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The Federal Reserve should review the current stimulus effort and consider whether to end it early, said James Bullard, president of the St. Louis Fed. The effort, a second round of so-called quantitative easing, in which the government buys Treasury securities to put downward pressure on long-term interest rates, was announced in November and is scheduled to end in June.

“The economy is looking pretty good,” Mr. Bullard told reporters in Marseille, France, on Saturday. “It is still reasonable to review Q.E. 2 in the coming meetings, especially this April meeting, and see if we want to decide to finish the program or to stop a little bit short.”

He said that although the economy was clearly stronger than last summer and fall, uncertainties remained, including the effects of the nuclear crisis in Japan, the unrest in the Middle East and the European sovereign debt crisis. Surging oil prices pushed by turmoil in the Middle East may erode consumers’ purchasing power, and supply constraints caused by the Japan earthquake may slow the pace of the recovery this quarter.

“We have to weigh those in the decision” on whether to stop the stimulus effort earlier than planned, Mr. Bullard said.

“The oil price increases so far is not enough to derail the U.S. recovery at this level,” Mr. Bullard said. “If oil prices stabilize where they are, we’ll be fine.”

At a meeting in January, the Federal Open Market Committee of the Fed voted unanimously to continue the $600 billion stimulus plan.
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Source: The New York Times

There is no more disputing it: the economic recovery in the United States has indeed slowed.

The nation’s economy has been growing for a year, with few new jobs to show for it. Now, with growth at an annual rate of 2.4 percent in the second quarter, and federal stimulus measures fading, the jobs outlook appears even more discouraging.

“Given how weak the labor market is, how long we’ve been without real growth, the rest of this year is probably still going to feel like a recession,” said Prajakta Bhide, a research analyst for the United States economy at Roubini Global Economics. “It’s still positive growth — rather than contraction — but it’s going to be very, very protracted.”

A Commerce Department report on Friday showed that the economy had grown at a faster pace earlier in the recovery, expanding at an annual rate of 5 percent at the end of 2009 and 3.7 percent in the first quarter of 2010. Consumer spending, however, was weaker than initially believed.

Many economists are forecasting a further slowdown in the second half of the year, perhaps around an annual rate of 1.5 percent. That is largely because businesses have refilled the stockroom shelves that they had whittled down during the financial crisis, meaning there will not be much need for additional inventory orders.

Fiscal stimulus policies are also expiring, which may further drag on growth. And individual stimulus programs like expanded unemployment benefits have faced huge political battles each time they have come up for extension in Congress.

The approaching mid-term elections may further entrench the political stalemate after Congress returns from its August recess. As a result, pressure will probably increase on the Federal Reserve to use its tools to prevent a double-dip. Recent reports from Fed officials suggest the central bank has become increasingly worried about where the economy is headed.

American businesses, if not American households, seem to be hanging on.

The key driver of growth in the second quarter was nonresidential fixed investment, which covers items like office buildings and purchases of equipment and software. This sector rocketed up at an annual rate of 17 percent in the second quarter, compared with a 7.8 percent increase in the first. The equipment and software category alone grew at an annual rate of 21.9 percent, the fastest pace in 12 years.

“We’re seeing a sort of handover from consumer spending to capital spending,” John Ryding, chief economist at RDQ Economics, said “The consumer also looks to have saved more than we thought before, which means they’re perhaps further on the road to financial adjustment than we thought they were previously.”

Growth in consumer spending, which is usually a leading indicator of a recovery and which accounts for most economic activity in the United States, has been leveling off. It grew at an annual rate of 1.6 percent in the second quarter after an annual increase of 1.9 percent in the previous quarter.

The personal savings rate in the second quarter was estimated to have been 6.2 percent of disposable income, significantly higher than the 4 percent that had been estimated.

A separate report released Friday by the University of Michigan and Reuters showed that consumer sentiment tumbled in July.

The fact that businesses seem to be investing more in equipment than in hiring may be a reason why households have been reluctant, or perhaps unable, to pick up the pace of their spending.

“There are limits on the degree to which you can substitute capital for labor,” Mr. Ryding said. “But you can understand that businesses don’t have to pay health care on equipment and software, and these get better tax treatment than you get for hiring people. If you can get away with upgrading capital spending and deferring hiring for a while, that makes economic sense, especially in this uncertain policy environment.”

Data revisions of covering the last three years were also released on Friday. These showed that overall 2009 and 2008 were slightly worse than previously reported, but that the first quarter of 2010 was better.

