James Pethokoukis

Politics and policy from inside Washington

Where are the jobs? The bear case on the November jobs report

Dec 4, 2009 18:58 UTC

From David Rosenberg of Gluskin Sheff, of course:

While it is abundantly clear that companies are near the end of the job downsizing phase, there is scant evidence of any renewal in the pace of new hiring. In fact, it is quite the contrary. This assertion is underscored by the fact that both the median (20.1 weeks) and the average (28.5 weeks) duration of unemployment hit new record highs last month. The share of the unemployed that has been looking for work without success for six months or longer also reached an unprecedented 59% last month. We are fairly certain that these folks will have a slightly different take on today’s employment number than the mainstream economics community. In addition, also keep in mind that the employment diffusion index, while improving in November, was still unacceptably low at 40.6. In other words, roughly 6 out of 10 businesses are still rationalizing their staff loads, even if at a less dramatic rate than in previous months.

All in, the November employment report was positive relative to expectations, but still quite lackluster in view of the dramatic government stimulus underpinning the pace of economic activity at this time. It’s hard to reconcile such a soft employment decline with anything else we saw in the month and at the same time, a diffusion index of 40, weakening wage growth, a record-high level of time to find a new job within the ranks of the unemployed and the lowest employment-to–population ratio in 26 years is hardly consistent with a vibrant labour market.


Jim, Can’t get through the day without checking your superb blog. With the new look of your blog, I am missing the list of your favorite websites and blogs. Can you bring that back? Keep up the good work…..Jim Quick

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The case against Bernanke

Dec 4, 2009 18:33 UTC

Some self-incriminating evidence (Bernanke in his own words) supplied by David Leonhardt of the NYTimes:

* July 1, 2005 (responding to a CNBC question about whether there was a housing bubble and whether it could cause a recession): “It’s a pretty unlikely possibility. We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize, might slow consumption spending a bit. I don’t think it’s gonna drive the economy too far from its full employment path, though.”

* May 17, 2007: “We do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system.”

* July 18, 2007 (a month before the subprime mortgage market began having problems and five months before the recession began): “Employment should continue to expand. … The global economy continues to be strong. … Financial markets have remained supportive of economic growth.”

* Feb. 28, 2008: “Among the largest banks, the capital ratios remain good, and I don’t expect any serious problems … among the large, internationally active banks that make up a very substantial part of our banking system.”

* June 9, 2008 (six months into the recession and three months before the financial panic began): “The risk that the economy has entered a substantial downturn appears to have diminished over the past month or so.”

* May 5, 2009: “Currently, we don’t think [the unemployment rate] will get to 10 percent.” (Five months later, the rate reached 10.2 percent.)


The truest words I have heard in weeks, gotthardbahn! Ever consider running for office? lol

The chart that keeps the WH econ team up at night

Dec 4, 2009 18:26 UTC

A nice jobs report. A long way to go, as this chart from Calculated Risk shows:



Writing as an interested observer outside America, I find this thread unbelievable. You voted these guys into power, remember? Overwhelmingly, too. You all bought into ‘change we can believe in’ and all the other rubbish spewed by the Dems. You allowed your dislike of Mr. Bush and Mr. McCain and Ms Palin to colour your vote last November. Now the reality of a radical-left administration in Washington is setting in and you aren’t too happy about it. What did you expect? I don’t know if I should laugh or cry.

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The November jobs report and the 2010 midterms

Dec 4, 2009 17:46 UTC

A few thoughts, sports fans:

1)  The drop in the U3 rate is welcome news for the WH, congressional Dems (and US workers, of course). But it is really just a smoothing out of last month’s weird pop from 9.8 percent to 10.2 percent. As Action Economics notes:

The jobless rate also fell by a welcome two-ticks, to 10%, though this just reversed half of the surprising four-tick October pop to leave intact the recent uptrend of roughly 0.1% per month for this measure. We now assume a flat payroll figure in December, with the resumption of positive payroll growth in Q1, but we still expect a modest up-trend to remain in place for the unemployment rate.

2) That being said, there was certainly good news in both temporary hires and hours worked — though if the labor force participation rate had stayed steady, U3 would have been 10.1 percent.

3) But economics is one thing and politics another. The U3 rate is an ugly indicator to Americans that the economy is still broken.

4) Still a quite good chance that on Election Day 2010, unemployment for over a year will have averaged in double digits. This is virgin territory for political forecasters, and the single biggest reason why 2010 may be more like 1994 (incumbent Ds lose 52 House seats) than 1982 (Rs lose 26 seats). Average the two and you get a loss of 39 House seats — not a bad guess for a U-shaped recovery.


hey, charlie cook has 15-25 (and 3-5 senate seats) as a conservative case …if its 35, hardly a shocker

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The White House and jobs stimulus

Dec 3, 2009 20:07 UTC

From Marc Ambinder:

Really: the White House does not seem to believe that (a) anything sensible to meanginfully reduce the unemployment rate can be proposed, completed and paid for — and executed — by next November. Nothing, in any event, that wouldn’t jeopardize recovery in the long-term. This frustrates people in the party to no end, as well it might.

