Weak Jobs Report Adds to Uncertainty on Fed’s Move

The Labor Department’s snapshot of the job market in August had several discouraging details underneath a relatively mundane headline number, which showed the economy added an estimated 169,000 jobs. Perhaps the most striking was a plunge in the share of Americans who are either working or looking for work, which fell to its lowest level since 1978.

“If you had a more optimistic view of the economy, which I think the Fed does, this should give you some pause,” said Joshua Shapiro, chief United States economist at MFR. “It’s been a real struggle here in the labor market.”

At the same time, earlier estimates of job growth in July and June were revised sharply downward, and hiring over the summer months was largely driven by low-wage sectors like retail, food services and health care.

Still, economists said they believed that Fed governors would find enough bright spots in this report to justify scaling back their monthly purchases of long-term Treasury bonds and mortgage-backed securities — measures that help push down long-term interest rates — after their next meeting on Sept. 17 and 18.

“There’s just barely enough in that report and in other forward-looking indicators we’ve seen to give Fed governors the confidence they need on the 18th to taper,” said Ian Shepherdson, the chief economist at Pantheon Macroeconomics.

“For the record, I don’t think they should, given the risks posed by Syria and the impending fiscal chaos in Washington,” he said, noting the expected Congressional battles over the debt limit and spending measures. “The costs of delaying until some of those factors are sorted out is not very great. But the Fed has given no indication it’s thinking that way.”

Investors seemed to agree, with bond yields dipping slightly after the jobs report came out. As for stocks, after a topsy-turvy day, the Standard & Poor’s 500-stock index and the Dow Jones industrial average both closed about where they began on Friday. In Friday trading, the Dow closed down 14.98 points, or 0.1 percent, at 14,992. The S.& P. 500 edged up 0.09 points, or 0.01 percent, closing at 1,655.17. The Nasdaq climbed a slight 1.23 points, or 0.03 percent, to finish at 3,660.01. The price on a 10-year Treasury note rose 16/32, to
96 9/32, with the yield falling to 2.93 from 3.00 on Thursday. The number of payroll jobs added in August was just shy of the average pace of hiring over the last year, and the unemployment rate edged down to 7.3 percent from 7.4 percent. Unemployment, however, fell for the “wrong reasons,” Mr. Shapiro said: because people dropped out of the labor force and so were no longer counted as unemployed, and not because more unemployed people found jobs.

The jobless rate is now edging close to the 7 percent level that the Federal Reserve chairman, Ben S. Bernanke, had identified as the Fed’s target for ending its asset purchases altogether around the middle of next year. For several months, Fed governors have been saying that the Fed expected to begin reducing the monthly purchases “later this year,” which has been widely interpreted to point toward beginning the shift as early as September.

Charles L. Evans, president of the Federal Reserve Bank of Chicago and one of the more vocal proponents of highly accommodative monetary policy, used this phrasing in a speech on Friday, suggesting he was open-minded about the “exact pattern of the reduction in purchases that we eventually take.”

The Fed’s more hawkish members have been more explicit about their desired policy moves. Esther L. George, president of the Federal Reserve Bank of Kansas City and a leading critic of the asset purchases, said on Friday that the Fed should cut its bond buying to $70 billion a month in September, from the current $85 billion a month, split between Treasuries and mortgage bonds. “It is time to begin a gradual — and predictable — normalization of policy,” she said.

Some economists suggested that Fed governors could react to the latest economic data by tapering their bond purchases slowly over a longer period of time and perhaps in conjunction with other measures that would underscore the central bank’s commitment to helping the economy heal. For example, the Fed could announce that it is extending the period that it holds short-term interest rates near zero.

Binyamin Appelbaum contributed reporting from Washington.

Wall Street Closes Lower on Uncertainty After Fed Officials’ Views

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, told Market News International in an interview that the Fed could begin trimming the size of the stimulus program as soon as September, but might wait longer if the expected economic growth in the year's second half fails to materialize.

Later in the session, Chicago Fed President Charles Evans echoed the sentiment when he said the central bank will probably decrease the program later this year and could do so as early as next month, depending on the economic data.

Fed officials "are all hedging themselves, which is why the market continues to just be a little bit confused and why it is going to churn," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.

"There is really no reason at the moment for the market to go higher because it is still too unclear."

One catalyst for Monday's downturn in the Dow and the S&P 500 was provided by Richard Fisher, president of the Federal Reserve Bank of Dallas. He said he supported scaling back the central bank's stimulus next month unless economic data takes a turn for the worse.

