On September 8, President Obama announced his American Jobs Act to both Congress and the American people. The ultimate goal of this act is intended to support the labor market, boost spending, and jumpstart the slowing economy.
To pay for the estimated $447 billion program, the President outlined a combination of tax cuts, tax hikes, tax breaks and tax credits. Within the act are plans for investment in infrastructure, transportation programs, airport development and public works projects. There is $35 billion carved out to re-hire teachers and prevent further teacher layoffs, with an additional $25 billion for schools. Incentives in the form of tax credits will be available for businesses that hire veterans and the long-term unemployed. An extension of unemployment benefits for another year is also incorporated.
The proposed bill is the latest effort by the federal government to maintain economic growth, with more focus on aiding job creation. Recall that between February 2008 and August 2011, the United States lost over 9 million jobs and has only regained 2.178 million jobs, with 59 percent of those gains between November 2010 and July 2011. The unemployment rate stands at 9.1 percent, while the U6 unemployment rate, which takes into account the unemployed, marginally attached workers, discouraged workers and reluctant part-timers, is at 16.2 percent. The passage and effectiveness of the job bill to address these issues remain in question.
Over the past several years, various measures such as TARP, housing credits, and "cash-for-clunkers" have been some of the fiscal stimuli introduced to help different sectors of the economy. Many of these programs have provided an overall temporary boost to GDP, but a prolonged self-sustaining expansion has yet to materialize. Correspondingly, the Federal Reserve had introduced numerous tools as well to combat sluggish growth. The Fed launched QE1 and QE2 to control longer-term rates, and the newly minted Operation Twist is yet another tactic to manage yields through the Treasury market. The Fed’s ultimate focus is to establish an accommodative monetary environment conducive to fostering growth. The combination of all these stimulus injections and liquidity support are not only a reminder of the persistent efforts to revitalize the economy, but also an indication that this recovery will require more time.
The reality is that it will take a while for the U.S. economy to return to what we once called "normal." The multiple headwinds working against the current recovery still remains an obstacle, and new shocks from natural disaster to political wavering have only added impediments to the resumption of growth. The current financial state is challenging, to say the least, but there are still opportunities for investors seeking to balance risk and performance. Though government bond yields are depressed and are expected to remain so, certain corporate sectors can still provide competitive returns. Many corporations continue to hoard cash and strengthen their balance sheets, providing an alternative to the low yields in Treasury and agency debt. These same sectors have also benefitted from the stimulus programs and low cost of borrowing. Obviously, not all credit is the same and will require proper risk analysis. But as the economy remains fragile, volatility and headlines will persist, creating opportunities that investors can take advantage of.
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