Manufacturing activity barely grew in July, falling to lowest level since just after recession.
Who would have thought that we could learn how to run an economy from our friends to the North-Canada. If the US instituted some of these things mentioned in the article we would be on the path back to prosperity.
Here are the top financial stories of the day:
1) Concerns about the economy end early Dow rally-From the AP
Leave it to the economy to stop a debt-deal rally.
The Dow Jones industrial average started the day up nearly 140 points after President Barack Obama and congressional leaders said Sunday that a deal had been reached to raise the nation's borrowing limit and avoid a possible debt default.
But another sign that the economy has slowed erased those early gains and took the Dow down as many as 145 points by midday.
The Dow ended the day with a loss of 10.75 points. It was the seventh day of declines for the blue-chip index.
Many investors remained concerned about the direction of the economy. A report from the Institute of Supply Management said that U.S. manufacturing barely grew last month. And on Friday, the government said that so far this year the economy has grown at its slowest pace since the recession ended in June 2009.
The manufacturing index was the first major economic report released in July. Analysts had expected it to show that the economy was expanding.
"This was a shock to the market," said Phil Orlando, chief strategist at Federated Investors. "It clearly offset the emotional strength that we saw in the open from this tentative budget compromise."
Federal Reserve Chairman Ben Bernanke and many economists have said that the U.S. economy would gain momentum in the second half of the year. But the manufacturing report, sluggish overall growth and concern about spending cuts included in the debt deal have cast doubt on that prediction.
The Dow fell 0.1 percent, to 12,132.49. The broader Standard and Poor's 500 index lost 5.34, or 0.4 percent, to 1,286.94. The Nasdaq composite fell 11.77, or 0.4 percent, to 2,744.61.
The S&P index traded below its 200-day moving average of 1,280. Many traders use moving averages as benchmarks for when to buy and sell. Orlando said the S&P could fall to 1,250 or lower over the next few days as investors begin to doubt the strength of the economy.
Health care stocks fell nearly 2 percent, the most of the 10 company groups in the S&P 500 index. United
HealthGroup Inc., Aetna Inc., and St. Jude Medical Inc. fell more than 2.5 percent after the government said it plans to cut Medicare reimbursement rates 11 percent. The cuts are unrelated to the debt deal.
Bond yields fell to the lowest level of the year as investors moved into safer assets. The yield on the 10-year Treasury note fell to 2.75 percent from 2.80 percent late Friday.
The manufacturing report led to a worldwide pullback from riskier assets. The Euro Stoxx 50, an index that tracks blue chip companies in countries that use the euro, fell nearly 3 percent. Oil futures dropped 1 percent to just below $95 a barrel. And gold made up its early losses to remain near $1,625 an ounce.
The latest signs of weakness in the U.S. economy also pushed the dollar lower against the Japanese yen and the Swiss franc, two currencies that traders see as relatively safe bets. The dollar touched another record low against the franc, and reached a post-World War II low against the yen.
Before the ISM report was released, stocks rose sharply largely because President Obama and
Congressional leaders announced Sunday that they had agreed on a deal to raise the nation's borrowing limit ahead of Tuesday's deadline. Investors have been worried that the U.S. might default if a deal wasn't reached. The federal government would be unable to pay all of its bills after Tuesday if a law is not signed.
Among them: interest payments on Treasury bonds, salaries of federal employees and Social Security checks to retirees.
The debt agreement would raise the U.S. debt limit by $2.1 trillion. It would also cut at more than $2 trillion in federal spending over 10 years. Under the bill, a new joint committee of Congress would recommend deficit reductions by the end of November that would be put to a vote by Congress by year's end.
But a vote on the measure had not been scheduled in the House or the Senate by the time the market closed.
Many important details about spending cuts and possible tax increases were to be decided by the new committee, which means it could be months before there's clarity on how the deficit will be reduced.
"The debt agreement was a step in the right direction but probably a small step," said Bob Gelfond, the head of MQS Asset Management, a hedge fund based in New York City.
Others remained concerned that the bill would not cut the deficit enough to prevent a downgrade to the U.S. government's top credit rating. Credit rating agencies Standard and Poor's and Moody's declined to comment about the bill's possible impact on their decision-making process.
"This agreement didn't resolve any of the fundamental differences in the direction of spending and revenues that would address our long-term issues," said Kate Warne, the investment strategist at Edward Jones.
Rising and failing shares were roughly even on the New York Stock Exchange. Volume was higher than average at 4.4 billion shares.
2) Manufacturing growth hits lowest level in 2 years-From the AP
A private trade group says manufacturing activity barely grew in July, falling to the weakest level since just after the recession ended.