The S&P 500's decline on Tuesday was its biggest fall since June 24 as investors continued to take profits from the recent rally that drove the Dow Jones industrial average and the benchmark S&P to back-to-back record closing highs late last week.

The Dow Jones industrial average fell 93.39 points or 0.60 percent, to end at 15,518.74. The S&P 500 declined 9.77 points or 0.57 percent, to 1,697.37. The Nasdaq Composite dropped 27.182 points or 0.74 percent, to 3,665.77.

Earlier, the Dow fell as low as 15,473.40, while the S&P 500 touched a session low of 1,693.29, and the Nasdaq hit an intraday low of 3,654.672.

The S&P 500 has risen for five of the past six weeks, gaining more than 7 percent over that period.

Volume was light for the second straight day, with about 5.5 billion shares traded on the New York Stock Exchange, NYSE MKT and Nasdaq, below the daily average of 6.36 billion. The thin volume exaggerated the market's swings.

Monday marked the lowest volume for a full-day session so far this year. With major U.S. economic data like the nonfarm payrolls report and earnings from bellwethers out of the way, volume is expected to be light throughout the week.

Walt Disney Co posted a slightly higher quarterly profit that beat Wall Street's expectations, even though its movie studio earnings declined, in results released after the closing bell. Disney's stock fell 1 percent to $66.35 in extended-hours trading. The stock ended regular trading at $67.05, up 1.6 percent.

During the regular session, the biggest drag on the Dow was International Business Machines Corp. The stock dropped 2.3 percent to $190.99 after Credit Suisse cut its rating to "underperform" from "neutral," saying growth would be a challenge for IBM in the future. Credit Suisse also cut its price target on the Dow component by $25 to $175. IBM topped the list of the Dow's 10 worst-performing stocks.

Bank of America shares declined 1.1 percent to close at $14.64 after the U.S. Justice Department and the Securities and Exchange Commission filed civil lawsuits against the bank for what government lawyers said was a fraud on investors involving $850 million of residential mortgage-backed securities. The stock was among the Dow's 10 bottom performers.

The S&P financial index lost 0.9 percent.

Retailers' shares were among the day's biggest losers. American Eagle Outfitters shares tumbled 12 percent to $17.57 a day after the retailer said its second-quarter profit would be hurt by weak sales and margins. A number of analysts downgraded the stock. The S&P retail index slipped 0.4 percent.

Of the 418 companies in the S&P 500 that had reported earnings for the second quarter through Tuesday morning, Thomson Reuters data showed that 67.5 percent have topped analysts' expectations, in line with the average beat over the past four quarters. On the revenue side, the data showed that 54 percent have reported revenue above estimates, more than in the past four quarters but below the historical average.

Declining stocks outnumbered advancing ones on the NYSE by a ratio of about 3 to 1, while on the Nasdaq, more than two stocks fell for every one that rose.

(Editing by Jan Paschal)

Common Sense: Uncertainty at the Fed as Markets Oscillate

“He’s already stayed a lot longer than he wanted or he was supposed to,” President Obama told Charlie Rose in an interview that was broadcast on June 17 on Bloomberg TV, all but confirming that he wouldn’t reappoint Mr. Bernanke when his term expires at the end of this year.

The best the president could muster was that Mr. Bernanke was an “outstanding partner along with the White House” in warding off “what could have been an economic crisis of epic proportions.”

A White House spokesman said Mr. Obama meant that as praise, but supporters of the chairman, and even many who have disagreed with him on policy issues, were quick to question both the timing and substance of the comment.

Not only did the comment come across as faint praise for a long-serving public servant who guided the nation’s monetary policy through a severe crisis, but its timing could also hardly have been worse. Mr. Bernanke was in the midst of important Federal Open Market Committee meetings and that very week began the delicate task of communicating the Fed’s plans to “taper” its latest round of quantitative easing. Markets went into convulsions and interest rates shot up. While no one blames Mr. Obama for that, adding another element of uncertainty about Fed policy may have contributed to the volatility.

Others were critical of the president’s choice of the word “partner” to describe the Fed chairman’s role, since the Federal Reserve is an independent agency overseen by Congress. “Any Fed chairman would bristle at the idea they were a partner with a president,” Senator Bob Corker, the Tennessee Republican who serves on the Senate Banking subcommittee on financial institutions and consumer protection, told me this week. “I can understand why people who want to protect the independence of the Fed would be concerned.”

