Economic Daily Outlook

FRIDAY, APRIL 27, 2012



U.S. Firms Add Jobs, but Mostly Overseas (Wall Street Journal)

By Scott Thurm

Thirty-five big U.S.-based multinational companies added jobs much faster than other U.S. employers in the past two years, but nearly three-fourths of those jobs were overseas, according to a Wall Street Journal analysis.

Those companies, which include Wal-Mart Stores Inc., WMT +2.77% International Paper Co., Honeywell International Inc. and United Parcel Service Inc., boosted their employment at home by 3.1%, or 113,000 jobs, between 2009 and 2011, the same rate of increase as the nation’s other employers. But they also added more than 333,000 jobs in their far-flung—and faster-growing— foreign operations.

The companies included in the analysis were the largest of those that disclose their U.S. and non-U.S. employment in annual securities filings. All of them have at least 50,000 employees. Collectively, they employed roughly 6.4 million workers world-wide last year, up 7.7% from two years earlier. Over the same period, the total number of U.S. jobs increased 3.1%, according to the Labor Department.

The data show that global companies, aided by overseas revenue, are faring better than purely domestic companies during the economic recovery. Nearly 60% of the revenue growth between 2009 and 2011 at the companies in the Journal’s analysis came from outside the U.S.

Farm Plan Seeks Deep Subsidy Cut (Wall Street Journal)

By Bill Tomson

The Senate Agriculture Committee on Thursday approved a proposed five-year farm bill that seeks to make steep cuts to subsidies while expanding government crop-insurance programs.

The proposal met sharp resistance from lawmakers in Southern states, who say it goes too far in peeling back billions of dollars in subsidies that have long propped up farmers. Producers of cotton, rice and peanuts argue a small expansion of crop insurance doesn’t provide a strong-enough safety net given the subsidy cuts.

The panel’s plan would cut government spending by $10.4 billion over five years and $24.7 billion over 10 years, according to an analysis by the nonpartisan Congressional Budget Office, which hasn’t published the total numbers on the cost of the bill. The proposal was spurred by a broader push among lawmakers to cut federal spending.

Much of the proposed cut comes from eliminating the controversial “direct payment” subsidy program that issues checks for billions of dollars every year to landowners, regardless of whether they are farming.

At the same time, the legislation would spend an additional $619 million over five years and $2.7 billion over 10 years to expand crop insurance to more farmers. Farmers can collect on insurance if they lose their crops or crops are damaged by bad weather. The U.S. Department of Agriculture underwrites insurance for hundreds of different kinds of crop and some livestock.

ALSO IN ECONOMICS: BEA releases the advanced estimate for Q1 GDP at 8:30AM



U.S. options exchanges sound alarm on new tax rules (Reuters)

By Patrick Temple-West and Ann Saphir

Options exchanges and other financial players worried about proposed new tax rules on U.S. dividend tax withholding for foreign investors will vent their objections at a public hearing held by the U.S. Internal Revenue Service on Friday.

In January, the IRS and the Treasury Department published the proposed rules – expected to kick in on Jan. 1, 2013 – that would put withholdings for foreign investors on dividend-equivalent swap payments on a par with stock dividends.

The rules stem from a March 2010 law aimed at combating dividend-tax withholding avoidance by foreigners.

A non-U.S. stockholder is subject to a 30 percent withholding tax on dividends from direct ownership of a stock.

But there is no tax withheld on dividend-equivalent payments from swap contracts.



EDITORIAL: A Year in the Life of Social Security (New York Times)

The trustees of Social Security reported this week that absent reforms, the system will be able to pay full benefits until 2033 — versus 2036 in last year’s report — and three-fourths of benefits after that. One of the reasons for the grim new projection is the increase in oil prices, which the trustees assumed are here to stay and will exert a drag on the economy and worker pay for decades to come. Less pay means less tax revenue for the system.

Whether that and other assumptions turn out to be true, the report is a reminder that lawmakers should act soon to bolster the system’s financing — the sooner reforms are enacted, the less wrenching they have to be. What is needed is a balanced mix of modest benefit cuts and moderate tax increases, phased in slowly, to ensure both solvency and a fair sharing of the burden of reform. What is not needed is a “fix” that relies on disproportionate benefit cuts, or privatization, threatening the retirement security of millions of Americans.

Equally important, the report is a reminder that anything that affects the economy affects Social Security and that sound public policy is essential. The impact of rising oil prices seen in this year’s report, for instance, could be mitigated by a comprehensive energy policy that reduced dependence on oil. In last year’s report, the system’s finances were hit by a drop in immigration, which lowers tax revenues, and could be mitigated by saner immigration policy.



