Obama to Focus on U.S. Competitiveness, Jobs, Deficit

President Barack Obama said tomorrow’s State of the Union address will focus on cutting the deficit, reducing unemployment and ensuring the U.S. can compete with economic rivals.

In a video to supporters that previews the nationally televised Jan. 25 speech, Obama said the economy is growing, corporate profits are rising and more than 1 million jobs have been created in the past year.

Obama said he will be pivoting from responding to the financial crisis that occupied much of the first two years of his presidency to meeting longer-range economic challenges.

“My principal focus, my number one focus, is going be making sure that we are competitive, that we are growing, and we are creating jobs not just now but well into the future,” Obama said in the video, released over the weekend. “I’m focused on making sure the economy is working for everybody, for the entire American family.”

The need to make the U.S. more competitive with emerging economies such as China and India has been part of the president’s focus since his trip to Asia last November.

Sputnik Moment

During a Dec. 6 speech in Winston-Salem, North Carolina, Obama said the nation faces a “Sputnik moment” -- a reference to the Soviet Union’s launch of the first satellite in 1957, ahead of the U.S.

Obama hosted a state visit last week from Chinese President Hu Jintao, the leader of a nation viewed as both an economic rival and a promising export market. Obama also named General Electric Co. Chief Executive Officer Jeffrey Immelt to head a group of outside advisers called the President’s Council on Jobs and Competitiveness.

With more than half of GE’s revenue coming from outside the U.S., Obama said Immelt “understands what it takes for America to compete in the global economy.”

In the video, Obama said that to maintain a competitive edge, the U.S. must stay the most “dynamic economy in the world” and make sure that future generations can “compete with workers anywhere in the world.”

“Now to do that, we’re going to have to out-innovate, we’re going to have to out-build, we’re going to have to out- compete, we’re going to have to out-educate other countries,” Obama said. “That’s our challenge.”

“The president obviously got the message from the November election,” said Senate Republican leader Mitch McConnell said on the “Fox News Sunday” program. “He’s stopped bashing business and has started celebrating business. It’s about time.”

Political Division

With Republicans newly in control of the House of Representatives, the Democratic president urged both parties to find common ground on economic and security issues “even as we’re having some very vigorous debates.”

“He’s got a real chance to lead here,” House Majority Leader Eric Cantor said on NBC’s “Meet the Press” program. “The question is, did he listen and has he learned from the last election,” the Virginia Republican said.

McConnell, a Kentucky Republican, said on Fox that while his party will look at any proposed increases in education, research and infrastructure, “I don’t think anything ought to be off limits in the effort to reduce spending.”

“Anytime they want to spend, they call it ‘investment,’” McConnell said. “You will hear the president talk about investing a lot.”

Lower Corporate Taxes

Obama may support lowering the U.S. corporate-tax rate and should advance trade deals with Colombia, Panama and South Korea, McConnell said.

“To the extent he actually wants to do some of these things, our answer is going to be yes,” McConnell said.

One of the Obama administration’s biggest challenges is reducing the more than $1.2 trillion U.S. budget deficit. Obama didn’t indicate how he would address the recommendations from his bipartisan deficit commission, including a proposal to cut Social Security benefits.

“We’re also going to have to deal with our deficits and our debt in a responsible way,” Obama said. “And we’ve got to reform government so that it’s leaner and smarter for the 21st century.”

Democratic Senator Richard Durbin said on Fox today, “We can’t be so laser-focused on the deficit that we ignore the obvious, that we are still in a recession.”

Obama’s job-approval ratings have been climbing since the November election in which the Republicans took control of the U.S. House and reduced the Democratic majority in the Senate.

In a Wall Street Journal/NBC News poll conducted Jan. 13- 17, after Obama spoke at a memorial service in Tucson, Arizona, urging a more civil political discourse, his job approval reached 53 percent. Among independents, positive views of his performance surpassed negative views for the first time since August 2009.

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Stocks Drop Worldwide as Oil, Dollar Surge After Egypt Protests

Stocks worldwide plunged the most since November, crude oil posted the biggest jump since 2009 and the dollar rose versus the euro after protesters posed the biggest challenge to Egyptian President Hosni Mubarak’s 30-year rule. Egypt’s dollar bonds sank, pushing yields to a record.

The MSCI World All-Country World Index of stocks in 45 countries lost 1.4 percent at 4:59 p.m. New York time. The Dow Jones Industrial Average fell 1.4 percent to 11,823.70, preventing its longest weekly winning streak since 1995. Oil futures increased 4.3 percent to $89.34. The dollar appreciated 0.9 percent to $1.3611. Yields on Egypt bonds due in 2020 surged 22 basis points to 6.51 percent. Gold futures jumped 1.7 percent, the most in 12 weeks.

