Several Milwaukee-area investment analysts are forecasting U.S. economic growth in 2005, regardless of which candidate wins this November’s presidential election. Although Republican President George W. Bush and Democratic nominee Sen. John Kerry have vastly different economic priorities (see accompanying charts), investment analysts say the nation’s economy is more affected by demographics and market cycles than whether a donkey or an elephant is manning the White House.
Constance Keller, vice president of fixed income for Milwaukee-based Arcataur Capital Management LLC, said the nation’s demographics, which will demand more resources for health care to tend to the aging baby boom generation, and other market factors will be more significant than any politician’s agenda.
"Our outlook for the next six months is based on a belief that
the economy will gradually expand throughout the year and the threat of higher (interest) rates will keep valuations in check," Arcataur stated in its third-quarter outlook. "Election years historically are volatile, with
trading markets demonstrating significant sector rotation. The current leaders of the industrial and energy sectors will need to be monitored for this rotation."
According to Maureen Busby Oster, president and chief investment officer for MBO Clearly Advisors Inc., Milwaukee, the health care sector will thrive in the market after the election, regardless of the November outcome.
Oster said the health care industry would see less overall government intervention with four more years of Bush in office than it would see in a Kerry presidency, so the election outcome could affect stocks for generic drugs and the funding of drug research.
However, Bush is advocating for some government interference by opposing the re-importation of cheaper prescription drugs.
If Kerry is elected, Oster said, Bush’s tax cuts will expire, affecting dividends and corporate taxes.
Either way, along with most analysts, Oster said she is not looking to the White House for investment answers.
"Politicians can say whatever they want, but what they say in elections and what might actually pass through Congress and be signed into law may be very different," Oster said. "The stock market will be happy to have whoever wins the election."
"We tend to think that a lot of what is in the market has to do with who is sitting in the White House, and because of this, the biggest effect the election is having on the market is uncertainty," said Donald Nesbitt, a portfolio manager for Milwaukee-based B.C. Ziegler and Co. "There are a lot of other
things that effect the market, such as the geopolitical
situation in the Middle East and the idea of terrorism, and with the elections coming, there is some disposition. When the elections are over, the market will come back, and we can
look at the fundamentals."
Nesbitt said Ziegler’s economic outlook shows a market rebounding from a
defensive invest-ing mode and decreased spending. The Ziegler outlook predicts increased spending and market strength to continue through 2005.
"Consumer confidence has begun to move higher, driven by rising employment prospects," Ziegler’s third-quarter outlook stated. "Until recently, public sentiment has been depressed by terrorist worries and the overwhelmingly negative press regarding employment prospects. However, payrolls have decisively accelerated in 2004, and perceptions about the labor market are finally improving, driving consumer confidence higher."
Bruce Bittles, chief investment strategist for Milwaukee-based Robert W. Baird & Co. Inc., said money will continue to flow into equities, regardless of which candidate wins the presidential election. According to Bittles, the market traditionally likes an incumbent president to win the election because there is less uncertainty.
"Markets typically do well under both a Democratic and Republican president," Bittles said. "In an election year, when it appears that the incumbent is in jeopardy of losing, the market typically suffers shortly from apprehension over the unknown. But it also does particularly well when there is political gridlock, where there is a Democratic president and a Republican Congress, for instance," Bittles said.
Consumers still drive the marketplace, however, and when it comes to policies, analysts say, investors and consumers will anticipate changes that reflect the winning candidate’s priorities. This concept is known as behavioral finance, Nesbitt said.
"The market could be trading at a fair value, yet psychology drives it in another direction," Nesbitt said. "Investors tend to overreact and under-react to new information, take more information from the past and extrapolate it in an attempt to predict the future. But behavioral finance is an important tool that drives the market."
Bush is focusing his efforts on affordable health care, affordable energy, new markets for American products and services and helping families make intelligent spending, saving and investing decisions.
Kerry is focusing on strengthening the middle class, standing up for workers’ rights, creating good-paying jobs, restoring fiscal responsibility, creating opportunities for small businesses, promoting free and fair trade and promoting a balance between work and family.
"In some regard, both candidates can have ideas and concepts, and neither will have the flexibility to do anything because of budgetary constraints," Oster said.
Bill Priebe, president of Geneva Capital Management Ltd., Milwaukee, said the winner of the election will only stand out in policymaking if he wins with a mandate by a margin of victory of 6 percent or more, rather than the anticipated 2 percent margin.
"We tell all of our clients that the race is close, and in either case of who wins, Republicans would control the house where the bills are directed, leaving Democrats with a narrow margin," Priebe said.
