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The United States economy has slowed considerably this year from a year ago, according to a report from the Commerce Department released on Friday.

The country’s gross domestic product, a broad measure of the goods and services produced across the economy, grew at an annual rate of 1.3 percent in the second quarter, after having grown at an annual rate of 0.4 percent in the first quarter — a number that itself was revised sharply down from earlier estimates of 1.9 percent . Both figures were well below economists’ expectations.

Data revisions going back to 2003 also showed that the 2007-2009 recession was deeper, and the recovery to date weaker, than originally estimated. Indeed, the latest figures show that the nation’s economy is still smaller than it was in 2007, when the Great Recession officially began.

“The word for this report is ‘shocking,’ ” said John Ryding, chief economist at RDQ Economics. “With slow growth, higher inflation and almost no consumer spending growth, it is very tough to find good news.”

The latest figures come as Congress is debating how to put the nation on a more sustainable fiscal path, with measures that some economists worry could further slow the economy and even throw it back into recession. Even in the absence of further austerity measures, some of the government’s current stimulative policies, such as the payroll tax cut, are phasing out, and state and local governments are slashing spending dramatically.

Such fiscal retrenchment was already expected to be a drag on growth in the coming year; the Commerce Department’s report and the Washington debt talks only magnify those concerns.

“There’s nothing that you can look at here that is signaling some revival in growth in the second half of the year, and in fact we may see another catastrophically weak quarter next quarter if things go wrong next week,” said Nigel Gault, chief United States economist at IHS Global Insight. By “things going wrong,” he said he means “if Congress actually starts implementing a massive contraction by suddenly cutting government spending immediately,” as many Republican representatives hope to do.

Prolonging the continuing talks in Washington to raise the amount of money the United States can borrow could also damage prospects for growth in the third quarter, as businesses and families wait to make big purchases until the threat of federal default passes.

“Even if everything gets done, there is still a big hit coming from uncertainty,” said Paul Dales, a senior United States economist at Capital Economics. “Companies have probably put projects on hold and postponed hiring.”

Usually, a sharp recession is followed by a sharp recovery, meaning the recovery growth rate is far faster than the long-term average growth rate; last quarter, though, output grew at only about one-third of the average rate seen in the 60 years preceding the Great Recession. As a result, the country’s output is far below its potential.

Particularly distressing to economists is that consumer spending — which, alongside housing, usually leads the way in a recovery — has been extraordinarily weak in recent quarters. Inflation-adjusted consumer spending in the second quarter barely budged, increasing just 0.1 percent, the Commerce Department report showed.

“People are spending more, but that spending is being absorbed in higher prices, not in buying more stuff,” Mr. Ryding said.

Even the brightest parts of the report were seen as bittersweet. For example, motor vehicle output fell much less than was predicted after the natural disasters in Japan disrupted supply chains. But that means there will likely be a less dramatic bounce back in autos in the coming months, which economists were counting on to raise growth rates later this year.

The economy’s slow growth rate is largely responsible for stubbornly high joblessness across the country, economists say. As of June, 14 million Americans were actively looking for work, and the average duration of unemployment has been reaching record highs month after month. Businesses are sitting on a lot of cash, but are still reluctant to hire because there is so much uncertainty about the future of the economy and whether they will continue to have a steady flow of customers.

Slow economic growth takes not only a human toll, but a fiscal one as well. Tepid output increases mean slower growth in the tax revenue needed to pay down the nation’s debt.

Washington, therefore, has a delicate balancing act in its current debt ceiling debates. Given the unsustainable debt trajectory that the economy is on — primarily because of the country’s growing health care obligations — Congress needs to impose greater fiscal discipline. But imposing too much too soon, or being too focused on the wrong types of spending cuts, could be self-defeating by weakening growth so greatly that tax revenue falls and requires the country to borrow even more.  

Given inflation concerns, it also seemed unlikely that the Federal Reserve will swoop in with another round of monetary easing to goose growth.

“There’s not going to be additional monetary stimulus, and it’s hard to imagine any fiscal stimulus given the current discussion in Washington,” Mr. Ryding said. “So what’s going to get us out of this? The inevitable conclusion is time, and that’s not very satisfactory.”

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Source:  The New York Times

President Obama issued an executive order Monday asking independent regulatory agencies to join the administration’s effort to wipe out red tape in government.

The agencies, which include the Consumer Product Safety Commission, the Federal Trade Commission, the Federal Communications Commission and the Securities and Exchange Commission, were asked to report results to the Office of Management and Budget within 120 days.

The nonbinding order expands a government-wide effort, underway since January, to reconsider ways in which the government has created too much paperwork and regulation for businesses at the risk of hindering economic growth.

Cass Sunstein, administrator of the office of Information and Regulatory Affairs, said in a statement: “With full respect for the independence of the independent agencies . . . the President has asked for their collaboration in the creation of a 21st-century regulatory system, using state-of-the-art tools and smart approaches to protect public welfare while promoting economic growth and job creation.”

The independent agencies were encouraged in February to do their own reviews of regulations, but Sunstein acknowledged that the language had a “vagueness and indirection.”

