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The Times Handles the Trump Tax Cut Framework with Kid Gloves

The Times Handles the Trump Tax Cut Framework with Kid Gloves

There’s been a good bit written about the Trump tax cut framework released just over a week ago.  Most of it points out, as I have here and here, the absurdity of the claims by Trump and GOP spokespeople that this isn’t a tax cut aimed at benefiting the ultra wealthy.  After all, even with few details and no attempt to deal with the really tough issues that would face real tax reform considerations, it is awfully clear that almost everything in the package is designed to make the wealthy even wealthier.

Just a quick review of the way the proposed tax cuts exclusively or primarily benefit the ultra wealthy:

  • elimination of the estate tax, which taxes fewer than 2% of the estates, those that have in excess of $11 million (the couples’ exempt amount) and haven’t used the various trusts and family partnerships to let even more estate value escape tax through valuation gimmicks
    • Not waiting on the tax cut proposal, Trump’s Treasury secretary Steve Mnuchin announced in “Second Report to the President on Identifying and Reducing Tax Regulatory Burdens” (Oct. 2, 2017) a current step to let wealthy people continue to use valuation gimmicks to avoid a fair estate tax, through withdrawal of the Obama Administration’s proposed regulation under section 2704 that would disregard the purported restrictions on certain family-controlled entities in setting estate valuations–a regulation clearly merited because of the ridiculous scams of putting assets in family partnerships in order to claim that they are worth 1/3 of their actual value, even though the partnership can be dissolved afterwards with the full value magically returning.  (I’ll deal with the regulatory changes in my next post.)
  • elimination of the AMT, which imposes tax when the taxpayer would otherwise benefit from a surfeit of regular income tax subsidies (loopholes, tax expenditures, deductions, credits).  For a thorough analysis of the AMT, see A Taxing Matter series of 6 posts, beginning here.
  • reduction of the statutory corporate tax rate for the largest corporations from 35% to 20%, which benefits primarily the highly compensated managers (who receive substantial amounts of stock options as part of their compensation) and big shareholders (who tend to be mainly the ultra wealthy who own most of the financial assets) and does little or nothing to help small businesses, that already pay tax rates of 25% or less
  • creation of a single 25% rate for recipients of all business pass-through income (i.e., from partnerships), which benefits almost exclusively the ultra rich, since small business income is already taxed at 25% or less, while wealthy partners in real estate firms would be taxed at the highest individual rate under current law on their pass-through income, and
  • creation of full, upfront expensing, resulting in a non-economic windfall to businesses that will, again, mainly just increase profits passed on to their wealthy owners. (Although this is purportedly a five-year provision, everybody knows that is just a gimmick to pretend that its impact on the deficit is less than would be admitted if it were permanent.  Everybody also knows that the intent is to make it permanent.)

But there are always journalists who try a little too hard to give obviously bad tax ideas a surface claim to reasonableness.  Apparently, even James Stewart, who writes “common sense” entries for the business section of the New York Times, suffers this vulnerability.  See, for example, his “Tax Cuts are Easy, but a Tax Overhaul?  Three Proposals to Make the Math Work,” New York Times (Oct. 6, 2017), at B1 (digitally titled “Tax Reform that doesn’t bust the budget? I’ve got a Few Ideas, Oct 5, 2017).

I like the print title better, since the Trump Plan has clearly already ditched any real idea of “tax reform” for a wholesale attempt at trillions of dollars of tax cuts mostly benefiting the rich.   There are other things that aren’t so good about the article.

1) Stewart calls the Trump giveaway to the rich “the most ambitious attempt at tax reform in over 40 years.”  That’s simply not correct, because it isn’t an attempt at tax reform and it isn’t really ambitious.

