Tag Archives: stimulus

Payrolls

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Karim writes:

  • Better than expected overall; private payrolls up 67k, consistent with recent trend.
  • Net revisions up 123k (July private payrolls revised from +71k to +107k)
  • UE rate up from 9.51% to 9.64%
  • Hours flat but July revised up from 0.3% to 0.4%
  • Avg hourly earnings up 0.3%
  • Private payroll strength even more impressive considering -61k swing in mfg employment (totally out of synch w/ism employment indicator)
  • Median duration of unemployment down to 19.9 weeks, from 22.2 last mth and high of 25.5 in June
  • U6 UE measure up to 16.7% from 16.5%

Conclusion: Beneath the surface, solid gains this quarter in the components that drive personal income: jobs+wages+hours. Politically, the headline UE rate and the U6 measure are a problem and will make the various fiscal stimulus measures more likely. So really may be best of both worlds for economy.

Agreed!

UE up as people reenter the labor force, which happens as jobs open up in this part of the cycle.

And low/negative productivity last quarter could be telling us businesses critically understaffed due to uncertainty are finally being forced to get to where they need to be to service current sales/client bases. So hiring rises faster than output for a while. This is also a good sign as that supports personal income and consumption.

There never was a double dip in the cards. It would have had to come from an outside shock. The federal deficit now seems more than large enough to continue to support modest top line growth, and any further increase will offer further support.

The ongoing federal deficits have also largely repaired household balance sheets, adding income and savings of financial assets to the non govt sectors, and continue to do so.

This sets us up for the ‘hand off’ to private sector deficit spending (credit expansion) taking over from govt sector deficit spending, usually via cars and houses. Car sales seem to already be improving, and housing has nowhere to go than up as well. Starts could double and still be at historically low levels.

So the outlook remains very good for equities, not so good for rates, and not so good for large share of the population that needs to work for a living, as most of the incremental wealth flows to the top.

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Obama Weighs Spending to Stem Job Cuts Without Second Stimulus

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This does not do much for ‘jobs’ but it is pretty good for financial markets.

Low wages, high productivity growth and a bit of top line growth makes for happy management and investors. And a continuing flow of real wealth from the bottom to the top.


Obama Weighs Spending to Stem Job Cuts Without Second Stimulus

By Mike Dorning and Nicholas Johnston

Oct. 6 (Bloomberg) — President Barack Obama is considering a mix of spending programs and tax cuts to respond to widening job losses that would amount to an additional economic stimulus without carrying that label.

Contradictory Missions

In considering the measures, the administration has to reconcile two potentially contradictory missions: combating rising unemployment through government intervention and the need to hold deficits down.

White House Press Secretary Robert Gibbs yesterday highlighted those political sensitivities, saying there “were no plans” for a second stimulus like the $787 billion package passed earlier this year. Instead, he said, the administration is looking at “extensions” of existing programs.

The Obama administration isn’t near a final decision on additional measures, said Jen Psaki, a White House spokeswoman.

“As they continue to explore the best options, any notion that we are any farther along than preliminary discussions about new proposals is wildly inaccurate,” she said.


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EU Officials Say Stimulus Exit Unlikely Before 2011

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They are worried raising rates will further support the euro.

And they all seek a quick return to ‘fiscal responsibility’

This all should insure the Eurozone remains characterized by high unemployment and elevated systemic risk


EU Officials Say Stimulus Exit Unlikely Before 2011

By Svenja O’Donnell and Chris Burns

Oct. 1 (Bloomberg) — European Union finance chiefs said the pace of recovery means they probably won’t withdraw stimulus measures before 2011 as they grapple with rising unemployment and the effects of the euro’s gains.

“We look with concern to the exchange-rate developments and the impact of our ability to export,” Portuguese Finance Minister Fernando Teixeira dos Santos said today in an interview with Bloomberg Television at a meeting of European finance chiefs in Gothenburg, Sweden. “But we should expect markets to react appropriately to the fundamentals of our economy.”

The finance officials are discussing the form and timing of exit strategies after spending billions of euros in emergency measures to drag the economy out of its worst recession in 60 years. While there are signs the recovery is under way, it may not be sustained enough to permit a withdrawal of these measures before 2011, ministers said.