Sunstein said other agencies, which must follow the executive order issued in January, have come up with 30 plans that “are already benefiting from public scrutiny and input.”

“Millions of hours of paperwork have been eliminated, and millions of dollars have been saved,” he said.

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Source:  The Washington Post

For the second month in a row, employers added barely any jobs in June, showing that the economic recovery has hit a serious speed bump.

With all levels of government laying off workers, the Labor Department reported that employers eked out just 18,000 new nonfarm payroll jobs in June. The already low number created in May was also revised downward to a dismally small 25,000 new jobs, less than half of what was originally reported last month.

Although the government’s survey of employers showed them adding jobs, a separate survey of households showed that more people were out of work than in the previous month, causing the unemployment rate to rise to 9.2 percent.

Economists were stunned since they had been expecting June to show stronger job creation as oil prices eased and supply disruptions receded in the aftermath of the Japanese tsunami and earthquake. Instead, the government’s monthly snapshot of the labor market showed that several sectors, including construction, finance and temporary services, actually shed workers. At the same time, leading indicators like wages and the length of the average workweek, which tend to grow before employers begin adding more jobs, actually contracted.

“Even the wild-eyed optimists out there have nothing to grasp onto in this report except to say, ‘Ah, this too shall pass,’ ” said Joshua Shapiro, chief United States economist at MFR Inc.

Most analysts are not yet forecasting an outright slide back into recession, but at a time when President Obama and Congress are focusing on spending cuts, Europe is in financial crisis and even China’s growth is slowing, there is little expectation of anything other than a prolonged slog for the United States economy.

“Stimulus is fading, and we still have plenty of problems left over from the popping of the bubble,” said Mr. Shapiro. “So it’s going to be a touch-and-go, or a very sub-par, situation for a very long time. The question is a matter of degree in terms of how soft or sub-par it’s going to be, as opposed to whether it’s going to remain that way.”

In remarks in the Rose Garden at the White House on Friday, President Obama went beyond his usual remarks counseling patience on the economy’s long return to health and urged Congress to extend the payroll tax cut passed last December. He also said that legislators should sign pending trade agreements and pass bills that would establish an infrastructure bank and reform the patent process, all measures that he said would help create jobs.

“There are bills and trade agreements before Congress right now that could get all these ideas moving,” President Obama said. “All of them have bipartisan support. All of them could pass immediately, and I urge Congress not to wait.”

Republicans blamed the president and congressional Democrats for the weak job market, with Speaker of the House John Boehner saying that ending the ban on drilling for oil and lifting regulations would spur hiring.

In June, virtually all the job growth came from private companies, which added 57,000 jobs, a striking retrenchment from the average of more than 200,000 jobs a month between February and April. The largest gains came from health care and leisure and hospitality, while manufacturing, which lost jobs in May, was able to add just 6,000 slots in June.

The economy needs to add at least 150,000 jobs a month just to keep up with normal population growth. The protracted stretch of weak-to-moderate job creation over the last two years has left many of the people who lost jobs during the recession increasingly desperate. There are now 14.1 million unemployed, with 6.3 million of them having searched for work for six months or longer. Including those who are working part-time because they can’t find full-time work and those who have stopped looking, the broader unemployment rate is now 16.2 percent, its highest level since December 2010.

Economists said that companies had been battered by a string of bad news throughout the spring and were reluctant to hire. “Sentiment for businesses is on a knife’s edge,” said Omair Sharif, United States economist for the Royal Bank of Scotland. “So that when you get a few negative data points, it’s all doom and gloom.”

Budget strains in the public sector were evident as the federal government slashed 14,000 jobs and state and local governments cut an additional 25,000. Nearly three-quarters of the job losses at the local level came in education.

The bleak Labor Department report gave little sign of a coming turnaround. Temporary help services, which tend to expand before employers hire permanently, fell back by 12,000 jobs.

Janette Marx, senior vice president at Ajilon Professional Staffing, a unit of Adecco, said that while companies in the accounting and finance sector had ratcheted down their requests for temporary workers, they were slowly recruiting permanent hires. Some economists pointed to more recent data showing a pickup in retail sales at chain stores and a rise in an index of business hiring intentions as an indication of future job growth.

In manufacturing, some analysts said that a pickup in auto production in the fall after the Japan-related slowdown, as well as steady growth in business equipment sales, could fuel job creation in the coming months.

Daniel J. Meckstroth, chief economist of the Manufacturers Alliance, a trade group, said that consumers who had been delaying purchases of cars, washing machines, refrigerators and other big equipment that breaks down over time would eventually start buying again as they paid down debts accumulated before the recession.

“Spending was severely cut during the recession,” Mr. Meckstroth said. “Now, the longer you wait, the more pressure there is to make purchases. You can’t postpone some things indefinitely.” Mr. Meckstroth said he expected auto sales in particular to rise in the fall.

But with so many people still unemployed and private-sector wages declining somewhat, consumer demand is likely to remain weak. “Just because Toyota didn’t sell the car in May or June doesn’t mean that they’re going to sell it in September,” said Steve Blitz, a senior economist for ITG Investment Research. He added that consumers were already satisfying their need for autos by buying used cars.

