So apparently there’s a big stimulus speech on Thursday night.
We’re not sure whether this is “big” in the political sense, the economic sense, or the plain old silly media bubble sense.
But a speech there is, folks.
And in case you’re looking for prep material, here are two charts courtesy of Credit Suisse.
First, changes in US employment by sector:
We were drawn to the last bar, which shows the monthly average of job losses in state and local governments over the last half year.
Second, a chart showing the aggregate level of state and local government employment since 2006:
If you’re counting, that’s a total loss of 671,000 jobs from the 2008 peak.
We’ve resisted saying much about President Obama’s speech, partly because it’s received so much coverage elsewhere but mostly because we have no idea how many of its proposals will break free of the inevitable political constraints.
Of the $300bn the proposals will supposedly cost, the largest part is expected to come from an extension of the payroll tax cut. Obama is also expected to propose more infrastructure spending and incentives for hiring, but each of these has received plenty of attention, too.
We point out the above two charts only to emphasise that the other expected proposal — aid to state and local governments — seems like one of the more direct ways to stem job losses.
Otherwise, as for how it will affect financial markets, we generally agree with Markit’s conclusion in a note penned on Thursday afternoon (emphasis ours):
In the speech, among other things, he is expected to request Congress to pass a $300 billion jobs stimulus, propose an employer tax incentive for hiring, extend an employer payroll tax cut and seek to establish an infrastructure bank. Many of his expected proposals have been vetted publicly over the last couple of weeks. Perhaps just as interesting to see will be Congressional reaction to the proposals particularly from House Republicans. For their part, they have already indicated that any new spending proposals would need to be met by an equivalent amount of cuts elsewhere. Proposals on how to pay for any new stimulus measures are not expected to be aired until next week. If nothing else, the “spend first, save later” approach will certainly be criticized by Republicans regardless of the specific proposals advanced tonight. The fact that Bernanke’s remarks today hinted for a short-term focus on stimulus accompanied by a substantial long-term debt reduction plan will provide little if any political cover.
Despite the political implications of tonight’s events, one has to wonder if the markets are placing too much weight in the outcome. For example, if a proposal for a repatriation tax holiday is not included in the President’s proposal will the market sell off? While it is understandable that investors are reluctant to commit to significant positions ahead of an event with “surprise potential”, it seems that the event may be a bit over-billed at this point.
An overbilled political event, who’d have imagined?
Related links:
Obama set to unveil jobs strategy – FT
Experts See Limited Impact From Tax Cuts in Obama Plan – NYT
Obama jobs speech comes with high stakes – Politico