Others pointed out that the Fed has taken the lead in efforts to stimulate the economy as Congress blocked the White House from further stimulus measures, and thus “partner” overstates the White House’s role in the recovery.

By contrast, although history hasn’t been kind to the legacy of Mr. Bernanke’s predecessor, Alan Greenspan, he received a send-off commensurate with his record five terms of service. The Fed itself announced Mr. Greenspan’s decision to retire, and in late October 2005, President George W. Bush announced his choice of Mr. Bernanke at a White House news conference where he lavished praise on the departing chairman as a “legend” who had “dominated his age like no central banker in history” while Mr. Greenspan looked on. On the same occasion, Mr. Bernanke said Mr. Greenspan “set the standard for excellence in economic policy making.”

With many economists and investors fixated for months on the question of when and how quickly the Fed would curtail its extraordinary efforts to stimulate the economy, Mr. Bernanke’s suggestion, just two days after the president’s comments, that the Fed might taper its bond-buying earlier than expected sent markets reeling. Stocks fell across the globe and interest rates rose, with 10-year Treasuries hitting their highest yields since 2011. The volatility index, which was already rising the week before the president’s remarks, leapt to a new high for the year.

Mr. Obama “instantly made Ben a lame duck before the end of his term,” said one economist, who may be a future candidate for Mr. Bernanke’s position and, like many people I interviewed, asked not to be named. “He undermined his credibility both inside the Fed and in financial markets.” While Mr. Bernanke tried to reassure markets that the Fed would monitor the economy and respond as appropriate, this person said, “Part of the negative reaction in asset prices was because market participants have confidence in Ben, but now he won’t be around to oversee that.”

People close to Mr. Bernanke told me that the chairman took the president’s comments in stride, but said he was concerned about the severe market reaction. “He wouldn’t want to feed stories about this when he’s trying to articulate a complex message about monetary policy,” one adviser said.

The people close to the chairman said he had already told the president he wanted to leave at the end of his term. He is expected to return to teaching and research at Princeton, where he delivered this year’s baccalaureate address. He quipped in the speech that his remarks had “nothing whatsoever to do with interest rates” and observed that life was unpredictable.

This article has been revised to reflect the following correction:

Correction: June 28, 2013

An earlier version of this column misstated the occasion of Mr. Bernanke’s speech at Princeton. It was the baccalaureate service, not the commencement.

Fiscal Cliff Uncertainty Creates Flood of Work for Attorneys

By Matthew Huisman All Articles 

The National Law Journal

December 18, 2012

The uncertainty of the "fiscal cliff" negotiations in Washington has resulted in a recent flood of activity for attorneys as their clients try and plan for the future.

"This year is almost the perfect storm," said Miller & Chevalier tax member Marc Gerson, former majority tax counsel to the House Ways and Means Committee. He pointed to not only the fiscal cliff and the expiring Bush-era tax cuts, but also the increase in Medicare taxes and a new investment tax.

As a result, businesses are looking to accelerate income before the year ends to avoid the uncertainty of 2013.

"Traditionally there always is year-end tax planning that we do on behalf of our clients," Gerson said. "Obviously folks are operating with a lot of uncertainty."

The uncertainty has created the question of what to do before the end of the year, as attorneys present their clients with different scenarios to better prepare them for the future.

"I think it's negatively impacting businesses and the stock market," said McDermott Will & Emery partner Henry Christensen III in New York, leader of the firm's national and international private client practice. "If you don't know, then you have to plan for the worst."

Christensen said that attorneys have been working around the clock and on the weekends to help their clients finish transactions before the year's end.

He said that there are about 100 transactions that must close before the end of the year in the New York office and another couple hundred in the firm's Chicago office. Christensen said that trust transactions and charitable contribution planning are two areas where the firm has been swamped. But attorneys are still waiting to see what will come out of Washington.

Christensen said that the lack of guidance on state income tax reduction has been disruptive for businesses. He pointed to two companies that are planning to move from New York to Florida as a result of income tax reduction. He said states like New York, Illinois, Michigan, California and Pennsylvania may lose out to states like Texas, Florida and New Hampshire when it comes to attracting businesses.

"My sense is that Congress is not paying a great deal of attention to the estate and gift tax, but what they're really focused on is the personal income tax," Christensen said. "Lawyers will be busy, but their clients will not be happy with Congress for making them do all these things."