Sunday, April 07, 2013

Higher Tax Rates Not Sequestration More Justifiable Reason For Weak Jobs Report

The weak jobs report was cited as a reason investors sold stocks on Friday. More importantly though is answering the question why the jobs report was so weak. Expectations for the employment report were for payrolls to increase in excess of 190,000 and the employment report from BLS reported only 88,000 jobs were created in March.

As soon as the number was reported, nearly all commentators cited sequestration as the primary cause of the weak report; however, only 7,000 government jobs were lost last month. One area that experienced particularly concerning weakness was in the retail segment which saw a loss of 24,100 jobs. Weakness in retail is a concern as consumers account for nearly 70% of economic growth.

From The Blog of HORAN Capital Advisors

In addition to sequestration, Congress and the White House managed to hammer out a deal at the end of last year that averted going over the so-called fiscal cliff. A part of this agreement included tax increases, thus taking money out of the private sector. As the below chart shows, revenue taken in by the government now exceeds the revenue level preceding the financial crisis. These figures represent data through year end and given the higher tax rates, I expect Q1 2013 revenues will continue to increase.

From The Blog of HORAN Capital Advisors

Also, in spite of these higher federal revenues, the growth of the federal debt seemingly grows unabated.

From The Blog of HORAN Capital Advisors

In our estimation, sequestration has had a limited impact on the March employment report. What appears to be having a larger influence is the higher rate of taxation approved by Washington at year end last year. Continuing to take money out of the private sector is not a recipe for a stronger economy and stronger job growth especially when the funds are not used to balance the federal budget.

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