“We have to prepare exit strategies, of course, and we shall see if these strategies can be implemented then in 2011,” Luxembourg’s Jean-Claude Juncker said after leading a meeting of euro-area finance chiefs today. “We shall see whether this situation becomes more stable by then.”

The euro, which has gained 13 percent in the past seven months against the dollar, traded at $1.4544 at 2:10 p.m. in London today, down from $1.4640 in New York yesterday.

Euro’s Advance

The ministers discussed the euro’s advance in preparation for a Group of Seven meeting in Istanbul this weekend, European Central Bank President Jean-Claude Trichet told a press conference.

“We had a discussion as usual preparing for the meetings in Istanbul,” Trichet said. “There is very strong sentiment that we have a shared interest in a strong and stable international financial system and excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability.”

Trichet also said exit plans should be implemented once the recovery is under way, “in our own view the latest in 2011,” he said.

The euro-area economy may expand 0.2 percent in the current quarter and 0.1 percent in the three months through December, the commission said on Sept. 14. In the second quarter, the economy contracted just 0.1 percent as Germany and France returned to growth.

Jobless Rate

Europe’s unemployment rate rose to a 10-year high of 9.6 percent in August, data showed today, as companies continued to cut jobs even as the recession eased. The European Commission forecasts the euro-area jobless rate will reach 11.5 percent next year.

“It’s clear we have to keep economic policy very expansionary in the coming period to really be sure of establishing a recovery,” Swedish Finance Minister Anders Borg said today. “At the same time, this is the time to start designing and communicating exit strategies,” he said, adding that it’s “clear that fiscal policy in Europe is not sustainable.”

France’s budget deficit will widen next year to a record, the government projected yesterday, as President Nicolas Sarkozy cuts business taxes and spending on jobless benefits climbs. Spain this week posted the largest budget shortfall in at least nine years.

This afternoon the euro-area officials were joined by finance ministers from the rest of the European Union as well as central bankers from the 27 EU nations. Included on their agenda is the banking industry and financial- supervision proposals. The Committee of European Banking Supervisors is due to present the results of stress tests carried out on the banking industry.

Reducing Deficits

Officials should focus on reducing deficits over raising interest rates, Jean Pisani-Ferry, director of Bruegel, a Brussels-based study group, said in a presentation to ministers in Gothenburg today.

“In view of the public finance costs of large deficits, budgetary consolidation should be given priority over monetary tightening,” Pisani-Ferry said in the report, co-written with Juergen von Hagen and Jakob von Weizsaecker. “For this to succeed, governments need to start fiscal consolidation swiftly in 2011 with the withdrawal of the stimuli.”

This afternoon the euro-area officials were joined by finance ministers from the rest of the European Union as well as central bankers from the 27 EU nations. Included on their agenda is the banking industry and financial-supervision proposals. The Committee of European Banking Supervisors is due to present the results of stress tests carried out on the banking industry.


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Trade/FOMC Preview/China Exports/Stimulus hangups

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Karim writes:

Trade: Exports up 2%, Imports up 2.3%. Imports ex-petroleum down 1% and consumer goods imports down 4.8%. Sector strength mainly in industrial goods (restocking), but indicators of final demand still look weak.

Don’t look for dramatic changes to FOMC statement; major focus will be on Treasury purchase language.

1) Econ assessment will turn slightly more positive; May mention signs of a nascent recovery, though underlying demand likely to remain weak for the foreseeable future. Inflation will remain subdued.

2) Exceptionally low FF rate for an ‘extended period’ will remain. I’d expect this phrase to be dropped about 3-4mths before they’d actually hike, with the first move possibly being a hike in the rate they pay banks on excess reserves.

3) Likely to indicate that Treasury purchases will not continue once the $300bn level has been reached, though they may restart the program in the future if needed. Language on other credit easing programs to stay intact.

China’s export model showing little bounce (latest data last night)

Some hangups with the stimulus package (courtesy of American General Contractors):

“President Barack Obama’s stimulus spending has run into a problem: A shortage of General Electric Co. water filters,” Bloomberg News reported on Thursday. “GE makes them in Canada. Under the program’s ‘Buy American’ rules, that means the filters can’t be used for work paid for by the $787 billion fund. Contractors are searching the U.S. in vain for filters as well as bolts and manhole covers needed to build wastewater plants, sewers and water pipes financed by the economic stimulus. As officials wait for federal waivers to buy those goods outside the U.S., water projects from Maine to Kansas have been delayed….the Environmental Protection Agency, which administers the water funding, has granted six waivers and has 29 petitions pending….The rules affect water projects most because highways and bridges have been constructed under Buy American regulations for the past 30 years, and not much stimulus money has been spent so far on public housing and schools, said Chris Braddock, the U.S. Chamber of Commerce’s associate director for procurement.”

