James Pethokoukis

Politics and policy from inside Washington

The end of the U.S. consumer. Maybe not

Jun 5, 2009 23:05 UTC

Interesting note from Bruce Kasman of JPMorgan on the supposed retrenchment of the US consumer as Americans save, save, save (bold is mine):

Personal saving rate is poised to fall In the past year, US households have raised their saving rate an astonishing 5.5%-pt to 5.7%. During the first half of this adjustment, spending contracted sharply against the backdrop of falling income. This year, saving has moved higher as automatic stabilizers and government income supports have helped boost disposable income. Despite a soaring unemployment rate and falling labor income, households have managed to maintain a relatively constant level of real consumer spending. … If the saving rate continued to rise, or even remained stable, consumer spending would sharply contract, and prospects for an end to the recession would likely be dashed. … This scenario is unlikely however, as there are a number of forces promoting stable spending and a lower saving rate in the coming months. In the past, sharp swings in nonwage income and energy prices have had limited effects on spending and this pattern is likely to be repeated in 2009. In addition, consumer expectations of economic and financial conditions have improved markedly in recent months and is likely to be a force behind firmer spending. Finally, credit sensitive demand has been depressed, and the recent modest relaxing of financing constraints will tend to support spending. While the growth rate of real consumer spending in the second half is expected to be close to the growth rate in the first half, the pattern should shift to somewhat stronger spending growth for autos and other durables (from extremely low levels), likely offset by even weaker
spending growth on services.

Bair vs. Pandit: Be cool people!

Jun 5, 2009 22:26 UTC

A sneak preview of my upcoming column on the WSJ report that the FDIC’s Sheila Bair is trying to push out Citi’s Vikram Pandit:

What’s more this apparent play to push out Pandit comes at the same time Bair has been suggesting the FDIC be designated at the new “super-regulator” to deal with systemically important financial institutions. (The Federal Reserve now appears likely to get the designation instead.) All this plays into a growing suspicion — originally sparked by her quick-trigger seizure of Washington Mutual — that the former business school professor and Republican political aide, passed over for Timothy Geithner as Treasury Secretary, is doggedly determined to maintain her “power player” status in the nation’s capital.

Enough. Enough now. The first 4 1/2 months of the Obama administration has seen record spending, the de facto nationalization of General Motors and Chrysler, and the legislative wheels put in motion for the wholescale, government-led revamping of the country’s healthcare and energy industries. Any business or investor looking for certainly or stability in public policy would find only the whirlwinid. This all began on Wall Street, let it end there as well. Allow the banks to take advantage of the favorable yield curve and inch their way back to health — and let the head of the FDIC return to relative anonymity.

Does the jobs report mean a V-shaped recovery?

Jun 5, 2009 20:28 UTC

I will give the last word (for today) on the jobs number to Wesbury & Stein:

The jobs report strongly supports our call that the economy bottomed in May and is now in the early stages of a V-shaped recovery. Businesses are shedding jobs at a much slower pace than earlier this year and we would not be surprised to see payrolls start to increase by the end of the summer. The speed of the turnaround cannot be ignored. …  After the collapse of Lehman Brothers last September, monetary velocity plummeted, with both businesses and consumers pulling back from any activity they deemed unnecessary. Now, restaurants and bars are adding payrolls again, a sign that consumer behavior is returning to normal. While some analysts may focus on the rise in the unemployment rate to 9.4%, much of the increase was due to an increase in the labor force, which has risen by more than 1 million workers in the past two months. Without this increase the jobless rate would be a much lower 8.7%.


Wait a Minute!

If the Work Force has gained One Million, where did they come from? Recent High School, College & University graduates? They swim across from Cuba?

From what I remember, you don’t go straight to the unemployement office to apply for help once you graduate, which is where they get the Unemployment Calculations, so, why is this guy subtracting from the announced figures, in order to show a lower level?

Not a logical premise, and does not compute!!!

I am very suspect, as he is probably an Obama Supporter.

Posted by Jack S. | Report as abusive

Dan Gross and Ezra Klein vs. Reality

Jun 5, 2009 18:12 UTC

Media supporters of President Obama, such as blogger-columnists Ezra Klein and my pal Dan Gross, are eager to dismiss the rise in interest rates as being a negative verdict on the financial soundness of White House economic policies. This is understandable, especially since many of my colleagues seem eager to propel the narrative that the nation’s economic center has moved down I-95 from New York to Washington.

Of course, the notion that a country whose stocks, currencies and bonds are traded in global markets in massive quantities is in complete control of its financial destiny is silly. Wall Street (using the term in the broadest possible sense) matters as much as ever.  But they might be a bit right about the bond market.  The linkages between rates and budget deficits are murky. Yet policy does matter. Just take a look at a 30-year bond chart and notice how rates peak in 1994 — Nov. 7, 1994, to be exact. That is the day before the congressional midterm elections when the GOP captured both houses of Congress. There was something about balanced budgets, slower government growth, lower capital gains taxes and free trade that the markets liked.


