Economy

An Obamacare Fear That Didn’t Happen

Washington Post: “During the debate over President Obama’s signature health care law, opponents warned that the law would discourage large numbers of Americans from working, force millions into part-time jobs and make it more difficult to find work. Three new studies released this week suggest that, so far, it hasn’t happened.”

“They found that overall, the Affordable Care Act had little impact on employment patterns.”

One study, published in the journal Health Affairs, “is the latest in a series to conclude that Obamacare did not, in fact, widely result in more firms asking employees to to work part time.”

“The authors examined Census data, and found no increase in the likelihood of working part time, except for a 0.18 percentage point increase in the likelihood of working 25 to 29 hours per week between 2013 and 2014 — a trend that the authors say predated the ACA.”

“The study included another piece of evidence that appears to contradict the notion that the law would cause an increase in part-time work: the number of people working 25 to 29 hours a week in firms not subject to the mandate increased between 2012 and 2015, while the number of people at firms subject to the mandate slightly decreased.”

The U.S. 2016 Economic Outlook: Strong But Shaky

Bloomberg: What will 2016 bring for the world economy? Financial markets are sending a mixed message: There’s reason to believe that the U.S. will outperform other major developed nations, but also to be wary about the health of American companies.

“One big question is which economies will expand fast enough to justify [a rate] increase. As of Wednesday, traders in futures markets were putting their money on the U.S.: They expected the three-month dollar deposit rate to reach 1.24 percent by December 2016, a gain of about 0.64 percentage point.”

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At the same time, though, markets for credit derivatives — which provide a sort of insurance against defaults — are displaying mounting concern about the finances of U.S. corporations. As of Wednesday, the cost of five-year insurance on $10 million in debt issued by a basket of investment-grade U.S. companies stood at almost $89,000, up more than $22,000 from a year earlier.

“The mixed signals illustrate the complexity of the task facing the Fed. A robust U.S. expansion is crucial for the rest of the world, given decelerating growth in China and a painfully slow recovery in Europe. Yet the planet’s largest economy is still showing signs of weakness, and may be unusually vulnerable to rate increases. As Bloomberg View has noted, this means the central bank will have to act cautiously, and be ready to change course if 2016 doesn’t go according to plan.”

Survey: Government is Top Problem

Gallup: For the second consecutive year, dissatisfaction with government edged out the economy as the problem more Americans identified as the nation’s top problem in 2015.

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“Americans were most likely to mention some aspect of the federal government in 2015 when asked to name the country’s top problem, but this category still averaged less than 20% of all responses during the year. Even when mentions of terrorism, immigration and gun laws briefly flared, the percentages citing these stayed below the 20% threshold.”

“This lack of a prominent public concern provides an interesting setup to the 2016 presidential election … This contrasts with the last three presidential election cycles when at least one issue commanded significant public attention in the year prior to the election. In 2011, for example, the dominant issues were the economy and unemployment; in 2007, the Iraq War; and in 2003, the economy. Those concerns provided a clear framework for the campaigns, something that is thus far lacking in the race for 2016.”

What Will the Fed do Next?

Bloomberg: “Attention has turned to the likely pattern of increases over the coming months and years: How high will rates rise, and how quickly?”

“The answer, one hopes, is that the Fed doesn’t know — because the policy should depend on how the economy behaves over the coming months, which is itself uncertain … the Fed should keep the emphasis on developments in the economy and dispel any notion of a schedule.”

“Yellen has said the Fed’s [2%] target is just that, not a ceiling  … But the inflation projections bundled with the Fed’s policy announcements don’t appear to back that up.”

“Mixed messages of this kind aren’t helpful. And the signaling of the Fed’s inflation expectations isn’t the only such case. Yellen has often said that interest-rate policy will be ‘data-dependent,’ rather than following a pre-determined schedule. Yet Dennis Lockhart, president of the Atlanta Fed, [stated:] ‘Moving up gradually means not every meeting, in all likelihood … The rate of rising interest rates will be more like every other meeting.'”

“Falling unemployment justified the Fed’s move on Dec. 16. Yet here too the calendar clearly played a role: The Fed had long hinted at a rise by the year’s end, leaving investors almost certain it was coming. From now on, data, not dates, should guide the policy — and comments suggesting anything else would be better left unsaid.”

Despite Cheap Fossil Fuels, Renewables Building Binge Projected for 2016

Joby Warrick in The Washington Post: Wind and solar power appear set for a record-breaking year in 2016 as a clean-energy construction boom gains momentum in spite of a global glut of cheap fossil fuels.