Paul Westphal, senior vice president of investments for Piper Jaffray & Co., Milwaukee, said consumer sentiment is the most important thing for a presidential candidate. If consumers are promised job security and health coverage, for instance, consumers will have more confidence in their economic futures, Westphal said.
"This year, we basically saw investors more conservative closer to election time because they are trying to figure out what sectors are going to be the place to be," Westphal said. "They are still trying to figure out where to place their bets, whether it is in health care, defense, energy … everyone is cautious because it is too close to call."
Bush’s economic plan
George W. Bush is campaigning on a six-point plan to improve the nation’s economy. According to his Web site (www.georgewbush.com), Bush plans to: (1) make health care costs more affordable and predictable; (2) reduce the burden of frivolous lawsuits on the economy; (3) ensure an affordable, reliable energy supply; (4) streamline regulations and paperwork requirements; (5) open new foreign markets for American products and services; and (6) enable "families and businesses to plan for the future with confidence" to make important spending, saving and investment decisions.
According to his Web site, "The president’s 2005 budget proposal commits $23 billion for job training and employment assistance in programs throughout the government. He has proposed more than $500 million for his Jobs for the 21st Century initiative to help prepare U.S. workers to take advantage of the better skilled, higher-paying jobs of the future. This initiative includes $250 million for America’s community colleges to train workers for industries that are creating new jobs today, as well as funding for new secondary education programs to better prepare high school students for the jobs of the 21st Century."
Bush’s stances on other key economic issues:
Small business
Bush is pushing Congress to approve legislation to reduce frivolous lawsuits and the liability costs incurred by small businesses. Other priorities for the Bush administration affecting small businesses include: calling for a National Energy Policy to ensure the nation has reliable and affordable energy sources; regulatory relief to reduce burdensome new rules; opening markets for American goods and services by completing free trade agreements with other countries; ensuring that small businesses can compete fairly for their share of federal government contracts; launching a new initiative with the National Urban League to create an entrepreneurship network for minorities; urging Congress to amend the Fair Labor Standards Act "to provide private-sector workers the same voluntary, flexible scheduling options that government employees enjoy, including comp-time and flex-time."
Global trade
and outsourcing
Gregory Mankiw, chairman of the president’s Council of Economic Advisers, and two other White House officials recently testified before Congress that outsourcing is of long-term economic benefit for the country. "Outsourcing is just a new way of doing international trade. We’re very used to goods being produced abroad and being shipped here on ships or planes. What we’re not used to is services being produced abroad and being sent here over the Internet or telephone wires. More things are tradable than were tradable in the past, and that’s a good thing," Mankiw said.
The president’s campaign Web site states: "The President will not allow the United States to retreat into economic isolationism. American workers and American products are the best in the world, and the president has acted aggressively to open foreign markets to U.S. products and services."
Taxes
Bush is calling for his tax cuts to be extended, saying they will keep more money in the private sector to encourage economic growth and generate additional revenues to help pay down the record national deficit.
Minimum wage
The president is noncommittal on the notion of increasing the federal minimum wage. His Web site states:" The Administration will continue to work with Congress to study the various minimum wage proposals."
Health care
The president has created new health savings accounts (HSAs) and a new prescription drug benefit for Medicare beneficiaries. Bush is proposing: a five-year plan to open or expand community health centers; a tax credit to help workers who lose their jobs due to international trade to obtain health insurance coverage; a national adoption of "minimum standards to make the medical liability system more fair." Bush is opposed to allowing the re-importation of cheaper prescription drugs from Canada.
Kerry’s economic plan
Sen. John Kerry’s campaign has seven economic priorities: (1) strengthen the middle class; (2) stand up for worker’s rights; (3) create good-paying jobs; (4) restore fiscal responsibility; (5) create opportunities for small businesses; (6) promote free and fair trade; and (7) promote balance in work and family. Kerry is calling for cutting the federal deficit in half and for tax incentives to promote creation of new technology jobs.
Kerry’s stances on other key economic issues:
Small business
Kerry is promising "a new era of opportunity for small business." More specifically, his plan calls for: creating a Small Business Opportunity Fund of $170 million to provide more loans and equities to help micro-enterprises, make more venture capital available and increase funding for the Manufacturing Extension Partnership Program; creating a new cabinet level position for small business; creating refundable tax credits for up to 50 percent of small businesses’ costs for providing health care benefits to employees; eliminating capital gains taxes for long-term investments in small businesses; creating a new jobs tax credit for small businesses that create jobs; enacting a new "Small Business Retirement Initiative" to help small businesses offer retirement plans for their employees; and providing tax credits for small businesses that employ members of the National Guard and Reserve.