As the global economy recovers, America’s trade activity has picked up. But imports once again grew faster than exports last quarter, presenting a drag on growth. Imports spiked at an annual rate of 28.8 percent, the biggest jump in a quarter-century, compared with an annual increase of 10.3 percent in exports.

Government spending shot up more than many anticipated, growing at an annual rate of 4.4 percent after a decline of 1.6 percent in the first quarter. Public spending was broad-based, with even state and local spending increasing for the first time in a year. This may be in part because of federal stimulus monies transferred to the states.

“You could see this in the monthly number for state and local construction spending,” said Nigel Gault, chief United States economist at IHS Global Insight. “Construction slows down during winter months, so stimulus may not have been doing as much earlier this year.”

Other policy initiatives, like the expiring homebuyer’s tax credit, also appear to have lifted demand. Residential fixed investment spending on items like new homes grew at an annual pace of 27.9 percent in the second quarter, after falling 12.3 percent the previous period.

“This will almost certainly reverse hard next quarter,” Jay Feldman, director of economics at Credit Suisse Securities, wrote in a note to clients.
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Source: The New York Times

Government stimulus spending is a contentious issue right now in Washington. But the $7.2 billion in the last stimulus package for extending high-speed Internet access is just beginning to be spent, and the beneficiaries could not be happier.

Cynthia K. Wegener and her husband, owners of a farm and horse-breeding business in western Kansas, will be able to download a photograph of a horse to show a potential buyer in seconds, not the 20 to 30 minutes they now need with dial-up service. “I just cannot begin to tell you how frustrating it is to do anything with it,” she said.

And in remote Yukon-Kuskokwim Delta in Alaska, with limited Internet access, the program will bring more fundamental changes, expanding the health care options, for example, to allow doctors in Anchorage, 400 miles to the east, to see patients via videoconference.

“This is the first time in my 25 years in health care where technology has a direct impact,” David P. Hodges, the chief information officer for the Yukon-Kuskokwim Health Corporation. “It sure gives you a new perspective on what you do for a living.”

The types of Internet activities that most Americans take for granted — watching videos, downloading songs, social networking — are out of reach for millions of homes across the United States. These people — many in poor, rural pockets — either have outmoded dial-up Internet service or have no affordable high-speed service. Sometimes the nearest high-speed connection is at the local library, 10 miles away.

The $7.2 billion to extend broadband service in the last stimulus package was approved without significant debate. The program is intended to extend broadband service to what is known as the “middle mile,” which can connect to institutions like schools and hospitals, and the “last mile” — homes and businesses — that big Internet providers have bypassed because the expected revenue was too small to justify the big investments needed.

For some of the beneficiaries, the program will literally mean the difference between isolation and being connected to the rest of the world. “If you don’t have a high-speed Internet connection, it’s almost impossible to get anything done anymore,” said Martin Cary, vice president of broadband services for GCI Communication Corporation of Alaska, the largest Internet service provider in the state.

Julius Genachowski, the chairman of the Federal Communications Commission, said he saw the extension of Internet service as a significant moment in communications. “Extending broadband in rural America is as important to jobs and growth in the 21st century as extending electricity was in the 20th century,” he said.

So far, more than 200 projects have been awarded about $3 billion in grants and loans from the program’s administrators — the Agriculture and the Commerce Departments — mostly to small carriers. The stimulus law requires that all the money in the program be allocated by Sept. 30. Even so, many remote homes will still not get high-speed access.

For those who will be connected, there are some mixed feelings. While most seem impatient for the greater access and many businesses are eager to attract new customers, some are concerned about the unintended consequences of their new connections.

James W. Rowh, for instance, who owns an organic farm and natural foods store not far from the Wegeners in Norton, Kan., is wary that the Internet will lure his customers away. “You can find pretty deep discounts online,” he said. “There are only 3,000 people in this town. When you start losing people to the Internet, it’s going to have an effect on your bottom line.”

Even the small companies that have been awarded the grants and loans to extend the broadband fiber lines and build the microwave towers are aware that once they do all the work and sign up the customers, the big carriers may move in with lower rates and lure their business away.

“Typically, when we go into a town, competition will come on our heels,” said H. Rusty Irvin, the chief executive of StratusWave Communications, a small carrier in Wheeling, W.Va. “The Verizons and Comcasts may target that area for deployment.”

The company won a $1.5 million loan and a $1.4 million grant to provide wireless service to three West Virginia counties in rural Appalachia.

Bjorn Jones, a librarian in Salinas, Calif., an hour south of the Silicon Valley, noted that while the Web offers access to a seemingly limitless array of educational resources, it is also a source of mindless entertainment. “If broadband is contextualized within a library, then you are creating learning opportunities,” he said. “Without a plan, it’s going to be just kids watching YouTube.”