Installations of wind turbines and solar panels soared in 2015 as utility companies went on a worldwide building binge, taking advantage of falling prices for clean technology as well as an improving regulatory and investment climate. Both industries have seen stock prices jump since Congress approved an extension of tax credits for renewables as part of last month’s $1.14 trillion budget deal.

Orders for 2016 solar and wind installations are up sharply, from the United States to China to the developing economies of Africa and Latin America, all in defiance of stubbornly low prices for coal and natural gas, the industry’s chief competitors.

Energy analysts say the boom is being spurred in part by improved technology, which has made wind and solar more competitive with fossil fuels in many regions. But equally important, experts say, is better access to financing, as major Wall Street investment houses adopt a more bullish posture toward an industry that was once considered financially risky. In November, Goldman Sachs announced it was quadrupling its investments in renewables to $150 billion.

Challenges Ahead for the Fed After Its Rate Hike

Bloomberg Editorial Board: The Federal Reserve’s rate hike announcement “may be the most widely anticipated news in the history of U.S. monetary policy… This new course won’t be easy. U.S. economic policy faces three big tests over the coming months.”

“First, the Fed has to make sure interest rates rise without incident, and that task is far from straightforward. The Fed will be trying to normalize monetary policy in conditions that are anything but normal.”

“Second, the Fed must guide investors on what to expect next. This poses difficulties, too. The Fed needs to insist — and keep insisting — that there’s no fixed schedule for further rate increases, that data not dates will drive policy and that rates can go back down if need be.”

“The third challenge is not for the Fed but for Washington’s other policy makers … The Fed cannot carry the whole burden of macroeconomic policy, least of all under current conditions. The recovery is far from robust; despite the fall in headline unemployment, there’s little sign of wage or price inflation. It would be foolish to rule out new economic setbacks.”

“What else is there? The answer is fiscal policy … Yet in its protracted negotiations over spending measures and its endless back-and-forth on tax policy, Congress never so much as considers the macroeconomic dimension.”

The Reason Behind the Obamacare Premium Increases

Sarah Kliff in Vox: “Insurance markets are complicated. But the story of Obamacare’s 2016 premium increase is actually pretty simple: Many health plans — even those with decades of experience selling insurance — underestimated how sick health law enrollees would be.”

“This meant that in 2014, many insurers spent more paying out medical bills than members paid in premiums. Premera Blue Cross Blue Shield of Alaska lost $9 million covering just under 8,000 Obamacare enrollees that year. In Colorado, Rocky Mountain HMO found medical bills to be about 36 percent higher than premiums.”

“Now insurers are raising their rates to make sure premiums do cover claims. In some states, that means double-digit rate hikes.”

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“Insurance plans are likely going to watch 2016 to see whether enrollment continues to increase, which would be a sign of healthier consumers entering the market after sitting out earlier sign-up periods.”

“‘Enrollment has to grow to make the market attractive,’ Kaiser’s Levitt says. ‘If it plateaus, some might think twice about participating.'”

What Happened to America’s Middle Class?

City Lab: “America’s middle class has been steadily shrinking since 1971, and now this segment of the U.S. population is around the same size as the layers above and below it combined, a new analysis by Pew Research Center finds. It’s ‘a demographic shift that could signal a tipping point,’ Pew says.”

“In 2015, middle-income Americans (adults in a three-person household with annual income between $42,000 and $126,000) made up about half of the U.S. population, down steadily from 61 percent since 1971. In absolute numbers, this middle-income band now contains around 120 million people, which is almost the same as the total number of Americans in the other economic tiers combined (121 million).”

“The uppermost tier is also getting a larger slice of the proverbial pie than it was before, both because it now contains more people and because these people are rapidly making more and more. In 2014, almost half the total income in the U.S. went to this relatively small share of the population, compared to 29 percent in 1970.”

What’s Next for the Fed After the Anticipated Rate Increase?

Ylan Q. Mui in The Washington Post: “The Federal Reserve is widely expected to raise its benchmark interest rate this week for the first time in nearly a decade … Raising rates, however, is only the first step in getting the economy — and Fed policy — back to normal.”

“After deciding to increase rates, the first challenge facing the Fed is exactly how to do it.”

Setting a target for the federal funds rate “will prove too unwieldy now that the Fed has amassed a balance sheet of more than $4 trillion. Instead, the central bank hopes to manage the fed funds rate by changing two other rates: the interest it pays to banks for reserves held at the Fed and the amount it pays other financial institutions, such as money market funds, for short-term trades known as reverse repurchase agreements. The former is expected to act as a ceiling on the fed funds rate; the latter a floor.”

“Even with a gradual pace of increases, the Fed’s benchmark rate may not return to its historical long-run average of 4 percent. The Fed’s fall projections fell just shy of that goal at a median of 3.5 percent. Some economists believe that the stopping point could be even lower, due to the double whammy of a slowdown in productivity and a shrinking workforce that have lowered the speed limit for the American economy.”