Global trade
and outsourcing
According to the candidate’s Web site (www.johnkerry.com), "Kerry and (Sen. John) Edwards will end tax breaks for companies that ship jobs overseas, enforce our trade agreements and break down barriers in key export markets. They will also support jobs in America through ‘Buy American’ guidelines and include enforceable labor and environmental standards in new free trade agreements. The Kerry-Edwards economic plan will make America more competitive by using tax cuts to reward companies that create jobs here in America, restoring fiscal discipline and reining in the spiraling costs of health care, energy and tuition."
Taxes
Kerry is calling for the repeal of Bush’s tax cuts for people earning more than $200,000 per year, while retaining the tax cuts "for 98 percent of all Americans." Kerry also is calling for creating tax credits for health care, college tuition and child care for working families.
Minimum wage
Kerry is calling for raising the federal minimum wage from $5.15 to $7 per hour by 2007. "Today, the minimum wage is worth only 33 percent of the average American wage, its lowest level since 1949. The impact of the last minimum wage increase in 1996-97 has been completely eroded by inflation. $5.15 today is the equivalent of only $4.18 in 1995 – lower than the $4.25 level before the 1996-1997 increase," Kerry’s Web site states.
Health care
A key issue of dispute between the two candidates. Kerry says health care is, "a right, not a privilege." Kerry is proposing: to cut family health care insurance premiums by up to $1,000 per year; to create $177 billion in annual tax credits to make health care more affordable for people and businesses that buy into his new Congressional Health Plan; to create a tax credit of up to 50 percent for small businesses that cover low-to-moderate income workers; to expand state-based Medicaid programs to cover families in up to 200 percent of the poverty line; to overhaul the current Medicare bill to allow for the re-importation of cheaper prescription drugs; to end "artificial" barriers to generic drug competition; to require the Secretary of Health and Human Services to negotiate better prices for prescription drugs; to require transparency rules for pharmacy benefits managers that do business with the federal government; and to allocate federal tax dollars to cover catastrophic medical cases, leaving the private sector to insure routine medical procedures, thereby lowering insurance premiums.
The Bush Economy
¥ Jobs: George W. Bush will become the first president since Herbert Hoover to see a net job loss during his administration. The U.S. Bureau of Labor Statistics reports that payroll jobs in the manufacturing sector fell from nearly 17.1 million at the time Bush took office to just over 14.4 million in June, a decline of nearly 2.7 million. Overall, the nation has lost about 1.1 million jobs during Bush’s administration.
¥ Stocks: The Dow Jones Industrial Average fell from 10,578.24 when Bush took office Jan. 20, 2001, to 10,073.05 on Aug. 24, 2004. The Nasdaq Stock Exchange fell from 2,757.91 to 1,836.89 in the same period, and the S&P 500 fell from 1,342.90 to 1,096.19.
¥ Taxes: Bush’s tax cuts have transferred some of the federal tax burden from the richest Americans to middle-class families, with one-third of the cuts benefiting people with the top 1 percent of income, according to a recent Congressional Budget Office report. The CBO report said the top 1 percent, with incomes averaging $1.2 million per year, will receive an average $78,460 tax cut this year, and have seen their share of the total tax burden fall about 2 percentage points to 20.1 percent. By comparison, households in the middle 20 percent, with incomes averaging $57,000 per year, will receive an average cut of $1,090, the CBO report stated. Taxpayers whose incomes range from $51,500 to about $75,600 saw their share of federal tax payments increase, the CBO stated.
¥ Trade deficit: The U.S. trade deficit widened this year, hitting a record $55.8 billion in June as the biggest drop in exports in nearly three years combined with record imports, the U.S. Department of Commerce recently reported. The department said exports fell 4.3 percent to $92.8 billion in June, the biggest decline since September 2001 and the weakest performance since February. At the same time, imports climbed 3.3 percent to an all-time high of $148.6 billion. The trade report showed the trade gap with China widened to a record $14.2 billion, as exports softened and imports soared to an all-time high.
¥ National debt: The national debt has grown to a record $7.35 trillion, or $24,999.52 per U.S. citizen.
¥ Consumer price index: The CPI was 3.73 percent in January 2001 and was 2.99 percent in July 2004.
¥ Wages: Real wages fell in June, bringing the year-over-year decline to 1.1 percent, according to the U.S. Department of Labor. The average hourly earnings of non-farm production workers was $14.27 in January 2001 and $15.70 in July 2004, the department reported.
¥ Unemployment: The national
unemployment rate was 4.2 percent in January 2001 and was 5.5 percent in July 2004, according to the Department of Labor.
September 3, 2004, Small Business Times, Milwaukee, WI