Stockshockmovie.com is a new Hollywood release shipping next week on DVD. It reveals the truth about the stock market and manipulation of investors.

An improving job market

Jun 5, 2009 17:21 UTC

I wanted to elaborate a bit on the job market, with my first embedded graph of the blog! It shows the diminishing rate of job losses, though the unemployment rate will continue to rise, especially as more people try and return to the workforce.



John T,

Agreed that there is a problem with the birth/death plug. The problem is not that it is large. That is a seasonal artifact. The plug is large in May every year. The problem is that is it larger than May of last year, in fact, 25% larger than for May of last year. The plug for leisure and hospitality is up 2.7% even though room occupancy has gone through the floor. The plug for construction is up 7.5% despite job losses in construction in every month since last May. The plug for manufacturing is up 75% from last May, even as auto suppliers close down left and right. This is nuts.

Posted by kharris | Report as abusive

Unemployment hits 9.4 percent

Jun 5, 2009 13:25 UTC

First the numbers:

1) U.S. employers cut 345,000 jobs last month, the fewest since September.

2) Analysts polled by Reuters had forecast non-farm payrolls dropping 520,000 in May.

3) The unemployment rate raced to 9.4 percent, the highest since a matching rate in July 1983, from 8.9 percent in April. The low for this economic cycle was 4.4 percent in march 2007.

4) Since the start of the recession in December 2007, the economy has lost 6.0 million jobs.

5) The number of long-term unemployed (those jobless for 27 weeks or more)
increased by 268,000 over the month to 3.9 million and has tripled since
the start of the recession.

6) A broader measure of unemployment (total unemployed, plus all marginally attached workers plus total employed part time for economic reasons, as a percent of all civilian labor force plus all marginally attached workers) rose to 16.4 percent. The Labor Department has only tracked this number since 1994, but the previous high this decade was 10.4 percent in September 2003.

Now a few thoughts:

1) I am not sure if I am as quite as euphoric as my friend economist Robert Brusca — “Today we have not just ‘Green shoots’ but an authentic sighting of the Jolly Green Giant himself” — but the decline in payroll losses is very good news.

2) I would like to again note that the White House said unemployment would would peak at just below 7 8 percent if its stimulus plan was passed.

3) Those long-term unemployment numbers are bad news for foreclosure rates and credit card defaults.


You sure about that 7 percent number? According to this graph it looks like the Obama folks were saying 8 percent:

http://michaelscomments.files.wordpress. com/2009/06/stimulus-vs-unemployment-may 2.gif

But I guess the overall point still stands.

Obama moves to adopt McCain healthcare idea

Jun 5, 2009 12:19 UTC

Howard Gleckman over at TaxVox blogs that Obama seems to be moving toward capping the $246 billion employer-sponsored insurance tax exlcusion, an idea he ripped McCain for during the presidential campaign:

All of this will result in a few weeks of serious inside-the-Beltway reading of entrails. But my own sense is that Obama will inevitably accept a curb on the exclusion. He’ll do so reluctantly, at least in public, to placate unions and others who insist the exclusion is untouchable. But, as we’ve seen, Obama, unlike the most recent President Bush, is not a my-way-or-the-highway kind of guy. His governing style appears to tilt much more in the direction of my way…or your way.

Even before Obama’s trip the Hill, OMB Director Peter Orszag drew his own line in the sand. In his blog (does Peter never sleep?), Orszag wrote, “We are insisting that health reform be deficit neutral even over the next five to 10 years, through scoreable offsets such as savings within Medicare and Medicaid and (as necessary) additional revenue.”

This means one of two things: Either health reform will be slowly phased-in over the next decade or more—a step that will allow lawmakers to finesse the offsetting tax hikes as well. Or Obama will have to swallow an exclusion cap. Once Congress is through, the kind of Medicare and Medicaid savings Orszag is thinking about will not add up to a lot of money—at least not in the context of a $1.5 trillion reform plan. And there just is no other politically-acceptable place to go to raise the kind of tax revenue the President will need.

What’s in a name?

Jun 5, 2009 12:10 UTC

The American Recovery and Reinvestment  Act is quite poorly named. First of all, the U.S. economy is already recovering even though maybe 5 percent of the $800 billion package has been spent. Plus, much of the spending will have nothing to do with reinvestment, as the Associated Press notes:

Most of the roughly $300 billion going directly to the states is being funneled through existing government programs for health care, education, unemployment benefits, food stamps and other social services. “We all talked about ‘shovel-ready’ since September and assumed it was a whole lot of paving and building when, in fact, that’s not the case,” said Chris Whatley, the Washington director of the Council of State Governments, a trade group for state governments. He estimates states will get three times more money for education than for transportation.