The greater Salinas Valley, whose residents are mainly Hispanic immigrant farm workers, has limited high-speed Internet access mainly because of the expense of laying fiber optic lines. The surrounding mountains and beach make extending lines especially challenging for neighboring Santa Cruz County. Officials said they realized the need for additional fiber lines in April 2009 when the entire county, including its emergency services, lost the Internet for 21 hours after vandals cut cables miles away. The joint application with Santa Cruz County, Monterey County and San Benito County to extend access was rejected by the Commerce Department in the first round and officials are awaiting word on the second round. (The rejection was not all that unusual; the department received 1,885 applications in the first round and awarded only 82 grants.)

While the stimulus program will reach hundreds of rural areas in all 50 states, there are people like R. Mark Fair, who lives in Leicester, N.C., in the mountains northwest of Asheville, who will not be helped. Mr. Fair and his neighbors have been trying unsuccessfully since 2006 to persuade AT&T to replace their dial-up service.

“I go online every day for e-mail,” Mr. Fair, an electrical engineer, said. “I can generally get around those O.K., but when it comes to online meetings and file transfers, it’s really frustrating.”

In a statement, Clifton Metcalf Jr., an AT&T spokesman, said, “We’ve taken efforts to still deliver the benefits of broadband to these customer locations, such as through our satellite-based broadband service, which reaches the vast majority of rural markets in our 22 states.”

Since many of the new broadband recipients are poor, the F.C.C. is proposing that money from its Universal Service Fund, which currently subsidizes telephone services for high-cost areas, low-income consumers, schools, libraries and rural health care providers, be expanded to broadband services. The fund receives its money from a monthly fee of about $2.78 a household — the fee is part of the telephone bill — and is expected to disburse $8.7 billion this year.

“The biggest challenge is converting a fund that’s been focused for a very long time on telephones to one focused on broadband communications as quickly and as efficiently as possible to make sure we can extend broadband to rural America,” Mr. Genachowski of the F.C.C. said.

Alaska is the largest recipient of rural health care Universal Service Fund subsidies, and the Yukon-Kuskokwim Health Corporation is the largest recipient in the state, with $1.5 million in 2008.

Mr. Hodges, of the health corporation, said many of the 48 villages it served did not have running water or roads between villages because they were on unstable tundra. “We can’t put in telephone lines,” he said, “and there are environmental issues because you don’t want to damage the tundra.”

Mr. Hodges said his network of telepsychiatry through microwave and satellite would expand with the federal funds. The health corporation, which has a dearth of health professionals, currently offers behavior health services from psychiatrists in Minnesota, Seattle and Anchorage, he said.

“We’re now able to increase the amount of time we spend with a patient,” he said. “We’re not limited by the lack of daylight in the winter and when planes because of weather can come in. We’ve taken those barriers out of the equation.”

As for Mrs. Wegener, the horse breeder, she said she believed she was losing money by having to drive her horses to auctions as far away as North Dakota and Nebraska to be seen by potential buyers. The Internet could change that, she said. “We would love to sell them off the farm and not haul them anywhere.”
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Source: The New York Times

Gov. Pat Quinn said Monday he will make “serious cuts” in state spending Wednesday, although he declined to give any specifics.

Quinn said he will take action on the state budget Wednesday afternoon, the last day of the state’s current fiscal year. The new budget goes into effect Thursday.

“We will be announcing our decisions, probably on Wednesday, of how much money we can allocate to education, how much to health care, how much to public safety and all of the other priorities,” Quinn said.

Exactly what he will allocate to each area is another question. As he has before, Quinn said he will do what he can to protect education spending, although the State Board of Education last week announced $300 million in cuts to education programs.

“Last year, we had an effort by the General Assembly to cut human services in half. It was heartless,” Quinn added. “I hope we can prevent any kind of severe cuts in human services or any other important services to people.”

The problem for Quinn is that the bulk of state spending is in education and health care programs.

The state’s budget problems are further aggravated by Congress’ failure to approve a new stimulus bill, which would have included money to help states with Medicaid expenses. Illinois was counting on about $750 million from the program.

“We’re still working on that one,” Quinn said. “We’re working with the U.S. Senate. They should, in my judgment, pass this stimulus measure.”

The only area Quinn specifically said would be cut is “bureaucracy,” but he provided no details.

“There are serious cuts in the bureaucracy of state government,” Quinn said. “We’re going to have to tighten the belt as tight as it can be.”

The state budget has been a moving target ever since lawmakers approved it in late May. The General Assembly chose to allocate money in lump sums and leave it up to Quinn to make ends meet. As part of those budget powers, Quinn also has authority to borrow money from restricted state funds and use it to pay other expenses.