“Gun-shy [school] administrators might undermine a federal stimulus program that encourages school construction by helping districts pay down debt,” the (Wisconsin) Daily Reporter reported on Monday. “Some district leaders say they gladly are accepting a piece of $125 million in no-interest bonds but are reluctant to invest the savings in new projects. ‘The climate out there is terrible and with the cuts made in the state budget, it’s just really difficult right now,’ said John Whalen, president of the Sun Prairie Area School District Board of Education. ‘I don’t anticipate this will encourage us to do more projects,’ he added. The district received $23 million in federal bonding, more than any other district in the state, though the bonding did not encourage additional construction. Sun Prairie used it to help pay off the $30 million it put on taxpayers for construction of a new high school and conversion of the old high school into a middle school. Both schools are scheduled to open in fall 2010. While Sun Prairie stands pat, other districts might jump at the opportunity. The School District of La Crosse received $6.6 million in bonds to help pay off debt from $18.5 million in expansion, renovation and upgrade projects.”


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IMF Says U.K. Can’t Afford 2010 Stimulus

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This says a lot more about the IMF than the UK:

IMF Says U.K. Can’t Afford 2010 Stimulus, Telegraph Reports

The U.K. is alone with Argentina as the only members of the Group of 20 that cannot budget for temporary spending increases next year to aid economic growth, the Sunday Telegraph cited the International Monetary Fund as saying. The Washington-based fund presented a paper at a G-20 meeting in Basel saying the average fiscal stimulus among member countries will be 1.6 % next year, the Telegraph reported. Britain’s fiscal position has left it unable to budget for an increase in expenditure or tax cuts in 2010 to boost the economy, the Telegraph cited the IMF as saying.


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Obama on the ‘stimulus’ package

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Obama Says Economic Stimulus Plan Worked as Intended

By Edwin Chen

July 11 (Bloomberg) — President Barack Obama said his $787 billion stimulus bill “has worked as intended” as he pushed back against Republican criticism that his recovery program has failed to rescue the economy.

What kind of policy is intended to keep unemployment rising for the next year?

The president either doesn’t understand the monetary system or is totally insensitive to the plight of his electorate.

“It has already extended unemployment insurance and health insurance to those who have lost their jobs in this recession,” Obama, who is traveling today in Ghana, said in his weekly Saturday radio and Web address. “It has delivered $43 billion in tax relief to American working families and business.”

It is sustaining over 10 million people rotting in the unemployment lines as more and more short term unemployed deteriorate into irreversible long term unemployed, lives and families are ruined, and untold trillions of useful output is irrevocably lost.

Obama spoke after stocks fell for a fourth week on concern that an economic recovery will be delayed. A government report last week showed that employers cut 467,000 jobs in June and the unemployment rate rose to 9.5 percent, the highest since 1983.

The weakening labor market is taking a toll on Obama’s popularity. A survey by Hamden, Connecticut-based Quinnipiac University released July 7 showed 49 percent of Ohio voters approved of Obama’s job performance, down from 62 percent in a May 6 poll. The disapproval figure for Obama was 44 percent, up from 31 percent in May.

Either he doesn’t care about his numbers or doesn’t know how the monetary system works.

Or is playing politics with our lives figuring if things improve towards the end of his term he will get re elected.

Obama, in his speech, said the stimulus program is helping state governments save jobs. Were it not for the program, the president said, “state deficits would be nearly twice as large as they are now, resulting in tens of thousands of additional layoffs — layoffs that would affect police officers, teachers, and firefighters.”

True, and with the right per capita distribution to the states and a payroll tax holiday unemployment would have quickly fallen back towards prior levels of 5% or less.

In asking for public patience, Obama said the recovery act “wasn’t designed to restore the economy to full health on its own, but to provide the boost necessary to stop the free fall.”

Enacted in February, the bill “was designed to spur demand and get people spending again and cushion those who had borne the brunt of the crisis,” the president said.

