December 22nd, 2010 9:46 AM by Mel Samick
Seasons greetings from the government this year are accompanied by the gift of tax breaks and stimulus measures, nicely wrapped and just-in-time for Christmas. An $858 billion bill was signed into law by President Obama on Friday, December 17th. The bill passage cost Democrats a tax increase for the wealthiest of citizens, and so the income tax breaks stay the same for two more years regardless of income brackets. At the same time, the tuition tax credit was extended, the child tax credit was increased and a social security payroll tax cut was offered for all working Americans. Businesses got a provision to write off, completely, any capital expenditures made between September 9 and end of year 2011. The bill is aimed to support and promote the fragile economic recovery by increasing the spending capacity of society, funded in turn by government spending.
A major provision of another government initiative – the healthcare law passed earlier this year – making health coverage mandatory for everyone, was pronounced unconstitutional by the U.S. District Judge Henry Hudson in Virginia. Judge Hudson though declined to invalidate the entire legislation. Virginia Attorney General, Ken Cuccinelli, said that the case was about liberty, not healthcare. However, the debate around the reform is far from being over; it has just moved from the White House to the court buildings.
In the meantime, the Treasury Department has said that the amount of U.S. debt held by China increased again in October and reached $906.8 billion, Japan is the second largest foreign creditor of the United States, holding $877.4 billion. International holdings of U.S. Treasury securities rose to 4.3 trillion. The total U.S. Treasury debt, as of 12/16/2010, was a staggering 13,878,837,351,150 (13 trillion, 878 billion, 837 million, 351 thousand and 150 dollars). The foreign debt holdings growth demonstrates trust of the governments worldwide in the United States economic potential.
Instead of proud self-identification as a service economy, more and more often we now hear things like, “sStocks edge up on manufacturing growth” or “We need to get manufacturing jobs back to the U.S.” The Factory Output rose 0.5 percent in November, recording the fifth straight month of growth. Slowly but surely, the Factory Output gained back 10.6 percent since its low reading in June of 2009; at the same time there is still a 9.1 percent way to go to the last recorded peak in April 2007.
The inflation growth readings represent more healthy numbers, alleviating concerns amid deflation. The total Producer Price Index, reported on Tuesday, rose to 0.8 percent in November from 0.4 percent in October, bringing the annual number up to 3.5 percent. The Consumer Price Index, which is mostly referred to as an inflation measure, came out at 0.1 percent, which is 0.1 percent shy of the expectation that makes an annual reading of 1.1 percent. However, retail prices are lagging the wholesale price movements.
Housing Starts came back up to 3.9 percent in November following an 11.1 percent drop in the prior month and was recorded at 0.555 million units, just above expectations. The level of the housing market index that combines the major housing industry indicators remained flat. Jobless Claims were recorded at a just-as-expected 420K level. Cautious optimism over the steady decrease in claims during the past few weeks is very much appropriate, because the recovery may be attributed to the seasonal rather than conceptual improvement. A composite index of leading indicators grew 1.1 percent month-to-month, a little below the expected 1.2 percent.
The FOMC meeting announcement on Tuesday brought no surprise statements. The target federal funds rate remains in the 0-0.25 range, the Quantitative Easing 2 continues as expected and no significant changes are foreseen on the horizon yet as the economy still remains in its relatively weak state. The stock market keeps on rising, with the Dow reaching a new 52-week high of 11,553 on Thursday, however pulling back slightly on Friday to close the week at 11,491. The 10-year Treasury note ended the week at 3.33, slightly above the end of the previous week’s 3.30 level.
Information provided by Amtrust Capital Markets