10 ways to cut the U.S. budget deficit

Dec 3, 2009 19:49 UTC

How to put the budget on a “sustainable path” from Jeffrey Frankel of Harvard (some excerpts):

First, auction off most greenhouse gas emission permits, rather than giving them away to firms (which would confer windfall profits).

Second, raise the gas tax.

Third, cut agricultural subsidies to rich farmers and agribusiness, saving money and improving economic efficiency.

Fourth, continue to cut expensive weapons systems that the military doesn’t want, but have in the past been kept because the suppliers are in the districts of influential congressmen.

Fifth, end manned space exploration.

Sixth, let the George W. Bush tax cuts for the rich expire as under current law.

Seventh, encourage hospitals to standardize around national best-practice medicine – to avoid unnecessary tests and procedures – using levers such as making Medicare payments conditional on best practices.

Eighth, limit or eliminate the tax-exemption for employer-paid health insurance (proposed by Senator McCain), at least the cadillac plans which are very expensive but don’t even pay off in health results (proposed by Senator Kerry).

Ninth, ideally, eliminate the tax deductibility of mortgage interest too.

Tenth, to save Social Security, raise the retirement age (just a little), tax higher incomes (just a little), and progressively index benefits for future retirees to price inflation, rather than to wage inflation (just a little).

Me: As Ryan Ellis of ATR notes, “Jeff frankel has 5 tax hikes totaling $500 bil per year, and 5 spending cuts totaling $50 bil per year. How fair!” Toss in a VAT, which Dems would love to do, and you talking near a trillion dollar in tax increases. I cant see how that is good for growth. More cuts!


Well some of these suggestions are ok but most would hurt. Example: mortage interest would hurt the housing industry as well as the tax payer. If I could not write off my interest I am not sure that I would have a house.
I think I should be able to write off all interest myself. My house hold should be no different than a business in some ways. If you could write off interest on a car load car sales would go up hink about it. What goes around comes around.
We need to cut the size of this monsterous government. 10% to 15% National sales tax for ALL, with NO deductions for anyone. Those making under $25000 a year pay no taxes, get rid of the IRS, WHOA what a savings that would be, get small business and large business back in the positions where the can once again create JOBS! for Americans. Put a halt to out sourcing our work force. Fair trade needs to be demanded. We have helped the other guy out long enough.
I tell you also we need to get rid of those greedy dirt bags in congress and get someone in that listens to the people. Need to cut their wages and benifits to match ours. This would soon make a big change in these greedy people.

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The Bernanke Dilemma

Dec 3, 2009 18:45 UTC

BB’s effort to be the charming professor has failed. Only a  fifth of the public supports his renomination. It’s now almost gospel in the GOP (at least outside DC) that the Fed should be abolished. And Democrats are picking their spots for attacks, such as Dodd’s idea for a single regulator and Frank’s idea to neuter the regional bank presidents.

Certainly more transparency is needed. Among other things, Federal Open Market Committee minutes could be released days after a meeting rather than weeks. Like Jean-Claude Trichet, his European Central Bank counterpart, Bernanke could even hold press conferences right after FOMC meetings.Bernanke should also consider backing off the idea that the Fed should be the U.S.’s systemic risk über-regulator. He might win the case on the Fed’s credentials, but accumulating power while resisting accountability is a political loser. For Bernanke, a bit less authority might mean a lot more support in Washington and on Main Street.

If not, then expect a continued push for an audit bill along with other efforts to increase congressional influence.


Here is Ron Paul and Jim DeMint in the WSJ:”The Fed has also, for the past three decades, been required to engage in monetary policy with the goal of maintaining stable prices and full employment. Since the natural trend over time is for prices to decrease, a mandate to maintain stable prices is a mandate to pursue an expansionary monetary policy and inflate the money supply to counteract the lower prices we would expect from increased productivity.”http://online.wsj.com/arti cle/SB1000142405274870478230457454228097 1009044.htmlCentral banking is inherently unstable and supremely complex. It fails for the same reason as central planning failed in the Soviet Union. Abolish it and bring back free-market capitalism.

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How Obama is freezing the job market

Dec 3, 2009 10:20 UTC

Let’s assume that the much-hyped White House “jobs summit” turns out to be a free-flowing exchange of ideas and views. Could happen. If that’s the case, then President Barack Obama shouldn’t be shocked if a few CEOs dare suggest that the sweeping-yet-stalled Obama agenda might … actually … you know … no offense, Mr. President … be contributing to the jobless recovery. (The union and academic invitees will protest mightily, natch.)