He doesn’t understand that it’s the current fiscal balance that is keeping demand down, though he’s correct that it all would be even worse if there hadn’t been any adjustment.

Obama said the measure “was not designed to work in four months — it was designed to work over two years.”

Why? What is the advantage to the population of a strategy like that???

The spending plan will “accelerate greatly” through the summer and autumn, creating “thousands more infrastructure projects” that will lead to additional jobs, he said.

And still not enough to make a dent in unemployment, lost output, along with all the collateral damage.

‘Right Direction’

“We’re moving in the right direction,” Obama said.

Agreed.

“We must let it work the way it’s supposed to, with the understanding that in any recession, unemployment tends to recover more slowly than other measures of economic activity.”

With the understanding that prior administrations were in over their heads as well.

In a Bloomberg interview last month, the president said he expected unemployment rates to exceed 10 percent.

Not enough for him to care enough to take further action to remove the current fiscal drag of government policy.

In his radio address, Obama also renewed his commitment to comprehensive health-care legislation that expands insurance coverage while cutting costs. He also vowed to address long-term entitlement overhaul.

The pledge to cut costs and make it pay for itself ensures it will not add to aggregate demand and not help shrink the output gap.

Earlier this week, Vice President Joe Biden also defended the Obama administration’s efforts to rebuild America’s economy, while expressing frustration with those who say progress is too slow.

“Remember, we’re only 140 days into this deal,” Biden said in a speech in Cincinnati. “It’s supposed to take 18 months.”

‘Supposed to’ ???!!!

Who are these people???


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Re: Chinese stimulus

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(email exchange)

Yes, thanks, as expected!

>   
>   On Tue, Mar 17, 2009, at 8:47, wrote:
>   
>   Looks like China is interested in prosperity as well, just leaving the Europeans behind!
>   

Last November China announced a CNY4trn stimulus package. The first part of the money started to be spent at the end of February on a high speed rail network forming a triangle between Shanghai, Hangzhou and Nanjing, cutting travel times between the cities of up to 8 hours down to just 1 hour. Trains will run at upto 350km an hour – (do you realise the fastest train in the States is between New York and Boston, that for a 5 minute period only gets up to 80mph).


Overall the country will invest CNY600bn in railways this year, and a minimum of CNY600bn a year until 2012.


When you look at infrastructure projects on the ground like this, and combine it with the development in the local bond market (both local authority and corporate bonds), and the major international development with ASEAN +3 (free trade area next year plus the trial renminbi bloc), the economic and financial development with most of the former USSR in terms of the Shanghai Cooperation Organisation, and the push towards a free trade agreement with the Gulf Cooperation Council, is it really that difficult to see China achieving the 8% GDP growth target that it is aiming for?


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Stimulus package

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(email exchange)

>   
>   Mauer wrote:
>   
>   My main worry about the efficacy of the fiscal
>   stimulus–aside from the international
>   spillovers in case it is not supported by equally
>   ambitious fiscal plans elsewhere–is this:
>   households that face considerable employment
>   uncertainty, and hence about their to future
>   income prospects, are unlikely to go on a big
>   spending spree. Just as banks are hoarding
>   cash, households will try to preserve wealth
>   by increasing saving at the margin. This
>   reduces the marginal propensity to consume,
>   and renders the fiscal boost rather ineffective.
>   
>   Why not try to deal with the looming
>   unemployment problem, and the huge sense of
>   risk and uncertainty it creates, more directly?
>   What I have in mind is subsidizing employment
>   directly by providing employers incentives to
>   keep people on the job.
>   

I look at it this way- if people want to work and earn/save/not spend their paychecks, the output can be directed to public goods and services (goods and services not re-offered for sale) without ‘inflation’.

This is done via federal deficit spending, which adds exactly that amount to non-government ‘savings.’

Trying to increase output that needs to be bought on the market when the desire to consume isn’t there requires that much more deficit spending to eventually induce more spending.

This can/does work, and with government solvency not an issue, it’s a viable political option.

However, seems public purpose is better served via deficit spending, producing public goods and services when the desire for private goods and services is suppressed?

For a narrow example to make the point, why try to induce more car production and employment building cars and marketing cars when the demand isn’t there due to desires to save rather than spend? Instead employ people to fix the roads and bridges until demand for vehicles picks up?

That said, my best guess is that given more income, spending will go up substantially and in short order, due to delayed purchases due to lack of income.

Warren


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