Comment: US budget stalemate not as bad as it looks

ONE casualty of America’s government shutdown is the monthly publication of US jobs figures.

George Kerevan

The September numbers were due out yesterday but the staff of the US labour department have been sent home on indefinite leave, along with 800,000 other federal employees.

ADP, a big private payroll firm, has stepped into the breach, estimating that US businesses added 166,000 jobs last month. Most economists were predicting 175,000 to 185,000 new (non-farm) posts.

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If ADP proves correct, the US recovery is softening. Which means the last thing America needs is a budget impasse, never mind an automatic default on federal debt should a deal not emerge by 17 October.

We’ve been here before, of course – in 2011 to be precise. Wise heads (ie Warren Buffett) are predicting a last-minute compromise. “We will go right up to the point of extreme idiocy, but we won’t cross it,” says Buffet.

Which explains why markets have taken said budget crisis in their stride. True, international currency markets are starting to worry. The euro has shot up in value – despite Berlusconi’s shenanigans – suggesting the single currency is still a safe haven.

Christine Lagarde, the IMF’s managing director, has also entered the fray, warning that a failure to raise the US debt ceiling will derail the modest European recovery. But Europeans often misunderstand the American political process.

A close inspection of what House Republicans are saying – as opposed to listening to President Obama in preaching mode – shows the outlines of a deal are in place. Negotiations remain firmly in the hands of John Boehner, senior Republican in the House and no Tea Party extremist.

Boehner is less interested in derailing “Obamacare” (the President’s legacy health legislation) than in getting left-wing Senate Democrats to agree substantial cuts to the overall deficit.

Think George Osborne and austerity rather than Tea Party nutter.

All of a Twitter over micro-blogging IPO

AT LAST we have the official IPO (initial public offering) filing from Twitter. Cue a media frenzy that Twitter shares will be available to the public in time for Thanksgiving.

Wait a minute. These filings show that last year the micro-blogging site made a loss equivalent to about £50 million on revenues of barely £200m. It has lost a further £43m or so in the first six months of this year. Exactly how will investors make money?

The answer (of course) is that early Twitter investors will be betting on the share value increasing in short order. As the price of Facebook and Linkedin shares have just hit record levels, that’s a reasonable supposition. The downside is that after the IPO, Twitter’s well-paid executives are going to have to bump up ad sales to maximise returns.

True, analysts are predicting Twitter’s ad revenue could hit £800m by 2015, without much effort. But buried in the IPO filing is this nugget: the firm’s average revenue per user in Q2 was less than half that of Facebook.

This means pressure will soon be on to flood the site with more advertising. How will users react to that? For now the big question is: who will follow Twitter’s lead and go public?

Among likely US tech candidates are AirBnB (bedrooms), Uber (hiring private limos), Palantir (big data), Square (mobile payments provider), and HubSpot (marketing software).

Assuming America resolves its budget problems, we could be in for another internet stock boom.