Americans cut spending in December by the largest amount since 2009; we knew spending on energy would be lower but consumers did not rush out and spend the money. Household savings from lower energy costs, were partly offset in December by higher spending on drugs, health care and housing. These expenses continue to eat up a large portion of American incomes. Incomes posted another solid gain and falling inflation is allowing Americans to get more bang for their buck. Personal spending fell a seasonally adjusted 0.3% last month. Personal income, meanwhile, rose 0.3%. Since income growth outpaced spending, the amount of money individuals save jumped to 4.9% from 4.3% to mark the highest level since midsummer.
The Commerce Department reports construction spending rose 0.4% in December to a seasonally adjusted annual rate $982.1 billion, led by public spending. Private-construction spending rose 0.1% in December, with a 0.3% increase for residential projects and a 0.2% decline for nonresidential projects. Meanwhile, public-construction spending rose 1.1% in December. The ISM Manufacturing Report for January dropped from 55.1 to 53.5. Any reading above 50 indicates the manufacturing sector is expanding, just not as fast.
Germany’s Angela Merkel ruled out a debt writedown for Greece on Saturday, while an ECB policymaker threatened to cut off funding to Greek banks if Athens doesn’t agree to renew its bailout package. Europe’s bailout program for Greece, part of a €240B rescue package also involving the IMF, expires on Feb. 28. Greece has hired the investment company Lazard to advise on restructuring its debt, and has refused to deal with the “troika” which is pushing for continued austerity.
President Barack Obama has suggested that Greece will not be able to recover from its economic crisis unless there is a let up in austerity policies. “You cannot keep on squeezing countries that are in the midst of depression,” when CNN’s Fareed Zakaria asked him about the case of Greece. “At some point, there has to be a growth strategy in order to pay off their debts and eliminate some of their deficits.
Greek Finance Minister Yanis Varoufakis was in London today trying to win support for a writedown. Britain’s finance minister, George Osborne said Greece needs to act responsibly but that the Eurozone also has to come up with a better plan for jobs and growth. Osborne called the stand-off the “greatest risk to the global economy.”
Think about that for a moment. The Greek bailout package is €240B, and Greece would certainly pay most of that, even if they get a break. Without some sort of break, Greece might well default on everything. So the greater risk seems to be doing nothing to help the Greeks. But there is another risk.
Hundreds of thousands of people marched through Madrid Saturday in a show of strength by a fledgling leftist party, as it becomes the latest European political organization to gain widespread support for its anti-austerity stance. Podemos (‘We Can’) supporters from across Spain converged on Madrid in what was the party’s largest rally to date, as it hopes to emulate the success of Greece’s Syriza party in the Spanish general election later this year. The political party was just formed one year ago, and they are now favorites to win the election.
The anti-austerity movement is catching some wind in its sails, and with good reason; austerity does not work. Spanish unemployment is holding around 25%. Half of Spain’s unemployed no longer receive benefits, while 33 of the 35 biggest companies avoid tax through subsidiaries in tax havens. Half a million children have been plunged into poverty since 2009, but the wealth of Spain’s super-rich has increased by 67%in the past 5 years. To avoid the wrath of a fractious population the government has cracked down on the right to assemble. That did not stop hundreds of thousands of protestors over the weekend.
President Obama presented the White House budget today. At the heart of the budget is what the president calls “middle-class economics”; plans to help middle-income earners afford necessities such as education and child care and bolster their skills, and to pour federal money into building roads and bridges. To pay for such initiatives Obama has outlined a nearly $1 trillion of tax proposals that would hit the wealthy and large financial institutions over the next decade.
The budget foresees a $474 billion deficit, which is 2.5 percent of U.S. gross domestic product. The proposal includes a corporate tax overhaul, plus a 6-year, $478 billion plan to build and improve transit, roads, and bridges – paid for by imposing a one-time tax of 14% on an estimated $2.1 trillion in overseas accounts held by US corporations. The president is proposing to add $38 billion for the military and $37 billion for domestic programs under Congress’s discretion; essentially restoring the cuts made by the 2011 budget deal known as sequestration. Obama called those cuts “mindless austerity.”
The White House is assuming that inflation-adjusted economic growth will rise from 2.2 percent in 2014 to a robust 3.1 percent this year and 3 percent in 2016, and that unemployment will continue to fall, to 5.4 percent this year from the current 5.6 percent, to 5.1 percent in 2016 and to 4.9 percent in 2017 and 2018. Those assumptions would mean that the current record-breaking expansion of private sector jobs would continue well into the future.
It’s important to note that this budget is the president’s proposal—a blueprint – given to Congress to be fought over or blatantly ignored; it’s not law. So, this is first-and-foremost a political document used to outline the president’s vision and define his terms of engagement with Congress. And there are a few things Republicans should like, such as more military spending, a highway trust fund, and corporate tax reform, but the devil is in the details. Most of these measures, to use the language of the moment, will likely be “dead on arrival,” given that both the House and Senate are now under Republican control.
The chairman of the Federal Communications Commission this week is widely expected to propose regulating Internet service like a public utility to ensure so-called net neutrality, or an open Internet. It is expected that the proposal will reclassify high-speed Internet service as a telecommunications service, instead of an information service, under Title II of the Communications Act. The change would give the commission strong legal authority to ensure that no content is blocked and no so-called pay-to-play fast lanes exist. He may also suggest putting wireless data services under Title II and adding regulations for companies that manage the backbone of the Internet. However, it would likely be regulation without specific pricing control. The proposal is expected to be submitted to the agency’s commissioners by Thursday.
About 3,800 employees represented by the United Steelworkers union went on strike at plants accounting for 10% of U.S. refining capacity for a second day, after failing to agree on new labor contracts. Union workers are on strike for a second day at nine U.S. refineries and chemical plants as they seek a new national contract with oil companies covering laborers at 63 plants. The walkouts targeted plants with a combined 10 percent of U.S. refining capacity, although the plants remain open for now.
Exxon Mobil’s quarterly profit fell 21% as weak oil prices took a toll, but earnings topped Wall Street expectations due to tax benefits and a favorable arbitration ruling; revenue missed the mark. Profit in the fourth quarter fell to $6.5 billion, or $1.56 per share, from $8.3 billion, or $1.91 per share in the same quarter a year earlier. Exxon also said it will reduce its share buyback program in the first quarter by more than half to $1 billion.
RadioShack is preparing to shut down the chain in a bankruptcy deal that would see half the stores taken over by Sprint. The rest of the stores would close down. Sprint and RadioShack have also had talks about co-branding the stores. Standard General, a hedge fund and the largest investor in RadioShack, was in talks to serve as the lead bidder at a bankruptcy auction. It is also possible that another bidder could yet emerge to buy RadioShack and continue operating the 94-year-old chain.
Apple announced it will spend about $2 billion to build a new data center in Mesa, Arizona. It will be housed in buildings formerly used by GT Advanced Technologies, which went bankrupt last year after failing to supply sapphire display covers for the iPhone 6. The project will supply 300 to 500 temporary construction jobs and 150 permanent jobs, and the data center will be powered entirely by renewable energy. Apple also will invest to build and finance solar projects, which will produce enough energy to power more than 14,500 Arizona homes. Apple told Bloomberg it will be a “command center for our global networks.”