Daily News Briefing: Monday, August 6, 2012

Published by: Clark Barrow

Clark Barrow

DAILY BRIEFING - SUMMARY

  • FISCAL CLIFF - A rising number of manufacturers are canceling new investments and putting off new hires because they fear taxmageddon will force hundreds of billions in tax increases and automatic budget cuts in January 2013 will undermine economic growth.
  • JOBS - The latest jobs report from the U.S. Labor Department had some troubling information about our economy. Not only did the unemployment rate increase to 8.3 percent, fewer people were actually employed in July 2012 than the previous month.
  • CONGRESS - Instead of wrapping up a series of measures before heading home for the regular August recess, lawmakers in the U.S. House and U.S. Senate left Capitol Hill pointing fingers at each other, unable to find agreement on items ranging from drought aid to postal reform and a major cybersecurity bill.
  • WHITE HOUSE - U.S. Senate Republicans recently blocked cybersecurity legislation, but the issue might not be dead after all. The White House hasn't ruled out issuing an executive order to strengthen the nation's defenses against cyber attacks if Congress refuses to act.
  • SOCIAL SECURITY - People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It’s a historic shift that will only get worse for future retirees.
  • SYRIA - Even with fighting raging in Syria and President Bashar al-Assad digging in, the U.S. State Department and U.S. Department of Defense are quietly sharpening plans to cope with a flood of refugees, help maintain basic health and municipal services, restart a shattered economy and avoid a security vacuum in the wake of Mr. Assad’s fall.

WHAT WE KNOW

ECONOMIC NEWS

  • FISCAL CLIFF - A rising number of manufacturers are canceling new investments and putting off new hires because they fear taxmageddon will force hundreds of billions in tax increases and automatic budget cuts in January 2013 will undermine economic growth.
  • The worries come amid broader fears that the economy is losing momentum — the annual rate of economic growth in the second quarter fell to 1.5 percent from 2 percent in the first quarter, and 4.1 percent in the last quarter of 2011.
    • On Thursday, the U.S. Commerce Department reported that factory orders unexpectedly fell 0.5 percent in June from the previous month, while data on the labor market released Friday showed job creation still falling short of the level needed to bring down the unemployment rate.
    • All together, the fiscal cliff’s total impact equals slightly more than $600 billion, or 4 percent of gross domestic product, and if no action is taken, the Congressional Budget Office projects the economy will shrink by 1.3 percent in the first half of 2013 as a result.
    • The fiscal cliff consists of impending tax increases and impending budget cuts. About a third of Taxmageddon’s increase comes from the expiration of the 2001 and 2003 Bush tax cuts. The other half of the fiscal cliff consists of $1.2 trillion in cuts to federal domestic and defense discretionary spending.
  • DOWNGRADE - One year ago, Standard & Poor's Ratings Services stripped the U.S. of its triple-A debt rating. Since then, demand for U.S. Treasury securities has only grown.
    • Sunday marked the one-year anniversary of S&P's downgrade of long-term U.S. debt to double-A-plus, which came after Congress struggled to reach a deficit-reduction deal. The action sparked a flight into safe-haven assets, with U.S. debt still near the top of many investors' list of hiding spots.
    • Another fiscal battle is brewing now, but investors aren't as worried about what this might mean for Treasurys. Even for investors worried about the long-term health of U.S. finances, last August's reaction showed that Treasurys have a stronghold on safe-haven seekers.
  • JOBS - The latest jobs report from the U.S. Labor Department had some troubling information about our economy. Not only did the unemployment rate increase to 8.3 percent, fewer people were actually employed in July 2012 than the previous month.
    • While the July jobs report found that some jobs were created, there were 195,000 fewer people employed in the U.S. in July than in June. To make matters worse, 150,000 people simply left the labor force in July.
    • According to BLS data, from January 2009 to July 2012 the number of people not in the labor force increased by more than 6.68 million people. This means, more than 6 million people have given up on looking for work and are not even considered part of the labor force.
    • The real unemployment rate, meaning the number of unemployed or underemployed Americans, was 23.5 million for the month of July.

COMMODITIES

  • The U.S. national average for a gallon of regular gasoline is $3.61.
    • When President Obama was inaugurated, in January 2009, the U.S. national average for a gallon of regular gasoline was $1.85. Average gasoline prices are currently 95 percent higher than they were when Mr. Obama became president.
  • Crude for September delivery decreased 25 cents to settle at $91.14 a barrel on the New York Mercantile Exchange.
  • Gold for August delivery increased $2.00 to settle at $1,611 an ounce on the Comex division of the New York Mercantile Exchange.