Other signs of economic fragility have emerged in recent reports showing tepid consumer sentiment and factory sales and continued weakness in the housing sector. Economists have also brought down their forecasts for the overall growth of the economy, with some estimating an annual rate of about 2 percent or slightly more for the second quarter.

Mr. Blitz said he saw little sign that hiring would pick up any time soon as online job listings were still flagging. “We’re looking for this type of weak employment numbers to continue through July, August and September,” he said.

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Source:  The New York Times

Recent signs that the economic recovery is flagging have introduced a new tension into the bipartisan budget negotiations, giving rise to calls especially from liberals to limit the size of immediate spending cuts or even to provide an additional fiscal stimulus.

On Thursday, for the first time in two weeks, Vice President Joseph R. Biden Jr. and six Congressional leaders will meet with a new urgency to take up negotiations toward reaching a deficit-reduction deal in July. Democrats will make the case for additional tax revenues to balance spending cuts, an approach Republicans have rejected.

More broadly, however, the signs of an economic slowdown in past weeks — not least Friday’s report showing weak job growth in May — have altered the climate for those talks. Amid the emphasis in Washington on significant deficit reductions, including new plans for spending cuts from more than 100 of the most conservative House Republicans and from Tim Pawlenty, one of the Republican presidential aspirants, some Democrats, economists and financial market analysts are raising concerns that too much fiscal restraint this year and next could further undermine the recovery.

“On the one hand the markets want a deal,” said Howard Gleckman, an editor and analyst at the Tax Policy Center, a joint effort of two centrist research organizations, the Urban Institute and the Brookings Institution. “On the other they don’t want a deal that’s going to send the economy back into recession.”

While the Biden group, which includes Congressional leaders from both parties, is focused on ways to reduce projected annual deficits over the next 10 years, many Democrats say the immediate issue of what to do about a weak economy now looms for the negotiators should they reach a deal. They have taken their concerns to the White House.

The administration is already intent on limiting the proposed spending cuts for the 2012 fiscal year, which begins Oct. 1; Republicans prefer larger cuts up front.

“We are working toward a balanced approach to deficit reduction that will be phased in so it wouldn’t interfere with an economy that over the next two years will continue to be strengthening,” said Jason Furman, the deputy director of the White House National Economic Council.

Beyond that, however, Democrats and more liberal economists are suggesting that any long-term deficit reduction be paired with short-term spending increases or tax cuts to spur the economy, should it continue to weaken — perhaps by extending for 2012 the payroll tax cuts, business write-offs for equipment and other investments and extended federal unemployment benefits that President Obama and Republican Congressional leaders agreed to in December for this year.

Mr. Obama stoked such speculation on Tuesday at a press conference alongside Chancellor Angela Merkel of Germany, when he was asked what he might do to avert a double-dip recession.

“One of the things that I’m going to be interested in exploring with the members of both parties in Congress is how do we continue some of these policies to make sure we get this recovery up and running in a robust way,” he said.

Republicans would probably support extending the tax cuts, but not the unemployment aid. “I don’t know if throwing more money at the problem is going to solve anything,” Reince Priebus, the Republican Party chairman, said Wednesday at a breakfast hosted by Bloomberg News.

Mr. Obama and administration officials say they expect economic growth to pick up later in the year after what they call “the headwinds” of high oil prices and fallout from the earthquake in Japan, turmoil in the Middle East and the debt crises in Europe — an assessment similar to views expressed this week by Ben S. Bernanke, the chairman of the Federal Reserve, and many financial analysts.

Yet the setbacks have depressed Mr. Obama’s poll ratings for his handling of the economy to their lowest levels, stoking concerns among his advisers as the 2012 election season gets under way.

“I think Obama himself is going to have to move or he’s going to risk losing the next election,” said Mark Weisbrot, a liberal economist and a co-director of the Center for Economic and Policy Research. “He’s going to have to say clearly that the federal government has to step in when the economy is so weak,” regardless of whether his proposals can pass in the Republican-controlled House.

Mark Zandi, the chief economist of Moody’s Analytics, a macroeconomic consulting firm, who has advised members of both parties, said he was not ready to call for an additional stimulus. “I think we can wait to the fall to determine whether that’s necessary or not,” he said.

But, he added, neither should the White House and Congress tighten fiscal policy too much right now as the economy sputters to emerge from the worst downturn since the Depression. The government is already contracting its role in the economy, Mr. Zandi noted, given both the spending cuts that Mr. Obama and Congress approved for the current fiscal year and the fact that stimulus measures enacted since 2009 are phasing out.

“The recent slowdown does reinforce a point, and that is that any additional fiscal restraint in the near term would be in error,” Mr. Zandi said. “There’s a fair amount of fiscal restraint already in progress and that will gain momentum next year without any changes. So if you add to that, you are running the risk of undermining the expansion. It would be wrong to pile on at this juncture.”

But this week 103 House Republicans told party leaders, Speaker John A. Boehner and Majority Leader Eric Cantor, a negotiator in the Biden group, that they want immediate spending cuts of at least $380 billion for 2012 to halve the projected deficit, as a condition of their support for raising the federal debt limit this summer.