  • Ambitious? How can Stewart call a grab-bag of all the old GOP cuts-for-the-rich gimmicks “ambitious.”  Unless he thinks that conning typical Americans who don’t understand much about taxes into thinking that this is a populist tax reform intended to help the middle and lower income classes and not drop more riches on the already rich makes it ‘ambitious’…..
  • Tax reform?  This isn’t tax reform; it’s just a series of tax cuts.  The framework leaves any thinking about tax reform for somebody else to do–which means it really isn’t intended to happen at all.  Later in the article Stewart quotes Holtz-Eakin (right-wing tax cut advocate) and Kevin Brady (same) about the “ambitious” framework.  They’re gung ho.  Brady says it’s ambitious because they are trying to do what the 1986 reform  effort did in several years in only a few months.  Nope–they are not trying to do what the 1986 reform did.  The 1986 reform was a fully bipartisan effort in both the House and Senate, with  Packwood in the Senate and Rostenkowski  in the House leading lengthy hearings and in-depth study of issues, along with a responsible and active Treasury and CBO providing in-depth analysis of impacts.  Trump and the GOP now intend to pass a tax cut for the rich with only GOP support (unless Trump can bully some election-vulnerable Democrats into going along with the travesty).  And they don’t intend the kind of exhaustive study and consideration that would provide real information on who would benefit and who would be hurt.  We’ve already heard that some GOP want to pay an outside (GOP-friendly) consultant to do the “dynamic scoring” and not the CBO, because they want to be sure that it predicts plenty of growth (a number that is easily manipulable, which is why ‘single score dynamic scoring’ is utterly absurd).

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Scenes from the September jobs report

Scenes from the September jobs report

On Friday I highlighted the difference between the results of the establishment survey and the household survey.  A 2006 paper from the BLS (pdf) explaining the differences in how jobs are counted in the two surveys shows us why:

Interviewers from the Census Bureau contact households and ask questions regarding the labor force status of members of the household during the calendar week that includes the 12th day of the month. The broad coverage of the CPS encompasses … workers temporarily absent from work without pay.

….

[In the Establishment survey, b]usinesses report the number of persons on their payrolls who received pay during the pay period that includes the 12th day of the month. Workers who did not receive pay during the pay period are not counted.

Thus an employee at, say, Barnacle Bill’s Seashore Restaurant, who wasn’t paid during the week of Hurricane Irma because the restaurant was closed, doesn’t get counted in the Establishment survey, but *does* get counted in the Household survey.

Thus, although the household survey is the smaller sample, and thus subject to much more noise, it probably gave us a much truer picture of the labor market for the whole of September.  While the employment gain itself (906 thousand!) was insane, and surely not accurate, the ratios of unemployment, underemployment, and participation in the survey probably picked up the true  trend of improvement.

So let’s look at those.  First of all, here is the U6 underemployment rate.  I’ve subtracted 8.3% from the result, to better show how the present situation compares to the last two expansions:

In the last expansion, the underemployment rate newer got below 7.9%. The late 1990s was a genuine boom.

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The Tax-Cut Framework Won’t Create Jobs and Digs the Inequality Ditch even Deeper

The Tax-Cut Framework Won’t Create Jobs and Digs the Inequality Ditch even Deeper

Marcus Ryu, a self-described Silicon Valley entrepreneur who created, with others, a company now worth $5 billion on the New York Stock Exchange, argues in today’s Op-Ed section of the New York Times that “Tax Cuts Won’t Create Jobs“, NY Times (Oct. 9, 2017), at A23 (the title in the digital edition is different from the print title:  Why Corporate Tax Cuts Won’t Create Jobs).  He is right.

The tax cuts proposed in the framework set out by the Trump administration and Republican leaders in Congress claims to be pursuing economic growth that will benefit ordinary people (Trump’s purported base).  These claims are based in part on claims that  U.S. taxpayers (individual, corporate and individual who owns businesses through partnerships) are much more heavily taxed than taxpayers in other advanced countries.  Trump often points to the statutory tax rate for corporations (35%), which is higher than the statutory rate in most other advanced countries. But Trump usually ignores the fact that the vast majority of corporations (including very profitable U.S. multinationals) pay no or much lower taxes, in part because of the many loopholes and deductions that reduce the income that is taxed.  When one considers the nation’s GDP and the percentage of GDP paid in taxes, it is quite clear that the U.S. is actually one of the lowest taxed of developed countries, which often have income taxes, corproate income taxes and value-added taxes (which the U.S. does not have), as well as specialty taxes such as financial transaction taxes (which the U.S. does not have).  See, e.g., Business Insider, Is the U.S. the highest taxed country? (Sept. 6, 2017).