CEOs are saying as much amongst themselves. At a recent symposium, Intel boss Paul Otellini, a contributor to both parties, expressed concern about the “amount of variability in the system” created by the state of policy flux in healthcare, energy and tax policy. “It is very difficult to make a hiring decision,” he said. General Electric chief executive Jeffery Immelt, a strong supporter of Obama’s cap-and-trade proposal, added he would just like to “know what the rules are.”

All in all, a disturbing replay of the 1930s when FDR’s big changes left business reeling with uncertainty and confusion. The “devil you don’t know” and all that.

Small business is certainly with Big Business on this, particularly regarding the mercurial nature of healthcare reform. The substance of ObamaCare continues to morph daily — from the state of the public option to employer mandates to financing expanded coverage – as Senate leader Harry Reid scrounges for votes. On energy, the president will make big promises at Copenhagen even though cap-and-trade looks stillborn in the Senate.

As for financial reform, Senate banking committee chair Chris Dodd has proposed sweeping changes, while the Tim Geithner-Barney Frank version in the House seems beamed in from a universe where the credit crisis never happened. Compromise could prove elusive. Even Obama’s tax reform panel has delayed releasing its findings.

So Corporate America is about to enter 2010 – an election year – with the fate of the ambitious Obama agenda uncertain. Maybe the only thing for sure is that whatever job-creation package the White House and congressional Democrats eventually gin up, it will likely be a $300 billion or so combo of more transportation spending, more aid to cash-strapped state and local governments and some sort of hiring tax credit.

(And that gets at another critical flaw with the jobs summit. As any of the executives could tell Obama, brainstorming sessions are often the tool-of-choice of the highly ineffective manager. Such confabs are frequently used to give team members the illusion that they are contributing to the idea generation process. In fact, the manager has already made his decision. And that is, more or less, the case with Obama. At the very least, don’t expect any CEO suggestions of lowering personal, corporate or investment tax rates to get even a whiff of consideration from the White House.)

Of course, Obama could pivot and revamp healthcare reform into a more incremental, targeted bill that might actually pass with decent margins in both houses. And while cap-and-trade is gasping for air, a deficit-neutral carbon tax (offsetting payroll taxes) might actually pull in significant Republican support. Maybe even a fat payroll or corporate tax cut.

But the tendency toward election-year gridlock is fast approaching. And for frazzled Corporate America and a frozen job market, gridlock – and the uncertainty that goes with it – is not good.


Some would say that all of this is being done by Obama in order to destroy our way of life and impose socailism on us. Porgressives say “nothing like a good crisis to impose your will”. Thats about the only logical reason I can come up with for all of the stupid things that are being done. Hope I am wrong.

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Goldman Sachs 2011 forecast would be an absolute disaster for Dems

Dec 3, 2009 00:32 UTC

This would be New Normal with extreme prejudice. Bad for Democratic incumbents in the 2010 congressional midterms, but it should make the White House political team nervous as well for 2012. If Goldman Sachs is right, of course. Here is the firm’s 2011 forecast:

The key features of our 2011 outlook: (1) a strengthening in growth from 2.1% on average in 2010 to 2.4% in 2011, with real GDP rising at an above-potential 3½% pace in late 2011; (2) a peaking in unemployment in mid-2011 at about 10¾%; (3) extremely low inflation – close to zero on a core basis during 2011; and (4) a continuation of the Fed’s (near) zero interest rate policy (ZIRP) throughout 2011.

That said we see risks that could upset these markets.  On the one hand, we might be underestimating the vigor of the economic recovery, and therefore the pressures for Fed tightening.  In addition, surging asset prices and worries about a “bubble” could prompt Fed officials to tighten before such a move seems warranted on real-economy grounds.  On the other hand, the economy (and the markets) could struggle under the weight of credit restraint for small businesses, weakness in commercial real estate markets, or fiscal tightening, especially by state and local governments.

The implications? I hardly know where to begin: a) with unemployment rising all next year, a GOP blowout in 2010; b) certainly more job creation packages; c) no capandtrade; d) increased anti-Wall Street/Fed sentiment; e) third party prez candidate in 2012; an Obama challenger in 2012 (Dean?). But who really knows. This would be like a technological singularity where seeing beyond the event is pretty much impossible. Such a Long Recession (essentially) would be so contrary to American expecatations — such a slow-mo, psychological shock — that it would be a full-out system perturbation equivalent to 9-11 or the Iraq War.


If GS Said they were Lying I wouldn’t Believe Them!

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Bernanke goes to Capitol Hill

Dec 2, 2009 20:19 UTC

The Bernanke confirmation hearing should be a great show, especially after BB’s “speaking truth to power” WaPo op-ed where he went all Michale Corleone on Fed critics: “Senator? You can have my answer now, if you like. My final offer is this: nothing. Not even the Fed audit bill, which I would appreciate if you would kill personally.”  Former Feddies are split on whether that was the right move or if he should have been more conciliatory ….


15 must-ask questions for Bernanke:http://cunningrealist.blogspot. com/2009/11/rewarding-failure.htmlhow about reading these verbatim in the hearing??

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