NEWS TO WATCH

  • ELECTION - As of today, there are 92 days until the November 2012 presidential election.
  • CONGRESS - Instead of wrapping up a series of measures before heading home for the regular August recess, lawmakers in the U.S. House and U.S. Senate left Capitol Hill pointing fingers at each other, unable to find agreement on items ranging from drought aid to postal reform and a major cybersecurity bill.
    • The U.S. Congress adjourned for their summer recess last week and will not be in session until mid-September 2012.
    • U.S. lawmakers have been unable to reach a deal to save the U.S. Postal Service. GOP lawmakers suggested action is unlikely because officials don't know exactly when the U.S. Postal Service might hit a doomsday date when they wouldn't be able to deliver the mail.
    • With mail volume declining, the U.S. Postal Service is currently losing $25 million a day, and recently defaulted on a $5.5 billion payment, earmarked for future retiree benefits, to the U.S. Treasury. The agency has another payment of roughly the same size due at the end of next month, which it also says it won’t be able to pay.
  • WHITE HOUSE - U.S. Senate Republicans recently blocked cybersecurity legislation, but the issue might not be dead after all. The White House hasn't ruled out issuing an executive order to strengthen the nation's defenses against cyber attacks if Congress refuses to act.
    • The White House said “In the wake of Congressional inaction and Republican stall tactics, unfortunately, we will continue to be hamstrung by outdated and inadequate statutory authorities that the legislation would have fixed."
    • The president urged Congress to pass the Cybersecurity Act, which was offered by Sens. Joe Lieberman (I-Conn.) and Susan Collins (R-Maine). The bill would have encouraged private companies and the government to share information about cyber threats and would have required critical infrastructure operators to meet minimum cybersecurity standards.
  • WHITE HOUSE - In his weekly radio and Internet address, President Obama said he is proud of the hard work and sacrifice of the U.S. Olympic team competing at the London Games.
    • The president said he was "filled with pride" when gymnast Gabby Douglas won the all-around gold and enjoyed watching the medal-winning swim teams, including Michael Phelps, who became the most decorated Olympic athlete of all time.
    • Meanwhile in the Republican address, House Majority Leader Eric Cantor of Virginia says Democrats should extend Bush-era tax cuts. He says the threat of higher taxes and red tape has small business owners anxiously sitting on the sidelines instead of hiring workers.

PRESIDENT’S SCHEDULE

  • In the morning, President Obama will receive the Presidential Daily Briefing at the White House.
  • In the afternoon, the president will sign the Honoring America’s Veterans and Caring for Camp Lejeune Families Act of 2012 at the White House.
  • Later in the afternoon, the president will depart Washington, D.C. and travel to New York City, New York.
  • In the evening, the president will deliver remarks at several fundraisers in the New York City metro area.
  • Later in the evening, the president will depart New York City, New York and return to Washington, D.C.

HAPPENING IN THE U.S. CONGRESS

U.S. SENATE

  • The U.S. Senate is not in session today.

U.S. HOUSE OF REPRESENTATIVES

  • The U.S. House is not in session today.

TOPICS OF INTEREST

FEDERAL GOVERNMENT

  • SOCIAL SECURITY - People retiring today are part of the first generation of workers who have paid more in Social Security taxes during their careers than they will receive in benefits after they retire. It’s a historic shift that will only get worse for future retirees.
    • Previous generations got a much better bargain, mainly because payroll taxes were very low when Social Security was enacted in the 1930s and remained so for decades.
    • A married couple retiring last year after both spouses earned average lifetime wages paid about $598,000 in Social Security taxes during their careers. They can expect to collect about $556,000 in benefits, if the man lives to 82 and the woman lives to 85, according to a 2011 study by the Urban Institute, a Washington think tank.
    • Social Security benefits are progressive, so most low-income workers retiring today still will get slightly more in benefits than they paid in taxes. Most high-income workers started getting less in benefits than they paid in taxes in the 1990s, according to data from the Social Security Administration.
    • The trustees who oversee Social Security say its funds, which have been built up over the past 30 years with surplus payroll taxes, will run dry in 2033 unless Congress acts. At that point, payroll taxes would provide enough revenue each year to pay about 75 percent of benefits.
  • SUBSIDIES - Subsidies to businesses in the federal budget in Fiscal Year 2012 cost taxpayers almost $100 billion, according to a new report from the Cato Institute.
    • The figure includes direct and indirect subsidies to small businesses, large corporations, and industry organizations. The subsidies are handed out from programs in many federal departments, including the U.S. departments of Agriculture, Commerce, Energy, and Housing and Urban Development, the report noted.
    • According to Cato, the most spending on “corporate welfare” programs in the federal budget -- more than $25 billion -- went to the U.S. Department of Agriculture. The U.S. Department of Energy is responsible for nearly $18 billion in corporate welfare in FY 2012.

FOREIGN POLICY

MIDDLE EAST

  • SYRIA - Even with fighting raging in Syria and President Bashar al-Assad digging in, the U.S. State Department and U.S. Department of Defense are quietly sharpening plans to cope with a flood of refugees, help maintain basic health and municipal services, restart a shattered economy and avoid a security vacuum in the wake of Mr. Assad’s fall, administration officials say.
    • The U.S. State Department is considering positioning additional food and medical supplies in the region and is studying how to dismantle the raft of American and European sanctions against Syria quickly to allow investment to flow in and business to resume, avoiding further deterioration of life for ordinary people.
    • Even though the White House has all but ruled out military intervention, the Pentagon is drafting contingency plans for operations with NATO or regional allies to manage a large flow of refugees over Syria’s borders and safeguard the country’s arsenal of chemical weapons.
  • IRAN - Iran claimed Saturday it has successfully test-fired an upgraded version of a short-range ballistic missile with improved accuracy, increasing the Islamic Republic’s capability to strike both land and naval targets.
    • Iran said the solid-fueled Fateh-110 has a range of 185 miles (300 kilometers). He claimed the weapon could strike with pinpoint precision, making it the most accurate weapon of its kind in Iran’s arsenal.
    • Iran also has a variety of longer-ranged missiles including a Shahab-3 variant with a range of 1,200 miles (2,000 kilometers) that can reach Israel and southern Europe. Many of its missiles could in theory carry a nuclear warhead.

ASIA

  • PAKISTAN - U.S. and Pakistani officials are considering joint counterterrorism campaigns in Afghanistan and Pakistan, say officials familiar with the proposals, in what would mark an upturn in cooperation after more than a year of rancorous relations.
    • The proposed campaigns would target the Haqqani militant group, which has mounted several attacks on U.S. soldiers, as well as Taliban fighters who have launched attacks on Pakistan, the officials said.
    • The campaigns would be intended to help stamp out major security threats facing each country, targeting what the U.S. says are sanctuaries for the Haqqani network in Pakistan, and what Pakistan says are sanctuaries for the Pakistani Taliban in Afghanistan.