“[T]he most comprehensive measure by which to judge Trump’s claim, combining corporate and individual taxes paid, is tax burden as a percentage of gross domestic product. It compares how much money in a country is put toward taxes with the economic output of the country.  By this measure, the US has the fourth-lowest tax burden of any OECD country, with only South Korea, Chile, and Mexico ranking lower.” [emphasis added]

Trump has claimed that the proposed cuts in the Trump tax-cut “reform” framework don’t benefit the wealthy and don’t benefit him but are for the middle class and those with less wealth and income.  The only way that claim would work would be if tax cuts that are clearly targeted at the rich (elimination of the estate tax, elimination of the AMT, drastic cut in the rate at which wealthy partners pay taxes on partnership income shares, drastic cut in the corporate tax rate  when most of the benefit of tax cuts to corporations is used to pay dividends or do share buybacks for the wealthy managers and shareholders) had such a dramatic impact on overall economic growth and on sharing of the benefit of the tax cuts with ordinary workers that it made up for the fact that almost all of the benefit goes directly to the very wealthy and almost all of the negative impact (via additional borrowing and deficits) will result in fewer benefits from the poor.  That positive balance is so unlikely from these tax-cuts-for-the-rich that they appear to be just another of the many Trump lies intended to mislead the American people.  See, e.g., Business Insider, Trump tax reform plan just got its first brutal review showing how it would benefit the rich and almost no one else (Sept.  2017) (noting that “Americans among the top 1% of earners would see the bulk of the plan’s benefits, while lower- and middle-class Americans — even most upper-class people — would see few benefits,” citing the Tax Policy Center’s study of the framework).

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Social Justice: Debt, Solidarity or Care?

by Peter Dorman (originally published at Econospeak)

Social Justice: Debt, Solidarity or Care?

Mozi: scholar and activist
 

How do we think about the obligation of social justice?  The dominant American political culture is based on individualist values: you have a right to do whatever you want, and the main problem is how to prevent you and other rights-bearing individuals from getting in each other’s way.  Without extra considerations, social justice in such a universe is a matter of taste and inclination, which is to say charity.  You offer help to others when you feel like it.

But there is an important extra consideration, debt: our freedom in an individualist world is constrained by obligations to repay the debts we have incurred.  This may result from a purely financial transaction like a mortgage or a student loan, but we also recognize what might be called social or moral debts, where one person has benefitted at the expense of someone else and therefore owes compensation in return.  This might not be recognized in a court of law, but it makes an ethical claim that can cause people to feel a sense of obligation.

The you-owe-it-to-them argument is used on behalf of coffee-growers, for instance.  Those on the sipping end of the industry, when they hear stories about how hard these growers work and how little they get for it, rightfully feel obligated to go out of their way to make amends.  They buy fair-traded beans and patronize cafes that share, or seem to share, these same values.  If you benefit by drinking, you are indebted.

Ta-Nehisi Coates, who I discussed in an earlier post, strongly pushes this framing of racial justice in America.  White people benefitted from centuries of un- and underpaid black labor, and from racial domination in general, and in this way they have accrued an immense debt.  Justice will not be achieved until the debt is acknowledged and paid back.

In fact, the “white privilege” language used to analyze racial inequality implicitly draws on this same notion of debt obligation.  Inequalities are assumed to all take the form of zero-sum relationships, where some (whites) have more because others (blacks) have less.  Thus the difference in outcomes can be understood as a debt that the better-off owe to the worse-off.  It’s politically effective insofar as it appeals to this deep theme in our culture, justice as the retiring of debts.

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Scenes from the September jobs report

Scenes from the September jobs report

On Friday I highlighted the difference between the results of the establishment survey and the household survey.  A 2006 paper from the BLS (pdf) explaining the differences in how jobs are counted in the two surveys shows us why:

Interviewers from the Census Bureau contact households and ask questions regarding the labor force status of members of the household during the calendar week that includes the 12th day of the month. The broad coverage of the CPS encompasses … workers temporarily absent from work without pay.

….