Egyptian protesters clashed with police throughout the country and into the night, defying a curfew and setting fire to buildings. Mubarak imposed the curfew after tens of thousands of marchers chanted “liberty” and “change.” After U.S. markets closed, Mubarak said he asked the government to resign. The demonstrations offset data showing that growth in U.S. gross domestic product accelerated in the fourth quarter.

“The unrest in Egypt has people concerned,” said Mark Bronzo, who helps manage over $25 billion at Irvington, New York-based Security Global Investors. “When it comes to the Middle East, there’s worries the unrest is going to spread. It has negative implications for the world.”

Beating Estimates

The Dow had to close above 11,871.84 to post a ninth straight weekly gain. Before today, it had risen 1 percent this week, supported by higher-than-estimated earnings. More than 74 percent of the 183 companies in the Standard & Poor’s 500 Index that reported quarterly earnings since Jan. 10 beat the average analyst projection, according to data compiled by Bloomberg.

Egypt overshadowed evidence the U.S. economy, the world’s biggest, is improving. GDP expanded at a 3.2 percent annual pace in the fourth quarter, up from 2.6 percent during the prior three months, as consumer spending climbed by the most in more than four years.

Investors who pushed the Dow above 12,000 for the first time since 2008 this week may be getting ahead of themselves. It surpassed that level the past two days. More U.S. stocks are trading above their 200-day average price than any time since April, when the Dow began a 14 percent slump. The cost to insure against S&P 500 losses with options has fallen to an almost three-year low.

Too Optimistic

The Dow may have surged too fast following its more than 2,000-point jump since August even as analysts forecast a third straight year of profit growth for the S&P 500, said James Investment Research Inc.’s Tom Mangan and BB&T Wealth Management’s Walter “Bucky” Hellwig. Mangan and BGC Partners LP’s Michael Purves see signs investors are too optimistic about the next few months.

Shares of Ford Motor Co. plunged 13 percent as the automaker said profit slid 79 percent. Amazon.com Inc. declined 7.2 percent after saying earnings may miss analysts’ projections. The Chicago Board Options Exchange Volatility Index, which measures the cost of insurance against losses in U.S. stocks, jumped 24 percent, the most since May.

The NYSE Arca Airline Index lost 4.3 percent after oil jumped. Any disruption to Middle East oil supplies “could actually bring real harm,” U.S. Energy Secretary Steven Chu said on a conference call.

The Suez Canal, which connects the Mediterranean and Red Seas, is located in Egypt. One million to 1.6 million barrels a day of oil and refined products moved north to Europe and other developed economies in 2008 and 2009, according to the Energy Information Administration, the statistical arm of the U.S. Energy Department.

Windows Revenue

Microsoft Corp. had the biggest drop in the Dow, retreating 3.9 percent, after a shortfall in Windows revenue raised concerns about demand. The slump drove the Nasdaq Composite Index to a 2.5 percent decline, the most since August. The S&P 500 fell 1.8 percent, the biggest decrease since Aug. 11.

The dollar and Swiss franc advanced the most in three weeks against the euro as a day of clashes in Egypt between police and protesters spurred demand for the safety of the currencies. Egypt’s pound traded at an almost six-year low against the American currency. Fitch Ratings revised the Middle East nation’s outlook to negative.

The Swiss franc advanced 1.4 percent to 1.2806 per euro. Egypt’s currency traded at 5.8575 per dollar after touching the weakest level since January 2005 yesterday. Turkey’s lira sank as much as 2.1 percent to 1.6171 per dollar, falling along with the currencies of other nations near Egypt. Israel’s shekel declined as much as 1.8 percent to 3.7141.

Treasuries rose, pushing two-year yields to a seven-week low of 0.54 percent. Yields on 30-year bonds had reached a nine- month high of 4.64 percent following the report showing U.S. GDP growth accelerated.

Gold futures for April delivery rose 1.7 percent to $1,341.70 an ounce, the biggest gain since Nov. 4. The metal climbed to a record $1,432.50 on Dec. 7.

--With assistance from Jason Webb, Stephen Kirkland, Paul Armstrong, David Merritt, Michael Patterson, Grant Smith, Dan Weeks and Caroline Alexander in London; Bob Willis in Washington; Whitney Kisling, Elizabeth Stanton, Nikolaj Gammeltoft, Allison Bennett, Cordell Eddings and Yi Tian in New York; Dahlia Kholaif in Kuwait; Margot Habiby in Dallas; Vivian Salama and Ola Galal in Cairo; and Pham-Duy Nguyen in Seattle.