Such cuts are far deeper than those proposed up front in the House-passed budget written by Representative Paul D. Ryan, Republican of Wisconsin, which has led to protests in Republican lawmakers’ districts. Analysts across the spectrum dismissed the conservatives’ plan; Mr. Zandi and Mr. Gleckman said it would provoke a recession, thereby increasing annual deficits in the near term.

Douglas Holtz-Eakin, an adviser to Republicans, former director of the Congressional Budget Office and now president of the American Action Forum, a center-right research group, said he had no fear that the White House and Congress actually would cut too much. “I live for the day when a Congress cuts spending so aggressively that it actually endangers near-term growth,” he said. “We’ve never seen that.”

But neither should they provide additional stimulus, Mr. Holtz-Eakin said. “It was appropriate when the economy was falling,” he said, “but it’s been growing for a long time. We need better growth policies.”
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Source: The New York Times

A large majority of Americans say the U.S. economy would probably suffer serious harm if Congress fails to give the federal government more borrowing authority. But barely half support raising the government’s debt limit, even if lawmakers also sharply cut spending.

A Washington Post-ABC News poll shows that 55 percent of Democrats and half of Republicans and independents support a debt-limit deal that includes a steep reduction in the size of government. But 37 percent of Republicans, a third of independents and nearly a fifth of Democrats say they are against raising the debt limit, under any circumstances.

The survey highlights the political pressures facing lawmakers and the White House as they lurch toward Aug. 2, when the U.S. Treasury says it is likely to default on its obligations unless Congress agrees to raise the $14.3 trillion debt limit. Bipartisan talks aimed at reaching a compromise are set to resume Thursday on Capitol Hill, focusing on Democratic demands for fresh revenue as well as possible mechanisms for enforcing a multi-year agreement to cut spending.

While that effort is generating ambivalence among the general public, it is being closely watched on Wall Street and in global financial markets, with investors worried that the world’s largest economy could fail to pay its bills for the first time in U.S. history.

On Wednesday, Wall Street fired another shot across Washington’s bow, with major credit rating agency warning that even a brief default would damage the nation’s sterling AAA credit rating. Fitch Ratings said it would downgrade affected U.S. securities to junk bond status “in the extremely unlikely event” that U.S. officials failed to make scheduled payments to investors.

Treasury Secretary Timothy F. Geithner faces a key test on Aug. 15, the agency said, when the United States is due to make $25 billion in payments on more than $1 trillion worth of securities. If those payments are missed, the Treasury would find it difficult to regain its AAA status immediately, the agency said, potentially raising borrowing costs by billions of dollars.

Fitch is the third major credit rating agency to issue a warning. White House press secretary Jay Carney said the report underscores the need for action.

“There is no alternative here to raising the debt ceiling,” Carney told reporters. “This is not about additional spending. This is about honoring the obligations that the United States government has made. And the consequences of not raising the debt ceiling, as some of these rating agencies have suggested, would be severe.”

The poll suggests that people believe such warnings. But large blocs — particularly among Republicans and independents — still do not like the idea of permitting the national debt to continue its upward spiral. Nor do they particularly like their options for reducing the debt.

The political backdrop shows risks for both parties. When asked who they trust to address the nation’s biggest problems, a record 20 percent of Americans — and more than a third of political independents — said they have faith in “neither” party. That’s the highest percentage in polls going back nearly 30 years.

Overall, Democrats have a nine-point edge on the trust question, but Republicans have momentum on the deficit issue. More voters now side with congressional Republicans than with President Obama, with a slim majority saying the debt should be tackled primarily through spending cuts, not new taxes.

However, Republicans appear to have handed Obama an opening on Medicare in the budget blueprint they adopted this spring. Nearly half of voters say they trust the president to protect Medicare, compared with 35 percent who trust congressional Republicans. That’s a slightly smaller advantage than former president Bill Clinton had over the GOP Congress in 1995, just ahead of his successful reelection campaign.

Seniors are evenly divided on the trust question, but they are the staunchest opponents of the GOP plan to replace Medicare with government subsidies for private insurance starting in 2022. Although those over 55 would not be affected, people 65 and older reject the proposal nearly 2 to 1.

Fewer than half of Republicans polled support their party’s plan to overhaul Medicare. Overall, the proposal — perhaps the boldest debt-reduction idea on the table — garners significantly more opposition than support, with 49 percent opposed and a sizable number – 19 percent — undecided.

The telephone poll was conducted June 2 to 5 among a random national sample of 1,002 adults. Results from the full poll have a margin of error of 3.5 percentage points.
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Source: The Washington Post

State budget battles — usually between governors and legislatures — are increasingly involving another branch of government, the judiciary. In recent weeks, court decisions have upended budget negotiations in California, Nevada and New Jersey, and more cases are pending in other states.

Many of the recent decisions are the direct result of the economic downturn. The courts are finding that many struggling states are not meeting their responsibilities as they strive to save money. And because many states have been forced to close budget gaps year after year, these decisions are having an outsized impact, and intensifying fiscal pressures.