[In the Establishment survey, b]usinesses report the number of persons on their payrolls who received pay during the pay period that includes the 12th day of the month. Workers who did not receive pay during the pay period are not counted.

Thus an employee at, say, Barnacle Bill’s Seashore Restaurant, who wasn’t paid during the week of Hurricane Irma because the restaurant was closed, doesn’t get counted in the Establishment survey, but *does* get counted in the Household survey.

Thus, although the household survey is the smaller sample, and thus subject to much more noise, it probably gave us a much truer picture of the labor market for the whole of September.  While the employment gain itself (906 thousand!) was insane, and surely not accurate, the ratios of unemployment, underemployment, and participation in the survey probably picked up the true  trend of improvement.

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September jobs report: establishment survey stinks, but household survey rocks!

September jobs report: establishment survey stinks, but household survey rocks!

HEADLINES:
  • -33,000 jobs lost
  • U3 unemployment rate down -0.2% from 4.4% to 4.2% (new low)
  • U6 underemployment rate down -0.3% from 8.6% to 8.3% (new low)
Here are the headlines on wages and the chronic heightened underemployment:
Wages and participation rates
  • Not in Labor Force, but Want a Job Now:  down -216,000 from 5.844 million to 5.628 million
  • Part time for economic reasons: down -133,000 from 5.255 million to 5.122 million (new low)
  • Employment/population ratio ages 25-54: up +0.5% from 78.4% to 78.9% (new high) 
  • Average Weekly Earnings for Production and Nonsupervisory Personnel: up $.0.09 from $22.14,  to $22.23, up +2.5% YoY.  (Note: you may be reading different information about wages elsewhere. They are citing average wages for all private workers. I use wages for nonsupervisory personnel, to come closer to the situation for ordinary workers.)
Holding Trump accountable on manufacturing and mining jobs
 Trump specifically campaigned on bringing back manufacturing and mining jobs.  Is he keeping this promise? 
  • Manufacturing jobs fell by -1,000 for an average of  +9,800 a month vs. the last seven years of Obama’s presidency in which an average of 10,300 manufacturing jobs were added each month.
  • Coal mining jobs rose by 500 for an average of +133 a month vs. the last seven years of Obama’s presidency in which an average of -300 jobs were lost each month

July was revised downward by -51,000. August was revised upward by +13,000, for a net change of -38,000.

The more leading numbers in the report tell us about where the economy is likely to be a few months from now. These were mainly flat.
  • the average manufacturing workweek was unchanged at 40.7 hours.  This is one of the 10 components of the LEI.
  • construction jobs increased by +8,000. YoY construction jobs are up 184,000.
    • temporary jobs increased by +5,900.

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Part of Patriotism is Paying Taxes

Part of Patriotism is Paying Taxes

As Americans, we pay taxes to allow our government to support important activities that we as individuals or individual businesses either can’t do at all or can’t do as successfully.  Both individuals and businesses benefit from government, so that paying taxes is a wonderful exercise in patriotism.

For individuals, the idea of paying taxes as patriotism may be obvious to many of us, because we think that taxes are an obligation of citizens to support and pay for the many things that the government does that we cannot do ourselves, from running a military defense system to supporting basic research into diseases, helping people and cities and states hit by natural disasters (like Texas and Florida and Puerto Rico), supporting education and research that leads to innovation and economic growth, helping to fund changeovers from dying industries like coal to new and growing industries like solar and wind, preserving areas of public lands for the public rather than allowing them to be decimated by private industry and fossil fuel extraction, preventing huge multinational companies from gouging consumers or polluting our water, land, and air, and the many other things that the government does for the benefit of all Americans.

But the far right in this country has been preaching the opposite for years.

