Economy worse than the Whitehouse admits
by Seth Oldmixon, Sat Mar 08, 2008 at 09:59:10 AM EST
Economic indicators point to an American economy worse than the Whitehouse is admitting.
"This quarter will be our weakest quarter," [Edward Lazear, chairman of the White House Council of Economic Advisers] said. "There are indicators suggesting that growth will pick up and pick up quickly. So the question is how quickly will it pick up."
He highlighted what he said was the good news in Friday's jobs report: that the unemployment rate dipped, wages grew and weekly hours stayed the same. However, the jobless rate fell to 4.8 percent in February from 4.9 percent because so many people left the labor force, perhaps discouraged by the difficulty of finding work. And average hourly earnings for jobholders rose only an anemic 0.3 percent from the previous month.
"Obviously we were disappointed," Lazear said about the job losses.
Bush focused even more on optimism than his adviser. "Our economy will prosper," the president said.
But we're seeing more than "disappointing" job numbers.
In fact, job numbers have been consistently worse than initially reported.
Non-farm payrolls fell 63,000 in February, the most since March 2003, marking a second consecutive monthly decline. Economists had expected an unchanged reading.
Adding to the headache for investors, January's loss of 17,000 jobs was revised lower to a decline of 22,000 while an initial estimate of a gain of 82,000 jobs in December was cut to 41,000.
The Whitehouse and its surrogates are pointing to the slight decrease in the unemployment rate as a silver lining, but even that is more likely a sign of a worsening economy. As Sudeep Reddy wrote in the Wall Street Journal this morning,
The February unemployment rate edged down to 4.8% from 4.9%, but only because some job-seekers quit looking for work.
Reddy goes on to put the pieces together:
At the same time, housing-price declines and rising energy costs are adding to the troubles in the job market and putting at risk consumer spending, which accounts for more than 70% of economic activity.
But there's another economic factor that could turn a bad quarter for employment into a vicious circle of economic decline - the worsening housing crisis. Reddy wrote yesterday that,
Among the latest trouble signals, the number of American homes entering foreclosure rose to the highest level on record in the fourth quarter of 2007. Meanwhile, homeowners' share of the equity in their homes fell to a post-World War II low.
Lately, the downturn in homeowners' equity has accelerated, and it is being driven by falling home prices, which is more ominous both for consumers' net worth and for the loans collateralized by those homes. The decline could portend an increase in the delinquencies and foreclosures that have roiled global credit markets.
A decline in the availability of good jobs is going make it harder for people to keep up with payments on homes that are already a losing investment. Already, some homeowners are choosing to walk away from mortgages, despite the Bush administration's "Project Lifeline," intended to keep people in their homes.
This has the potential to accelerate a downward spiral. When people walk away from homes, the property will likely sit abandoned until the bank is forced to foreclose. During this time, the property becomes a blight on the neighborhood, bringing down the values of the surrounding properties. So those who have not walked away, may find themselves pushed closer to the brink as their home value depreciates below the value of their mortgage.
Banks will find themselves holding more and more failed lines of credit, and will be less inclined to offer credit to business sectors for expansion - both out of risk aversion and a lack of cash on hand.
DCCC Chairman Chris Van Hollen points out that, with the economy at such risk, a McCain administration would be devastating.
Now House Republicans are eager to rubber stamp a third Bush term by embracing Senator John McCain -- someone who admits to having a weak grasp of managing the economy. America cannot afford to have Senator McCain receive on-the-job training and gamble on another four years of misguided economic policies that have taken our country in the wrong direction.
It's time for a return to fiscal sanity. For too long we've suffered under Republican policies of crony capitalism and thoughtless deregulation. There are no magic beans available to save the American economy. McCain's plan to continue Bush policies giving away tax money to the wealthiest few and prolonging a poorly planned, trillion dollar war while the rest of the country suffers would harm not only our economy, but our standing in the world. And that's simply not acceptable.