In Nevada, for example, a court decision last month that the state had illegally used local revenue to balance its last budget opened a big deficit in its coming budget. That led the state’s new Republican governor, Brian Sandoval, to break a campaign pledge and agree to extend more than $600 million worth of taxes that had been set to expire. The State Senate approved extending those taxes on Monday.

The courts have also delivered stinging rebukes to some states, finding that they sometimes broke the law in their efforts to cut spending and find new sources of revenue to cope with the aftermath of the Great Recession. The courts said their measures illegally hurt local governments, poor schoolchildren and prisoners.

Cases pending in other states could affect education spending in particular, an area where courts have been ordering states to spend more money, or to distribute it more fairly, for years. Education advocates in several states say recent budget cuts have effectively undone the gains they had made in the courts.

A judge in North Carolina has scheduled a hearing for this month, for example, to examine whether education cuts there violate previous court orders.

“The current financial difficulties of the state do not relieve, justify or excuse the State of North Carolina from its constitutional obligation to provide each and every child in North Carolina an equal opportunity to obtain a sound basic education,” the judge, Howard E. Manning Jr. of Wake County Superior Court, wrote in announcing the hearing.

School districts in Kansas have filed a lawsuit arguing that with recent cuts in education spending, the state has effectively reneged on the promises it made to abide by old court rulings — a charge the state denies.

“Just because the checkbook is empty doesn’t mean that the constitutional standard is swept away,” said John S. Robb, a lawyer for the school districts, adding that Kansas had cut taxes as it cut education spending. “Especially if you are cutting taxes and claiming poverty,” he added.

Mr. Robb and education advocates in other states said they were heartened by a court ruling last month in New Jersey that Gov. Chris Christie’s cuts in the schools budget had violated a court order directing the state to adequately finance the education of students in its poorest school districts.

“Like anyone else,” the New Jersey Supreme Court ruled, “the state is not free to walk away from judicial orders enforcing constitutional obligations.” The court ordered the state to spend another $500 million in those districts.

The ruling was one of several that sent governors and lawmakers scrambling as they rushed to pass budgets in the waning weeks of the fiscal year.

A ruling in Nevada upended the state’s budget negotiations just days before the new budget was due. The Nevada Supreme Court said the state had illegally balanced its budget with local money that was meant to build wastewater treatment facilities in the Las Vegas area.

The ruling opened a large deficit because, by implication, more than $600 million in similar money that the state was counting on to balance its budget was probably off limits, too.

Mr. Sandoval has faced sharp criticism from the right for his decision to close the new shortfall by extending taxes that had been set to expire.

The governor said he had few alternatives, calling the court’s decision a “game changer” in an interview on “Face to Face with Jon Ralston,” a Nevada public affairs television show. “It changed the entire dynamic with regard to the budget,” Mr. Sandoval said.

Court rulings are also adding wrinkles to budget negotiations in California, which has been struggling to close the biggest deficit in the nation.

In ruling last month that California’s prisons were dangerously overcrowded, the United States Supreme Court put more pressure on the strapped state to find acceptable alternatives or to begin freeing prisoners.

“In addition to overcrowding, the failure of California’s prisons to provide adequate medical and mental health care may be ascribed to chronic and worsening budget shortfalls, a lack of political will in favor of reform, inadequate facilities, and systemic administrative failures,” Justice Anthony M. Kennedy wrote for the majority.

Another ruling last week by the Federal District Court in Northern California ordered the state to immediately begin paying higher monthly reimbursement rates to parents caring for foster children in California.

The decision noted that two and a half years had passed since the state was found in violation of the federal Child Welfare Act, but that “nothing has changed for the foster parents.” The state is including $10.7 million more in the budget to begin paying the higher rates.

Court cases can have an impact at the local level as well. In New York City, the Bloomberg administration’s effort to cut a program that provides rental assistance for homeless families is being challenged in court.

State officials have varying reactions to the court rulings.

Governor Christie of New Jersey, a Republican, complained after the schools ruling that “as a fundamental principle, I do not believe that it is the role of the State Supreme Court to determine what programs the state should and should not be funding, and to what amount.”

Dissenting judges in some of these cases have expressed similar concerns.

Gov. Jerry Brown of California, a Democrat, used the prison ruling to support his push to extend tax increases and to share some of that money with counties, which would be asked to house some inmates in county jails. In Nevada, some lawmakers said that by creating a crisis, the court actually served as a catalyst for compromise.

But the rulings can complicate the lives of some budget makers.

“These court cases, when they come down — and of course we have no position on the legal rulings — but from a finance or budget perspective, it is basically favoring certain spending over others,” said Scott D. Pattison, the executive director of the National Association of State Budget Officers. “If you’re going to spend more on corrections because of a case causing that to occur, that’s less money for something else. It’s a very difficult proposition for the states simply because they’re operating from a zero-sum-game perspective.”
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Source: The New York Times

After several months of strong job growth, hiring in the United States slowed sharply in May, suggesting the economy is running out of steam once again.