  • There’s a good bit of hypocrisy there, because when Sec. of Health Price (now fired) or current Sec. of Treasury Mnunchin or current EPA Director Scott Pruit wants a comfortable private ride (like Pruitt’s many trips back to Oklahoma to talk to industry magnates one-on-one without any public information, and then de-regulate on their behalf), they love that they can make a slim excuse and take a military jet at the cost of hundreds of thousands of U.S. taxpayer dollars.   Or, like Pruitt, have a “sound-proof room” built for himself (first EPA administrator who thinks he needs it) so he can talk to his industry buddies about how to un-protect the environment without any Americans ever finding out about it.
  • Far right media personalities have made a killing by arguing for tax cuts (that mostly benefit the rich like them) and government shrinkage (of programs that they think they won’t use).
    • Grover Norquist wants taxes to be low because he wants to “shrink the government and drown it in a bathtub.”  That idea has proliferated on the right to many of the programs that are directed to help the most vulnerable amongst us, such as Medicaid, and to programs that exist to help ensure the Americans of all ages and backgrounds enjoy the right to access to health care and decent standard of living in retirement, through Medicare and Social Security. Not surprisingly, Norquist has stated that including a VAT in the U.S. system would be “like shards of glass on a pizza” (see this link) –even though almost every developed country has a VAT as well as an income tax (which is one of the reasons that the comparisons of corporate tax rates is so misleading–it is comparing apples (only an income tax) to oranges (an income tax AND a VAT and usually other taxes as well, such as financial transaction taxes).
    • Rush Limbaugh supports Trump’s tax-cuts-for-the rich ideas.  See “What I was Told About the Trump Tax Plan–and What I Think About It“, The Rush Limbaugh Show (Sept. 28, 2017).  He spouts one falsehood after another about them:  that they are not trickle-down (of course they are), that they aren’t harmful for the poor (of course they are); that they will allow 99% of Americans to file their tax forms on a postcard just because the framework reduces the number of tax rates (absurd:  reducing the number of tax rates  has just about nothing to do with reducing the complexity of the Code for the vast majority of American taxpayers, who already file a simple form because they have mainly wage income that is withheld at the source).  And  no matter how much Rush Limbaugh claims that reducing the corporate tax rate, creating a low tax rate for partnership pass-through income, getting rid of the estate tax and getting rid of the AMT aren’t benefits for the rich (because, he says, Trump has insisted that the changes aren’t supposed to benefit him), the fact is that they are benefits for the rich and the Trump clan clearly will especially benefit, probably to the tune of hundreds of thousands annually and billions upon Trump’s death.  Limbaugh is quite simply just plain wrong.  Because, you see, although rates matter (and we should have a top tax rate much HIGHER than our current top tax rates), the changes that the GOP Six are proposing in the framework are specifically intended to, and do, provide enormous tax cuts to the ultra wealthy.  That’s because the marginal statutory rate is just one piece–the real question is what gets taxed, i.e., how is the “taxable income” amount calculated and what special loopholes are built in to benefit the rich (like the 25% partnership pass-through rate).

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A thought for Sunday: of basic decency and humanity, and how the economy is shoring up the GOP

A thought for Sunday: of basic decency and humanity, and how the economy is shoring up the GOP

A few threads of the Trump malAdministration came together this past week.

The latest attempt to overturn Obamacare confronted Trump with a choice between his two main goals: basking in a Trump triumph vs. erasing all of Obama’s programs from the history books (in retaliation for Obama humiliating him at the White House correspondents’ dinner in 2011).

At the beginning of his presidency, Trump opposed the “repeal and run away” Congressional GOP objectives for Obamacare, telling them he wanted a “replacement” plan with more coverage and lower premiums. He wanted, in short, a Trump triumph.

After 3 failures, however, Congress’s 4th try at dismantling Obamacare has no replacement features. Things like guaranteed coverage of pre-existing conditions were stripped away. The bill in essence simply repealed Obamacare, punted the issue to the States with instructions to not even think about enacting something like universal coverage, and gutted Medicaid to boot. In short, it was very much “repeal and run away” (with a fig leaf).

Trump’s support for the bill showed that he will even eschew a Trump triumph if the alternative obliterates an Obama accomplishment.

Another thread of the Trump presidency is its nearly constant failure on the test of basic decency and humanity.

One of the places where it had been safe to avoid the rancid circus of Washington was The Weather Channel. Not this past week, where it more than any other media outlet highlighted the humanitarian crisis in Puerto Rico, which appears to be approaching Katrina x 10. When an outlet as innocuous as The Weather Channel feels compelled to implore Washington to DO SOMETHING! you know that those in power have plumbed a new low in the banality of evil.

