Markets Respond to Tax Concessions, Job Creation Proposals

Many consider the $350 billion job creation/recovery proposal offered by President Barack Obama as being ‘too little, too late’, nonetheless stocks were boosted by his speech outlining the plan as investors grabbed onto some hope for an increase in the pace of economic recovery – despite the Federal Reserve’s observation that the economy is once again slowing down. The Dow Jones Industrial Average rose to 10,387 (46 points/.045 percent), with the Standard & Poor’s 500 closing at 1,099 (7 points/0.6 percent) and the Nasdaq Composite ending Wednesday at 2,229 (20 points/0.9 percent).

The Federal Reserve‘s warning has led to speculation as to whether the US is heading for another recession, or a double-dip recovery. But although the economy grew at a reduced rate, it is still growing – at least in seven of the twelve districts detailed in the Fed’s Beige Book. Although manufacturing activity expanded and consumer spending increased slightly, the job market remains a cause for concern in most regions, and the job market and job creation are areas that the president focused on in his speech on Wednesday. Other proposed economy boosting measures, which are closely linked with job creation, include tax concessions for businesses that invest in new manufacturing plants and equipment, as well as in R&D. Moreover, the proposal calls for improvement to infrastructure, such as roads and rail, to the tune of $50 billion over the next decade. These new proposals are in addition to previous proposals by the Obama administration to extend tax breaks to US households with an income below $250,000 a year.

Some are rather skeptical about job creation resulting from the establishment of new manufacturing plants and upgraded equipment, pointing out that new technology is moving toward automation rather than relying on manpower. There may be initial job creation in setting up the plants, but then automated technology may very well push people out of their jobs, so it is not likely to be a long-term solution. There seems to be general consensus that more should be done to help Americans deal with loss of income, loss of livelihood and even the loss of a roof over their heads. As increased consumer spending remains the key to economic recovery. It must also be borne in mind that these are still only proposals, which need to find their way through all the legal channels before becoming a reality.