The Labor Department reported on Friday that the nation added 54,000 nonfarm payroll jobs last month, after an increase of about 220,000 jobs in each of the three previous months. May’s job gain was about a third of what economists had been forecasting.

The unemployment rate ticked up to 9.1 percent from 9.0 percent in April.

“The economy clearly just hit a brick wall,” said Paul Ashworth, chief United States economist at Capital Economics. “It’s almost as if it came to a complete standstill.”

Friday’s dismal job numbers capped a week of disappointing economic news on manufacturing, housing and retail activity. Pressure is now mounting on the Obama administration and Congress to delay deficit-reduction measures, which economists think will put a further drag on the fragile recovery. Already liberal groups have renewed their calls for more aid to the states and more aggressive action from the Federal Reserve — even as a warning from Moody’s about the country’s sterling credit rating has galvanized Republican support for spending cuts.

In some ways the moment is reminiscent of last spring, when the economy also braked abruptly just as it seemed to be gaining momentum. At the time, the slowdown was attributed to worries over the European debt crisis, just as Friday’s numbers have been attributed in part to temporary stresses from higher energy prices and natural disasters. Last year’s downshift was ultimately followed by additional federal spending and another round of asset purchases by the Federal Reserve.

The latest jobs numbers sent markets tumbling, with oil prices and bond yields declining. The Dow Jones industrial average was down 133 points, or 1.1 percent, within minutes after the opening bell, though stocks later recovered some of those losses.

The biggest employment gains were in professional and business services and in health care services, which grew steadily even during the recession.

State and local governments, struggling with severe budget shortfalls, continued to shed jobs. They are expected to keep laying off workers for months to come. Private companies added jobs, but the pace of hiring fell to its lowest level in a year.

And there are signs that hiring problems may persist.

One particularly unsettling figure in Friday’s report was in hiring for temporary help services. Temp hiring is considering a bellwether for broader hiring, since employers often try out temporary employees when considering whether to take on additional permanent staffers. Employment in temporary help services was essentially unchanged in May, however.

Another leading indicator — the length of the workweek — was also disappointing. Usually businesses start working their existing employees harder and longer before hiring more workers. But the average workweek did not budge in May, a factor that does not bode well for the many workers waiting on the sidelines.

Manufacturing employers delivered another blow to the economy by ending their six-month streak of continued job gains. Manufacturing companies eliminated 5,000 jobs over all in May.

“They were our bright spot for so many months,” Ms. Boushey said. “They were what was pulling the economy forward.”

While any job gains at all are welcome, the pace of job growth thus far has been too slow to reverse much of the damage wrought by the Great Recession, which has left nearly 14 million unemployed workers in its wake. For the last few months economists had been predicting that the economy was finally gathering steam and that a sharper bounce-back was imminent, only to be disappointed again and again.

The lackluster employment figures for May, as in months past, may be partly attributable to temporary factors, like the automotive supply chain disruption caused by the Japanese earthquake and tsunami and higher oil prices caused by unrest in the Middle East.

Economists have been hopeful that as these troubles pass, a robust recovery will finally burrow out from beneath the rubble.

“I do think there’s more strength in the economy than recent numbers have been indicating,” said Augustine Faucher, director of macroeconomics at Moody’s Analytics. “I realize that’s not much consolation for people who are already out of work.”

The problem, of course, is that this recovery has been unusually frail; usually a sharp recession like the one that began in 2007 is followed by an equally sharp recovery, whereas this time growth has been very slow. Had the underlying economy been stronger, a shock like the sudden rise in energy prices this spring might not have been so troubling.

“You are always going to have some good things and some bad things that happen, always,” said Neal Soss, chief economist at Credit Suisse. “Why do the downs feel so much more threatening these days? Because economic growth should be much faster. Any little adversity feels much worse when growth is so much closer to zero.”

While most economic analysts do not believe that the economy will slide back into a recession — which would technically mean that the economy would start shrinking again — they acknowledge that with such low levels of hiring, the recovery is barely perceptible to many Americans. The jobs deficit has not gotten nearly as much political attention as the nation’s unsustainable fiscal deficit, however.

“Living here in Washington, in the past few weeks there has been all this talk about deficits and the debt ceiling as though that were the biggest problem right now,” said Heather Boushey, a senior economist at the Center for American Progress, a liberal research organization. “My fervent hope is that this shocks policy makers into realizing the most urgent problem in front of us right now is jobs.”

Nearly six million workers have been out of a job for more than six months — and are still waiting for the recovery to reach them.

“There are just so many people jumping around with great specialized résumés and willing to work for nothing,” said Bob Hiller, 64, an architect in Tucson who was laid off in October 2009. “It’s hard to compete.”

Mr. Hiller’s jobless benefits will soon run out because Arizona’s Legislature never updated a state law that would allow workers to receive more federal money. Unable to find work, he is trying to start a new architectural consulting business to help older people stay in their homes through accommodative renovations.

“Everybody seems to think it’s a great idea and that I should do it,” he said, “but it’s hard to take it to the next level when I barely have enough money to keep the lights on.”
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Source: The New York Times

Chicago is getting out of the Independence Day fireworks business.