I have a feeling, however, that conditions in Puerto Rico are going to get much worse — and maybe finally noticed by the actual news media — before they get better.

Which brings me to the final thread. Polling for Trump has been waxing and waning within a limited range for half a year now. It waxes when there he rails against foreign or domestic enemies, like North Korea or uppity nonwhite malcontents, and wanes when his basic lack of decency and humanity is in the forefront. To wit, here is the latest update from Gallup:

Why hasn’t it sunk any lower?

Paradoxically, Trump and the GOP are benefitting from the pretty decent Obama economy — which is still in place, on autopilot, because the GOP has accomplished exactly zero legislatively on economic matters.

And the ongoing Obama economy at the moment has a 4.4% unemployment rate, is still adding about 150,000 new jobs a month, has real median household income at its highest in a decade, if not forever, and real hourly wages for nonsupervisory workers at their highest in 4 decades. In short, civil society may be going to hell, but the economy? Not too shabby.

Historically, in the absence of either war or civil unrest generating a real death toll that dominates the headlines (like Korea, Vietnam, or the race riots of the late 1960s), an economy with these numbers generates reasonably good numbers for the incumbent political party. The benefit of that — of Obama’s economy — is currently going to the GOP!

But if Trump’s approval is in the 35%-40% range with a decent economy — and the Congressional GOP polling at the worst ever — just imagine what the polling is going to be like when the economy as it must eventually turns down.

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Republicans’ Refusal to Understand Insurance Still Matters

When attempting to repeal and not really replace Obamacare, various Republicans demonstrated opposition to the idea of insurance. They objected that healthy people shouldn’t subsidize the health care of sick people — that is their honest view of health insurance is that they are against it.

I didn’t keep track of recent examples, googled, and have old examples

Paul Ryan (paraphrased — listen to him if you must — I can’t force myself to listen)

“The conceit of Obamacare,” he said at his press conference on Trumpcare, is that “young and healthy people are going to go into the market and pay for the older, sicker people.” That’s why Obamacare is in a “death spiral,” he noted.

Mo Brooks (very blatantly)

Their immediate problem is to explain why they don’t think health insurance should be eliminated entirely. Their much more serious problem (which I hope will be fatal to their ideology) is that they have to explain why it is reasonable to want there to be health insurance, want there to be community rating and coverage of treatment of pre-existing conditions, and oppose equalitarian redistribution in general.

They ususally understand that they must carefully avoid trying to explain how they are for insurance but against community rating (or for community rating but against welfare) because people might decide to support community rating (and universal basic income and who knows what else) if they understood why Republicans oppose them.

Republican logic is that due to the will of the market or God (to the extent that they distinguish Them at all) people get what they deserve, so the poor deserve to be poor and so do the sick. Most grownups (hell most 4 year olds) have noticed that the world doesn’t work that way.

AFter the jump, I will try ot make an honest to God the market effort to make sense of Ryan et al. I hope this shows how dangerous the discussion is to them.

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Ex-hurricane trend in September industrial production is positive

Ex-hurricane trend in September industrial production is positive

As I outlined earlier this week, a reasonable temporary workaround for industrial production unaffected by the recent hurricanes is to average the 4 regional Fed surveys, minus Dallas, plus the Chicago PMI. Over the long run, each +5 in the average of the indexes is consistent with a +.1 in the manufacturing component of industrial production. Because these indexes have been running “hot” this year compared with industrial production, I further suggested subtracting .3 from the result to be confident in a positive trend.

All of these indexes have been reported for September. Here are the numbers:

Empire State: 24.4
Philadelphia Fed: 23.8
Richmond Fed: 19
Kansas City Fed: 17
Chicago PMI: 30.4 (adjusted)*

Interestingly, even the Dallas Fed’s index was positive, at 19.5!

*Since Chicago is on a 0 to 100 scale with 50 being neutral, we subtract 50 from the raw number of 65.2, which gives us 15.2, and then double the result.

The average of the 5 is 22.9.
Dividing that by 5 gives us +.5.
Subtracting .3 gives us +.2.

We can be reasonably confident that underlying trend in industrial production in September, despite the hurricanes, has been positive.

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