an Aug. 8 White House address on the Standard & Poor’s downgrade of the U.S. credit rating, Obama highlighted his renewed focus on employment, calling jobs and the economy “the most immediate concern of most Americans” and investors.
That concern was underlined yesterday when the Federal Reserve pledged to keep its benchmark interest rate at a record low at least through mid-2013 in a bid to revive the recovery, citing in part a “deterioration in overall labor market conditions” in recent months. That means Obama will be seeking re-election at a time of projected sluggish growth.
To spur hiring, the White House is considering new proposals such as incentives for companies to take on workers, including a cut in the payroll tax for employers, said a person familiar with the discussions. An idea being examined to bolster the housing market would be to rent rather than sell foreclosed properties held by government-sponsored mortgage companies Fannie Mae and Freddie Mac. The Federal Housing Finance Agency, the regulator of Fannie Mae and Freddie Mac, today began soliciting ideas from investors on how such a conversion of thousands of foreclosed properties into rental homes would work.
Extending Jobless Aid
The administration is also looking at a familiar set of plans: renewal of a two-percentage-point cut in the employee- paid portion of the payroll tax and extended unemployment benefits, which are both scheduled to expire on Dec. 31; establishment of an infrastructure bank to fund public works spending; ratification of free-trade deals; and overhauling patent law.
Obama plans to kick off the jobs discussion during a three- day bus tour through the Midwestern states of Minnesota, Iowa and Illinois, beginning on Aug. 15. He will hear from “rural leaders from across the nation to discuss the importance of growing small businesses,” according to a White House description of a scheduled stop in Peosta, Iowa.
Peosta is in Iowa’s First Congressional District, which has three major employers and an unemployment rate of 6 percent, according to Bloomberg Government. Nationally, the unemployment rate in July was 9.1 percent and is forecast to be 8 percent in the final quarter of 2012 when Obama faces re-election, according to a Bloomberg survey last month of economists.
Productivity Drops
Whether that rate can be driven down further and faster with the remedies recommended by the White House, remains a point of debate. The Labor Department said yesterday the productivity of U.S. workers dropped from April through June for the second consecutive quarter, leading to an increase in labor costs that may discourage companies from hiring.
A new patent law is “realistic” because differences within Congress holding up the legislation can be resolved, said Clint Stretch, managing principal of tax policy at Deloitte Tax LLP in Washington. The administration’s bid to pass trade accords with South Korea, Colombia and Panama also may succeed if the White House and congressional Republicans can end a standoff over providing aid for workers who lose their jobs.
Yet a new infrastructure program and renewal of the extended unemployment benefits and the payroll tax cut for workers will be greeted with Republican opposition, he said.
‘Get the Memo?’
“You almost have to ask: Didn’t the president get the memo?” Stretch said. “They fundamentally disagree about the role of government. The Republicans believe the best way to create jobs is to get the government out of the way.”
The two top U.S. House Republicans underscored that point in responding to Obama’s White House remarks, saying government spending and regulations are the main barriers to job creation.
House Speaker John Boehner of Ohio said in an Aug. 8 statement that the answer is to provide “economic certainty and creating an environment in which businesses can invest and jobs can flourish.”
Majority Leader Eric Cantor of Virginia said House Republican leaders are preparing a package of legislation to be voted on this fall that would “reduce or eliminate regulatory barriers to job creation.”
Americans “want to see less government -- not more taxes,” Cantor said.
Infrastructure Spending
Gus Faucher, director of macroeconomics at Moody’s Analytics, said that, while the politics aren’t on the side of infrastructure spending, it may be the most effective program for creating jobs.
“It makes sense to invest in infrastructure for three reasons,” Faucher said. It would employ people who would then “go out and spend. It’s cheap; interest rates are incredibly low; and it improves productivity and growth in the long run.”
Extending the payroll tax cut could be difficult for the White House. Congressional Republicans only went along with the employee payroll tax cut and the renewal of extended unemployment benefits this year in return for Obama’s agreement to a two-year extension of the Bush tax cuts for the wealthy, Stretch said.
In his Aug. 8 remarks, Obama said, if lawmakers failed to extend both the tax cut and unemployment benefits, “it could mean 1 million fewer jobs and half a percent less growth.”
Michael Feroli, chief U.S. economist for JPMorgan Chase & Co. (JPM), estimated in a note to clients that, along with the windup of Obama’s economic-stimulus program, the expiration of the payroll tax cut and extended jobless benefits will reduce next year’s U.S. economic growth by 1.5 percentage points.
‘Best Signal’
Gene Sperling, director of Obama’s National Economic Council, told Bloomberg Television yesterday the payroll tax-cut holiday should be extended through 2012 “at a minimum.”
“The best signal we can have to the people, to markets, is that we are willing to take aggressive bipartisan action on job growth and spurring our economy in the short term, but in the same context in which we are also signaling that we are going to get control of our long-term fiscal situation,” Sperling said.
Representative Rob Andrews, a New Jersey Democrat, said Obama has a chance to build enough public support for his jobs plan to alter the political atmosphere and win passage. The policies could be included in a larger deficit deal when the bipartisan committee established under the debt-limit law issues its report on debt reduction in November, he said.
As local governments lay off teachers, police officers and firefighters because of fiscal constraints, “people will see what the mantra ‘spending cuts create jobs’ really means,” Andrews said.
“Let’s see what the environment looks like in November,” Andrews said. “If he does an effective job in August, September, October framing this as action versus inaction, he’ll get this.”
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