There will be no city-run July 3rd or July 4th fireworks show this year — not even a scaled-down version — thanks to former Mayor Richard M. Daley’s decision to hand off the Taste of Chicago to the Park District to reverse $7 million in festival losses over the last three years.

That means Chicago’s only official fireworks will be the previously scheduled show at 9 p.m. July 4 at Navy Pier. That 15-minute show is paid for by the Metropolitan Pier and Exposition Authority.

Chicago Park District spokesperson Jessica Maxey-Faulkner said the decision to cancel even last year’s smaller fireworks at three lakefront locations was a sacrifice demanded by the economic times.

It’s the same reality that forced the Park District to fold the city’s four least-popular music festivals — Viva Chicago, Country Music, Gospel and Celtic fests — into the Taste as one-day events focusing on local acts instead of making them stand-alone weekend fests with big-name talent.

“When the Chicago Park District inherited the Taste, we did so with an eye on cutting expenses and bringing the focus back to a family-friendly food festival,” Maxey-Faulkner said, noting that last year’s show cost $110,000, not including police expenses.

“Knowing that Navy Pier has fireworks shows scheduled for July 2 and July 4, we felt that was a reasonable expense to cut.”

Last year, declining city revenues and disappearing corporate sponsors claimed the annual July 3 fireworks extravaganza in Grant Park.

Instead of having one fireworks show on July 3 that drew more than 1.2 million people and stretched city services to the brink, Chicago held smaller synchronized fireworks shows on July 4: at Montrose Harbor and 59th Street to coincide with the previously scheduled show at Navy Pier.

City Hall hoped to cut security costs by making the switch, but it didn’t quite work out that way.

Policing three fireworks venues cost $756,476, including $251,377 in “regular tour pay,” $444,251 worth of “accumulated compensatory time” and $60,846 in overtime, records show.

The only venue that drew an overflow crowd was Navy Pier, where attendance was so big, police were forced to shut off access for the first time in history.

The Pier closing started at 7:20 p.m. and continued for “two or three hours,” barring even those who had reservations at Navy Pier restaurants.

“We stopped counting at 250,000” people, Navy Pier spokesman Jon Kaplan said of the record crowd on that day.

“Only employees working in Navy Pier stores and people with tickets to the theater or tickets previously purchased for boat cruises were allowed in.”

Two years ago, Venetian Night, the annual parade of illuminated boat floats, was sunk by Daley’s cost-cutting, ending a 52-year-old summer tradition.

Viva Chicago, Country Music, Gospel and Celtic Fests were next on the chopping block — at least as stand-alone festivals.

Now, there’s no more city fireworks show.

“The city is broke. We can’t afford the circuses. Perhaps fireworks are a luxury we can do without,” said Ald. Joe Moore (49th).

Civic Federation President Laurence Msall agreed that the fireworks fizzle is “a sign of the financial distress the city finds itself in.”

But, he said, “Although we understand the need to cut expenses, we’d like to see it tied to a long-term plan for all the city’s special events and promotional activities when it comes to encouraging people to come downtown and enjoy the lakefront.”
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Source: The Chicago Sun-Times

The latest economic numbers have not been good. Jobless claims rose last week, the Labor Department said on Thursday. Another report showed that economic growth at the start of the year was no faster than the Commerce Department initially reported — “a real surprise,” said Ian Shepherdson of High Frequency Economics.

Perhaps the most worrisome number was the one Macroeconomic Advisers released on Wednesday. That firm tries to estimate the growth rate of the current quarter in real time, and it now says annualized second-quarter growth is running at only 2.8 percent, up from 1.8 percent in the first quarter. Not so long ago, the firm’s economists thought second-quarter growth would be almost 4 percent.

An economy that is growing this slowly will not add jobs quickly. For the next couple of months, employment growth could slow from about 230,000 recently to something like 150,000 jobs a month, only slightly faster than normal population growth. That is certainly not fast enough to make a big dent in the still huge number of unemployed people.

Are any policy makers paying attention?

When the economy weakened in the first quarter, Ben S. Bernanke, the Federal Reserve chairman, and Obama administration officials said the slowdown was just a blip and growth would soon pick up. Today, many Wall Street economists are saying much the same thing: any day now, things will improve.

Maybe they will. But the history of financial crises shows that they produce weak, uneven recoveries, with unemployment remaining high for years. That history also shows that aggressive government action — the kind of action Washington took in 2008 and 2009, but not for most of 2010 — can make the situation much better than it otherwise would be.

The latest signs of weakness suggest that policy makers remain too sanguine. It is easy to see how the rest of 2011 could end up disappointing, much as 2010 did.

For one thing, there are specific forces holding back growth. Oil prices, though down in the last few weeks, are still 40 percent higher than a year ago and continue to siphon money away from the American economy to overseas economies. When I filled my gas tank last weekend, it cost $74, more than I think I have ever paid.

The housing market also remains in terrible shape. Europe is still struggling with its debt troubles. State and local governments continue to cut jobs.