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Harper Pressured to Scrap Tax Cuts as Canadian Lawmakers Return

Canadian Prime Minister Stephen Harper will be under pressure from opposition lawmakers to reverse corporate tax cuts and extend government stimulus as a condition for keeping his government in power when Parliament reconvenes today.

Lawmakers from the opposition Liberals and New Democratic Party have called on the government to scrap reductions in the corporate income tax rate that they say are unaffordable. They want more spending on programs to sustain the recovery.

Finance Minister Jim Flaherty has said he’ll present his next fiscal plan in March. The Conservative government holds a minority of seats in the House of Commons and needs support of one of three opposition parties to pass the budget. If the fiscal plan is defeated, elections would follow.

“If the Conservatives persist in their policy of across- the-board blind corporate tax reductions, it is highly unlikely the NDP caucus will vote for it,” Thomas Mulcair, deputy leader of the party, said in a telephone interview.

Canadian policy makers are dealing with the impact of a strong currency and a slowdown in spending by households and governments that are crimping the economic recovery and slowing job growth. The outlook has led Bank of Canada Governor Mark Carney to stop raising interest rates and Finance Minister Jim Flaherty to scale plans to exit stimulus.

Canada’s dollar has gained 6.6 percent against its U.S. counterpart over the past 12 months.

“Not only did their stimulus fail to create the jobs of tomorrow, it also failed to protect the jobs of today,” Scott Brison, the opposition Liberal Party’s spokesman for finance issues, said by telephone. “Investing in training and education now would do more to create jobs than corporate tax cuts.”

Growth Forecast

Canada’s economy will grow 2.4 percent this year, according to the median estimate of 19 economists surveyed by Bloomberg, down from 2.9 percent in 2010. Growth in the U.S. is projected to accelerate this year to 3.1 percent, from 2.9 percent in 2010.

Flaherty said last week his budget will aim for balance between reducing Canada’s budget deficit and sustaining economic growth. “You don’t want to kill a recovery that’s nascent,” Flaherty, 61, said in a Jan. 27 interview with Bloomberg Television in Davos, Switzerland, where he was attending the World Economic Forum’s annual meeting.

Canada had a record C$55.6 billion ($55.6 billion) budget gap in the fiscal year that ended last March. The shortfall will narrow to C$45.4 billion in the current fiscal year, be cut in half in two years and disappear altogether in 2015, according to Flaherty’s prior fiscal plan, as temporary stimulus projects expire, the government implements cost controls and economic growth and higher payroll taxes boost revenue.

Corporate Taxes

The most contentious issue for opposition parties as Flaherty prepares this year’s budget is the reductions in corporate tax rates that are poised to cost the government more than C$6 billion in revenue next year, according to estimates by the Canadian Manufacturers and Exporters, a lobby group that supports the measures.

Canada cut the federal corporate income tax rate by 1.5 percentage points to 16.5 percent on Jan. 1, and it will fall to 15 percent in 2012 under legislation passed in 2007.

Harper’s government last week held a country-wide campaign aimed at pressing opposition lawmakers to support the 2011 budget. Nine ministers appeared at manufacturing sites across the country, saying the tax reductions will spur job creation and support economic growth. Opposition lawmakers say the government should cancel the cuts and use the funds to pay for health and education programs.

Worker Training

While ruling out a reversal in the tax cut plan, Flaherty has said he would consider funding for the forestry industry and worker training in the next budget as grounds for compromise with other parties.

The Conservatives hold 143 of the 308 seats in the House of Commons while the Liberals have 77, the Bloc Quebecois 47, and the New Democrats 36. There are also 2 independents and 3 vacant seats. Harper has turned to all three at various points since taking power in 2006.

The Bloc Quebecois, the second-largest opposition party in Canada’s parliament, said Harper’s government will need to give the French-speaking province of Quebec C$5 billion in the next budget in order to win its support for the fiscal plan.

Statistics Canada revised its job-creation estimates on Jan. 28, erasing an earlier finding the economy recouped losses from the last recession. The revisions brought fresh calls from opposition lawmakers for Harper to rework his stimulus plan.

According to the revised figures, employment fell by 2.5 percent, or 427,900, from its peak in October 2008 to July 2009. Between July 2009 and December 2010, the economy created 398,000 jobs. The changes mean December employment levels were 0.6 percent below the previous estimate, Statistics Canada said.

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