The Institute for Supply Management, a trade group of purchasing executives, says its index of manufacturing activity fell to 50.9 percent in July from 55.3 percent in June. That's the lowest reading since July 2009, one month after the recession officially ended. Any level above 50 indicates growth.
Stocks fell after the report was released. They had been trading higher ahead of the report, based on expectations that Congress will approve a deal Monday to raise the nation's borrowing limit.
The index topped 60 for four straight months earlier this year. But manufacturing has stumbled in recent months.
3) Why Canada Is Beating America-From the Wall Street Journal
While the U.S. remains mired in debt and slogs through a subpar economic recovery, Canada is moving ahead steadily. Its unemployment rate peaked at a little over 8.5% and is now 7.4%, and there were no bank bailouts. Real GDP growth is expected to be roughly 3% this year.
Now with the first majority government since 2004, and the first Conservative majority since 1993, the country has an opportunity to vault forward. The Conservatives led by Prime Minister Stephen Harper have a chance to build on the reforms begun under previous Liberal governments that Americans can only look at with envy.
Canada's government, for example, has grown smaller over the last 15 years. Total government spending as a share of the economy peaked at a little over 53% in 1993. Through a combination of spending cuts in the 1990s and spending restraint during the 2000s, it declined to a little under 40% of GDP by 2008. (It's currently about 44% due to the recession.)
Reductions in government spending allowed for balanced budgets and the retiring of debt. Federal debt as a share of the Canadian economy was almost halved from nearly 80% to a little over 40% over the same period.
On the federal level, capital gains taxes in Canada were reduced twice and currently stand at 14.5%. A series of cuts to the corporate income tax beginning in 2001 have seen the rate slashed to 15% from 28%.
Many provinces followed suit by reducing both corporate and personal income tax rates.
But the Conservative government faces two challenges: health reform and taxes.
The unavoidable challenge is the country's health-care system. Negotiations to renew federal transfers to the provinces in support of health care begin later this fall.
Canada devotes a relatively high share of its economy to health care without enjoying commensurate outcomes. Of the 28 countries in the Organization for Economic Cooperation and Development (OECD) that have universal access, Canada has the sixth-highest rate of health spending as a share of its economy.
Canadian health care is unique among the OECD countries with universal access in that Canadians alone depend almost exclusively on government for medically-necessary health care. Simply put, health care is dominated by the government in one form or another. Canada prohibits both copayments and private funding for publicly-insured services. Hospitals are for practical purposes owned and operated by government, and over 98% of physician income is from government.
But Canadians' access to care is poor, despite high spending. The country ranks 20th of 22 OECD countries for access to physicians. Canada's national statistical agency recently reported that 6.6% of Canadians (aged 12 or older) indicated being without a doctor and unable to find one. Canada also ranks poorly on access to technology: 17th for CT scanners and MRIs.
Waiting times for treatment continue to worsen. A longstanding survey by the free-market Fraser Institute recently found that the median wait time between general practitioner and treatment had increased to 18.2 weeks (2010) from 9.3 weeks in 1993 when the survey started.
While the United States moves towards greater centralization of health-care regulation, Canada's Conservatives have an opportunity to give the provincial governments more leeway in delivering and financing health care. Allowing the provinces to become laboratories for different methods of health-care delivery and financing while protecting universal access holds the greatest chance for improving health care and controlling costs.
Uncompetitive tax rates, particularly compared to the U.S., are the country's other major challenge.
Canada's Conservative Finance Minister Jim Flaherty has consistently indicated that lowering personal taxes is a priority. In a recent interview he stated that Canada "should be moving toward a flatter personal income tax system."
Canada's personal income tax rates are relatively high and kick in at comparatively low levels of income. For example, Canada's top federal marginal personal income tax rate (29%) applies to income over $128,800 (in Canadian dollars, or U.S. $135,038 as of July 29). Provincial taxes, which are generally higher than in U.S. states, are added on top of the federal rates. The top federal tax rate in the U.S. is 35%—but it applies to income over U.S. $379,150.
The Conservatives have committed to tax relief once the budget is balanced, which is expected toward the end of their current term. To implement meaningful income tax cuts, the Conservative government will also need to be more proactive with spending reductions. As demonstrated in the 1990s by their Liberal Party predecessors, spending reductions now will result in a balanced budget sooner and an opportunity for large-scale tax relief.
Winning a Conservative majority in Canada was no small feat. The question remains what the Conservatives will do with that majority.
Quote of the Day from Dave Ramsey.com:
A successful man is one who can lay a firm foundation with the bricks others have thrown at him. — David Brinkley
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