Where do the Brainiest Americans Live?

Citylab: “While nearly 40 percent of Americans have a college degree and about a third of workers are members of the creative class, just 11 percent of adults 25 and over have a graduate or professional degree. But where exactly are these super-brains located?”

“To get at this, my Martin Prosperity Institute (MPI) colleague Karen King used data from the 2011-2013 American Community Survey to identify the geography of the extremely highly educated across all 381 U.S. metros. MPI’s Isabel Ritchie made the maps, and we separated out the results for large metros with over one million people.”

“Washington, D.C., tops this list of large metros with 23 percent of residents holding an advanced or professional degree. Following closely behind are San Jose, Boston, San Francisco, and Hartford. Baltimore (home to Johns Hopkins), New York City, Raleigh in the North Carolina Research Triangle, Denver, and Rochester round out the top ten.”

The Economy Is Better But Still Has Problems

Neil Irwin argues that despite recent good news, there are still weaknesses in the economy.

“The thing about the new jobs numbers is that, solid though they may be, they are solid in exactly the same way that most jobs numbers have been solid for the last couple of years. They don’t show the kind of progress on some key weaknesses in the economy that the Fed might like to see if it’s going to move faster, rather than slower, in the path of rate increases.”

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“The new numbers don’t offer much sense of progress. The ratio of the population working was unchanged at 59.3 percent, which is only a tenth of a percentage point higher than it was a year earlier.”

“And average hourly earnings rose 0.2 percent, which was what forecasters expected but also doesn’t suggest that wage inflation is starting to break out. That number is up 2.3 percent over the last year, which is hardly the stuff that would fuel fears of excessive inflation.”

“At the Fed, those arguing that it’s time to wean the economy from its reliance on zero rates are likely to win the day. But in terms of the day-to-day experience of American workers and potential workers, the new numbers point to how much repair there is left to take place.”

Will Obamacare Really Kill Jobs?

Fiscal Times: “The Congressional Budget Office released a new working paper this week predicting that the Affordable Care Act will have a negative effect on the size of the U.S. labor supply over the coming decade.”

“Republican foes of Obamacare and some news organizations seized on the CBO report as evidence that the controversial health care law would eliminate or ‘kill’ 2 million jobs by 2025.”

“But the CBO isn’t looking specifically at job loss. It’s making projections about aggregate hours worked and the total number of workers who choose to stay in the workforce: ‘The labor force is projected to be about 2 million full-time-equivalent workers smaller in 2025 under the ACA than it would have been otherwise,’ the agency wrote. That is, fewer work hours will be logged and paid for, the rough equivalent of 2 million jobs. But those two things — reduced hours across the economy and total jobs — are different things. And it’s important to note that the reduction in hours worked is relative to the number of hours that would have been worked in the absence of the law; in either case, total work hours continue to grow into 2025, it’s just a matter of by how much.”

Where Americans Have the Most Student Debt

City Lab: “The collective student loan debt in America stands at $1.2 trillion. That’s ‘the second-largest class of consumer debt behind mortgages,’ according to a recent government report, and it’s growing. An analysis of this data released in September found that this amount is four times what it was 12 years ago. This year, the average student debt in the country surpassed $35,000—the highest it’s ever been in U.S. history.”

“A new interactive map takes a geographic look at the troubling trends. Built by the Washington Center for Equitable Growth, Generation Progress, and Higher Ed, Not Debt, the map tracks student loan balances, delinquency rates, and median income by zip code.”

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Krugman: The U.S. Economy Doesn’t Look So Bad

Paul Krugman says “the U.S. Economy isn’t doing too badly. So what did we do right?”

“The answer, basically, is that the Fed and the White House have mostly worried about the right things. (Congress, not so much.) Their actions fell far short of what should have been done; unemployment should have come down much faster than it did. But at least they avoided taking destructive steps to fight phantoms.”

“The result of these not-so-bad policies is today’s not-so-bad economy. It’s not a great economy, by any measure: Unemployment is low, but that has a lot to do with a decline in the fraction of the population looking for work, and the weakness of wages ensures that it doesn’t feel like prosperity. Still, things could be worse.”

“Fed officials believe that the solid job growth of the past couple of years — which happened, by the way, as Obamacare, which conservatives assured us would be a job killer, went into full effect — will continue even if rates go up. I’m among those who believe that America is facing growing drag from the weakness of other economies, especially because a rising dollar is making U.S. manufacturing less competitive. But those officials could be right, in which case waiting to raise rates could mean some acceleration of inflation.”