Even with those measures, lawmakers figured the state would have about $6 billion in unpaid bills next year at this time. That was before the General Assembly failed to come up with a way to make $3.7 billion in payments to state pension systems in the new budget. Quinn wanted to borrow money for the payments, but the Senate has yet to approve that idea.

Quinn said he is still trying to convince enough senators to support the plan.
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Source: The State Journal Register - The Oldest Newspaper in Illinois

The state of Illinois is encouraging people to go out and buy new energy-efficient appliances.

Consumers can get a 15 percent rebate worth up to $400 on appliances including dishwashers and refrigerators. Illinois has $6.2 million in federal stimulus money for the rebates. The program will last until the money runs out.

Gov. Pat Quinn talked about the program Friday at a Best Buy store in Chicago and urged consumers to take advantage of it. He warned the money will go fast so people should shop sooner rather than later.

State officials say the program can help reinvigorate the economy through consumer spending.
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Source: The State Journal Register - The Oldest Newspaper in Illinois

The Chicago Teachers Union president Tuesday accused Chicago Public Schools CEO Ron Huberman of using “scare tactics” and “threats” to try to solve the budget crisis, just as Huberman called on the union to reopen its contract and help fill an upcoming deficit of at least $700 million.

CTU President Marilyn Stewart charged that Huberman was “making a bad budget situation worse” with a PowerPoint presentation he made to principals Monday detailing possible cuts — including increasing class sizes to 37 kids and potentially displacing 3,200 teachers.

The presentation outlined a way to fill the gap if neither the unions nor lawmakers help CPS resolve its budget problems.

“It’s absolutely a threat,” Stewart told the Sun-Times on Tuesday. “We know the crisis is real, but his scare tactics are absolutely chaotic.”

“Six months ago he was talking about a ‘culture of calm.’ Now he’s become the king of chaos.”

Stewart, who faces re-election in May, said she is not willing to reopen a contract that calls for teachers to get 4 percent pay raises again next school year, at a cost of $169 million.

“We will do everything we can to help the Chicago Public Schools find a way out of the mess that it put us in,” Stewart said in an earlier written statement. “Mr. Huberman can do his part by stopping his threatening rhetoric.”

Huberman would not take Sun-Times phone calls Tuesday, but spokeswoman Monique Bond said that his “warnings should not be perceived as threats, but as financial realities that are certain to impact the quality of education and the quality of life for many.”

‘Collective sacrifice’

Schools districts statewide are bracing for teacher layoffs and other painful cuts as two years of federal stimulus dollars, used to fill school budgets, dry up in June. Meanwhile, Chicago officials say that this month they have to start giving principals information to plan their budgets for next school year, even though the funding situation in Springfield is filled with uncertainty.

Huberman told WTTW-Channel 11’s “Chicago Tonight” Tuesday that reopening the teachers contract “has to be part of the answer” to fill a minimum $700 million budget hole.

“The fiscal reality of the budget crisis the district is facing calls for collective sacrifice,” Huberman said, noting that central office employees were swallowing pay freezes and 15 furlough days this year.

Just getting the $200 million the state owes the district in late payments would be a big help, he said. Plus, he said, he is seeking $400 million in pension relief, which would “not require anything of taxpayers.”

‘Less time for learning’

Also, Chicago Principals Association President Clarice Berry said Huberman indicated at Monday’s meeting with principals that they would be getting a pay freeze without discussing it with her first.

Berry said Huberman’s presentation “sent a shockwave” because there was “so much misinformation” in the question-and-answer period. Huberman’s answers led principals to believe that their assistant principals would be cut, when no more than 26 assistant principals might be threatened, Berry said.

Huberman’s proposal to raise class sizes conjures images of the kind of classrooms she grew up with in the 1950s.

“We haven’t seen class sizes like that since the baby boom,” Berry said. “It’s going to be a disaster.”

Retired CPS teacher Jan Getto said that when she tackled classes of up to 37 kids, with the help of an aide, four years ago at Wildwood School, she was lucky if she could call on every student every day. Asking “open-ended” questions that required more than limited answers was very difficult.

“You can’t spread yourself that thin,” she said.

With 37 kids “mashed” in a room, kids are more likely to copy work from their neighbors, Getto said.

It took Getto 15 to 20 minutes a day just to take the lunch count and two bathroom breaks a day absorbed another 20 minutes each.

“There’s a lot less time for learning,” Getto said. “There’s no way to meet the needs of all those kids.”
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Source: The Chicago Sun-Times