Natural gas prices rise, oil steady at $104 (Bloomberg Businessweek)

By The Associated Press

Natural gas futures continued their rise off 10-year lows Thursday on hopes that demand is picking up and plans by drillers to cut production in response to low prices.

Natural gas rose to $2.13 per thousand cubic feet, a gain of 3 percent, in morning trading. Forecasters are predicting a cool spring in the Northeast, which could increase demand for the fuel. Also, utilities are taking advantage of low natural gas prices by using more of the fuel to generate electricity.

Prices are so low that drilling has become unprofitable in most locations, so drillers are starting to cut back exploring for new natural gas.

Prices have fallen to their lowest levels since 2002 because a historically warm winter and increased domestic production have boosted the amount of natural gas in storage well beyond its 5-year average.

The U.S. government reported Thursday that natural gas in storage rose by 47 billion cubic feet to 2.548 trillion cubic feet for the week ended April 20. That’s 56 percent above the five-year average.



House set to vote on student loan plan (Washington Post)

By Ed O’Keefe

Virtually everyone on Capitol Hill agrees that Congress should extend lower interest rates for college loans for at least another year, but there is no agreement between Democrats and Republicans over how to pay for the extension.

Roughly 7 million borrowers could see rates on student loans jump from 3.4 to 6.8 percent when the current rates expire July 1. President Obama focused on the issue during campaign-style appearances this week at college campuses in key battleground states, as he urged Republicans to join Democrats in quickly extending the lower rates for another year. Presumptive Republican presidential nominee Mitt Romney also said this week that he backs extending the rates.

But agreement on the issue ends there.

On Friday, the Republican-controlled House plans to vote to extend the lower rate for another year and to pay for it by slashing $6 billion from a preventive care fund created under Obama’s health-care law. The proposal puts Republicans squarely at odds with Senate Democrats, who introduced legislation Wednesday to pay for the extension by imposing new payroll taxes on some businesses with three or fewer shareholders — so-called “S corporations.”

The Senate doesn’t plan to vote on its version of the rate extension until after it returns from a week-long recess on May 8, meaning the issue likely will dominate the political discussion for at least the next 10 days as lawmakers go home and Obama and Romney campaign across the country.

OPINION: Lower Student Loan Interest Rates (Huffington Post)

By Secretary Arne Duncan

Fifty years ago college was a luxury. Back then, you could still graduate from high school and get a good paying job that would guarantee you a place in the middle class. Those days are gone.

A postsecondary education is the ticket to economic success in America. We know that the jobs of the future will all require some kind of education or training after high school.

And while it’s never been more important to have a degree, a certificate or an industry recognized credential — it’s also never been more expensive.

Since 1995, college costs across the country have risen almost five times faster than median household income. As a result, students and their families are taking on more and more debt. Borrowing to pay for college used to be the exception; now it’s the rule.

Next month, millions of America’s newest college graduates will leave school to enter the job market. As they do, a new challenge awaits many of them: how to pay back the student debt they’ve accumulated over the last four years.

About two-thirds of bachelor’s degree holders borrow to go to school, and on average they’re graduating with more than $26,000 in debt. In an economy still recovering from the worst downturn since the Great Depression, paying off a sum that large can be a daunting.

To make matters worse, a policy change is coming that will make getting out of debt more expensive for over 7 million young Americans: without Congressional action, the interest rate on subsidized Stafford loans is set to double from 3.4% to 6.8% starting July 1, 2012.



U.S. IS Seeing Positive Signs From China (New York Times)

By Mark Landler and Steven Lee Myers

When China suddenly began cutting back its purchases of oil from Iran in the last month, officials in the Obama administration were guardedly optimistic, seeing the move as  the latest in a string of encouraging signs from Beijing on sensitive security issues  like Syria and North Korea, as well as on politically fraught economic issues like China’s exchange rate.

As with so many signals from Beijing, though, its underlying motives for reducing its imports of Iranian oil remain a mystery: Are the Chinese embracing Western sanctions? Or, as some experts suspect, are they trying to extract a better price from one of their main suppliers of crude?

The answer is probably a bit of both, according to senior administration officials who acknowledge that they do not know for certain. But for the White House, which has labored to build a more constructive relationship with China, Beijing’s motives may matter less than the general direction in which it appears to be moving.

For years, China stymied efforts to pressure Iran. Now, in addition to throwing its weight behind the sanctions effort, officials say, Beijing is also playing a more active role in the recently revived nuclear talks between Iran and six world powers — the United States, China, Russia, Britain, France and Germany. While in past negotiations, Beijing has followed in lockstep the positions taken by Russia, this time Chinese diplomats are offering their own proposals.