Paper Chase: Increase The Gas Tax
The 321,000 jobs created in November was a faster pace than economists expected, and the most in 3 years. The unemployment rate remains steady at 5.8%. Average hourly earnings are also up 0.4% which is the most in 18 months.
Auto sales were strong this year, and are predicted to top 17 million in 2015 which would be the best since 2003. This has not deterred Uber which is valued at 40 billion dollars after their latest round of fundraising which will allow them to invest in the Asia Pacific Region. Uber expects to create more than 1 million jobs in 2015.
Jobs
The jobs numbers were huge. While we don’t know if this is a long term trend, previous months were revised upwards. If we have sustained job growth of 300,000 monthly, the Fed will have to reconsider their current action.
Already Priced In?
The domestic economy gathering strength. Sectors such as retail and restaurants have been doing well especially with declining oil prices. A lot of the effect may already be baked into the market as it is always a glutton for good news. It would be nice to see the economy outperforming the stock market as we have had years of the reverse.
Shopping Data
There was not the dramatic decline in retail as was originally expected. What we have is a metric problem with obsolete measures such as foot traffic on Black Friday (when the whole month of November was discounted). This is noise amidst structural changes in retail. What we know is that there were 3 million more working this year, and while wage growth is weak, hours worked are up.
The Fed
The Fed will not convince itself that economy is growing fast enough with lurking dangers around the world particularly in China and Europe which seems to be teetering on the edge of a black hole. They will not overreact to one month or even several months of positive numbers numbers. Wages are going up (they couldn’t go any further down), but the Fed has explicitly stated they will not necessarily tighten even with a wage increase though they would want to see one before they did increase. There would be a need if there was a danger of price inflation, but there is none currently.
I have been consistent in stating that the middle of 2015 is the earliest we would see the Fed raise rates. The growth rate is not as strong as what optimists want it to be as this explosion in jobs and gdp will be hard to sustain. I don’t see a recession, but we are not yet at a 3% plus growth rate. I expect the Fed will be data driven and slower to act than how some want them to.
In fact, I suspect the market will be prepared when the Fed raises rates. The Fed will be deliberate when they act. They will change the language in their statement to set the scene. When rates are raised, it will probably feel overdue. there is no need for a knee-jerk reaction. We are pushing 15% growth on the S&P for the year, and while the market has certainly “melted up”, domestic growth will have to validate what the market has declared.
Time to Raise the Gas Tax
The Corker-Murphy Bill proposes to increase the gas tax by 12 cents over the next two years linked to inflation. It would raise 164 billion dollars for the Highway trust fund.
Infrastructure
Our infrastructure is crumbling with roads and bridges in bad to terrible condition. An increase in the gas tax will repair and improve our roads which will save money as commuters, on average, waste 800 dollars a year in congestion and damage to cars and trucks due to poor roads.
Job Creator
In addition to saving money, a safer infrastructure improves our quality of life, and allows us to remain economically competitive. These projects create tens of thousands of middle class jobs paying between $50,000 and $80,000 annually working in factories producing concrete, steel and asphalt as well as sites on bridges and roadsides.
Stimulus
There was not enough money from stimulus for these projects. We have to plan for our infrastructure over 10 years like other G20 countries and not over 1 or 2 year periods. In Pennsylvania, one billion dollars was allotted to improving roads and bridges. This resulted in 6600 bridges that were found to be structurally deficient to be reduced to 4500while creating approximately 24,600 jobs. This was a success, but it wasn’t long enough. it’s no wonder Barbara Boxer and Jim Inhofe (one of the most liberal and one of the most conservative senators)proposed a tripling of infrastructure spending in the stimulus.
Administration
Congress and the President have power over the trust fund. It should not be raided or used for anything other than its original purpose. It’s important that we include mass transit in the funding, for it is a huge help to highways and roads. By keeping people off of them, congestion is reduced. Congestion is economically uncompetitive for business and reduces our quality of life. If cities build their systems so they are nice and easy to ride, people will use them. Since 1980, the increase in vehicles on the road has been 100%. The increase in lane miles has been less than 5%.
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