These specific problems worsen the broader insecurity of both households and business executives — insecurity that is typical in the wake of a financial crisis. Long after the crisis itself is over, businesses are slow to hire and quick to fire. Thursday’s report on new jobless claims showed that they rose by 10,000, to 424,000, which is not a number associated with a solid recovery.

“Labor market gains may be faltering somewhat,” Joshua Shapiro, chief United States economist at MFR, a New York research firm, wrote to clients after the report’s release.

For households, already coping with miserly wage growth, that is another reason not to spend. The Commerce Department’s updated gross domestic product figures showed that consumer spending grew at an annual inflation-adjusted rate of only 2.2 percent in the first quarter, not the 2.7 percent rate the department initially reported.

The economy does still have some bright spots, and they could grow in coming months, just as policy makers and private forecasters are, once again, predicting. If North Africa and the Middle East do not become more chaotic, oil prices may continue falling. Vehicle production will probably pick up as the parts shortages caused by the Japanese earthquake end. The falling dollar will continue to help American exporters, as well as any domestic businesses that compete with foreign importers.

But there is no doubt that the economy has performed considerably worse in the last few months than most policy makers expected. The situation is now uncomfortably similar to last year’s, when the economy sped up in the first few months only to stall in the spring and summer.

The most sensible response for Washington would be to begin thinking more seriously about taking out an insurance policy on the recovery. The Fed could stop worrying so much about inflation, which remains historically low, and look at how else it might encourage spending. As Mr. Bernanke has said before, the Fed “retains considerable power” to lift growth.

The White House and Congress, meanwhile, could begin talking about extending last year’s temporary extension of business tax credits, household tax cuts and jobless benefits beyond Dec. 31. It would be easy enough to pair such an extension with longer-term deficit reduction.

Any temporary measures will eventually need to lapse, of course. But the current moment remains a textbook time to use them — when the economy is struggling to emerge from the aftermath of a terrible recession. The one thing not to do is to turn to deficit reduction too quickly after a crisis, as Europe is painfully learning.

Almost four years after the mortgage market first began to quiver and unemployment began to rise, Americans are understandably eager for good economic news. But wishing for it doesn’t make it so. You have to wonder whether the people in Washington have learned that lesson yet.
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Source: The New York Times

High gasoline prices, government budget cuts and weaker-than-expected consumer spending caused the economy to grow only weakly in the first three months of the year.

The Commerce Department estimated Thursday that the economy grew at an annual rate of 1.8 percent in the January-March quarter. That was the same as its first estimate a month ago.

Consumer spending grew at just half the rate of the previous quarter. And a surge in imports widened the U.S. trade deficit.

Most economists think the economy is growing only slightly better in the current April-June quarter. Consumers remain squeezed by gas prices, scant pay increases and a depressed housing market.

Analysts estimate that growth has accelerated slightly to around 2.5 percent in the current April-June quarter. For the entire year, they think the economy will grow around 3 percent. That would be little changed from the 2.9 percent growth in 2010.

Also Thursday, the government said more people applied for unemployment benefits last week. It was the first increase in three weeks and evidence that the job market remains sluggish.

The number of people seeking benefits rose by 10,000 to a seasonally adjusted 424,000. Applications are above the 375,000 level that’s consistent with sustainable job growth. Applications peaked at 659,000 during the recession. Employers stepped up hiring this spring, but some economists worry that rising applications indicate hiring is slowing.

Economists had been more optimistic when the year began. They assumed that a cut in workers’ Social Security taxes, which raised take-home pay, would boost consumer spending. And new business tax breaks were thought likely to spur business spending.

But political upheaval in the Middle East and North Africa sent energy prices soaring. The result was that consumers had to pay more for gas, leaving less money to spend on other items.

The government’s revised estimate for gross domestic product — the economy’s total output of goods and services — showed consumer spending growing at an annual rate of just 2.2 percent. That’s sharply down from an initial estimate of 2.7 percent.

Consumer spending, which accounts for 70 percent of economic activity, had grown at a much faster 4 percent rate in the October-December period.

The GDP revision showed that the government sector is dragging on growth. Government spending fell at an annual rate of 5.1 percent. Federal and state and local governments have cut spending to battle budget deficits.

Economists expect government spending to remain weak. They note that Congress will likely slash spending to try to shrink $1 trillion-plus budget deficits.

Exports grew faster than previously estimated last quarter — a brisk 9.2 percent rate. But imports grew even faster — at a 9.5 percent rate — causing the U.S. trade deficit to widen. A higher trade deficit subtracts from growth.

Spending by companies on equipment and software grew at a solid rate of 11.6 percent. Economists expect that to continue as companies take advantage of one-year tax write-offs for such purchases.

David Wyss, chief economist at Standard & Poor’s in New York, said he thinks the economy will grow at an annual rate of 2.5 percent in the current quarter. Wyss said he expects growth to strengthen slightly to around 3 percent in the second half of this year.

In part, that’s because the U.S. manufacturing supply disruptions caused by the Japanese earthquake and nuclear crisis in March should ease. And auto plants and other factories get back to full production.

Still, analysts think the economy may not be able to exceed 3 percent growth for the full year.
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Source: The Washington Post