Economy worse than the Whitehouse admits

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.

Tags: economics, Employment, housing, Whitehouse (all tags)

Comments

5 Comments

Re: Economy worse than the Whitehouse admits

Agreed ten times over.  The economy is and will continue to be one of the biggest issues in this election - lowering the unemployment rate, lowering inflation, fixing the deficit, etc.  Obviously, ending the war will assist with the deficit, but if Congress and Bush thought that a rebate would save the economy, it's too little too late.  I know I'm paying my bills with that rebate, because I think a lot of us are faced with debt that we want gone before moving forward and buying more.

We need a strong stimulus plan that doesn't just throw money at the problem but also encourages small business growth and a shift toward green energy - thank god both of our candidates have that.

by ejintx 2008-03-08 10:19AM | 0 recs
Re: Economy worse than the Whitehouse admits

I'm shocked that no one else has even commented.

by ejintx 2008-03-08 12:07PM | 0 recs
Structural changes in the workplace

I feel strongly that we are seeing structural changes in the workplace, globally, that are not reversable.

In other words, we really should start making plans for a future in which part time or contract work is the norm, and full time work is increasingly a rarity. I think salaries are being driven down by an oversupply of unskilled and semi-skilled workers.

In this environment, we need a much better safety net. We also need to cut military spending to pay for it.

by architek 2008-03-08 12:41PM | 0 recs
Re: Structural changes in the workplace

But fact of the matter is that there are no more unskilled workers than there ever have been before - college graduation has skyrocketed since the 40's with the GI Bill.  Community Colleges and for-profit institutions, similarly, are providing skills to those who might otherwise be unskilled.  I think our problem is that the economy is at such a weak point and the taxes so low that our safety nets are headed toward quicker demise.

I don't think we should switch to a contract and part-time economy until those safety nets that make people clamor for full-time jobs can be adequately put in place like they are in France.  I think the overriding question though is when is the appropriate time and how do foster innovation and simultaneously encourage change in corporate culture?

by ejintx 2008-03-08 12:58PM | 0 recs
You're misunderstanding what I said... sorry..

Responding to ejintx..

>But fact of the matter is that there are no more unskilled workers than there ever have been before - college graduation has skyrocketed since the 40's with the GI Bill.  

Many people who are having trouble finding jobs have skills, even high level skills, however, its far worse for those who don't have a degree.

Obviously, in the past, the most important criteria for employability were things like literacy, an ability to blend into a workplace, willingness to work.

Its completely different now. Many people with college degrees have been finding it hard to get jobs. For the really unsilled its almost impossible. But at least, they aren't 'overqualified', which is terrible too. Age also has a huge impact on whether someone will be hired because of health insurance costs. Many businesses avoid hiring people over 35 or 40. This is only going to get worse if the candidates tie healthcare benefits to jobs. This is a huge mistake because jobs are disappearing and the GOP (because of the implications of that - the need for a REAL safety net is growing with each round of layoffs - wants to divert attention to other reasons, ones which they can use to reduce benefits to people, not increase them.)

The Dems should be pushing for a national healthcare plan like Canada's in which employers are not involved. One which is not tied to jobs because people lose jobs when they get sick, and also jobs often come and go.

We need to understand that the workplace is changing due to deskilling and commoditization and workplace automation. Jobs are shorter and shorter and businesses are trimming everybody they don't need. Its not like a few years ago when businesses kept employees on who didn't pull their weight. Now some businesses make it a practice of laying off the least productive 5% or 10% of workers every few months, even if they are doing their jobs well. This is only going to get worse because I think we all understand now that business is not defined by employees, its defined by its product. Employees under our system are expendable. If we want to change that, we have to change the fundamentals of the system.

Business is also much more productive and profitable now than it was in the past largely because of exponential growth of the utilization of technology. This means that machines do the work. Its not machines helping people, its more like people helping machines. Even those who develop technologies often develop themselves out of work. This isn't seen as unusual or unfair. Its just business. (In Japan, in the past, all salaried employees - but especially those who developed money saving technologies for their employers, were rewarded for many years with lifetime employment. Now that social contract is falling apart under the pressure of US style management practices which emhasize the importance of being able to fire people.)

Nicholas Carr, a management consultant, wrote a paper a few years ago that was uch discussed in the IT world entitled "IT Doesn't Matter" the thrust of it being that computing services in businesses in which the services themselves were not the core product were better off outsourcing IT services or using old technology which had already become cheap.

But to get back to my point. The old style permanent jobs are disappearing. Many of them wont ever come back. And with them, if we don't take steps to stop it, is going the whole economic foundation of the American middle class, which is a fairly recent phenomenon.

Older people run into a particular set of problems even if their skill level is very high. They want too much. Its now very hard for people over 40 who may have had good jobs in the past to be hired for the kind of low-paying jobs that ARE available.

Sometimes, it seems as if some employers feel that are not sufficiently servile, they daydream, they are not team players. Its had to say, but they don't get these jobs.

Perhaps employers don't hire them because they seem desperate, or because they don't think that they will take these low paying jobs seriously or stay.

Also, they may not be able to keep up with the extremely demanding workplaces. Full time, salaried workers are now sometimes expected to put in lots of extra, unpaid hours as well. It all depends. Some workplaces are much better than I am describing, but many are not.

Its supply and demand...

>Community Colleges and for-profit institutions, similarly, are providing skills to those who might otherwise be unskilled.  

Yes, but are those skills they are providing the right skills? And are those people actually getting jobs? Not if the jobs don't exist.

>I think our problem is that the economy is at such a weak point

Yes..

>and the taxes so low that our safety nets are headed toward quicker demise.

Are taxes so low? Actually, our taxes aren't so low so much that this is justfied by that.

For example, our military spending is higher than the whole rest of the world, combined. What are we getting for that money? Its not like we have so much that we have to defend. The standard of living for people in many other developed nations is higher than ours and its partly because they don't waste so much of their treasuries on their militaries. They get along quite well.

>I don't think we should switch to a contract and part-time economy

I don't think you understood me. I was not saying that we 'should' I was just saying that it IS happening and its not something we decide, it happens TO us involuntarily.

>until those safety nets that make people clamor for full-time jobs can be adequately put in place like they are in France.  

Huh? I don't follow... People in most other developed nations expect more from their governments than Americans do, in healthcare, vacations, benefits like childcare and retirement. But those things aren't just entitlements, they free up a huge amount of energy and allow people to be more creative and productive without the worries we have, which are killing us and America.

>I think the overriding question though is when is the appropriate time and how do foster innovation and simultaneously encourage change in corporate culture?

NOW, and I think we should just do it. They wont mind, they might think they would but they wont. Everyone will wonder why we took so long..

by architek 2008-03-08 03:46PM | 0 recs

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