U.S. Economy

[Freedom Tower]

Stocks End Higher on GDP Data
Thursday, July 31, 2003

NEW YORK *— Wall Street closed higher Thursday after investor confidence in the economy was boosted by a strong government report showing gross domestic product advanced much faster than expected in the second quarter.

The Dow Jones industrial average ended higher 33.75, or 0.37 percent, to close at 9,233.80. The Nasdaq Composite closed up 14.11, or 0.81 percent, at 1,735.02, while the Standard & Poor's 500 index was up 2.82, or 0.28 percent, to close at 990.31.

The Dow had earlier gained as much as 160 points, but stocks pulled back from sharper gains in the last two hours of trading, a phenomenon that often happens on the last trading day of the month, when portfolio managers make last-minute adjustments to maximize returns and look good to shareholders.

For July, the Dow climbed 2.8 percent, the S&P 500 rose 1.6 percent, and the Nasdaq Composite jumped 6.9 percent.

Volume was heavy with 1.6 billion shares changing hands on the New York Stock Exchange and 1.8 billion traded on Nasdaq.

The main force driving stocks higher on Thursday was new data released by the Commerce Department showing the U.S. economy grew at a brisk 2.4 percent annual clip in the second quarter, driven by a surge in defense spending.

The pickup in gross domestic product, or GDP, from an annual rate of 1.4 percent in each of the two prior quarters, easily beat Wall Street economists' forecasts for a 1.5 percent pace of second-quarter growth.

Also on Thursday, the government said the weekly number of Americans lodging new jobless claims drifted down unexpectedly to the lowest level since February.

The level of new claims, which gives an early reading on the resilience of the job market, edged down by 3,000 in the July 26 week to 388,000 from a revised 391,000 in the prior week, the Labor Department said.

The Purchasing Management Associated of Chicago (search) also reported encouraging economic data. The group's index of area business activity rose to 55.9 in June on a seasonally adjusted basis from 52.5 in May, according to Dow Jones Newswires.

A reading above 50 signals that the manufacturing sector is expanding, while a reading below 50 indicates it is contracting. The July reading exceeded analysts' forecast calling for 53.8.

"The fact that these numbers came in so good, you can only expect there's going to be even better numbers tomorrow," said Jack Francis, co-head of equity trading at UBS.

Friday brings another big batch of economic numbers, including closely watched reports on both the labor market and the manufacturing sector.

Adding to the optimism on Wall Street, several corporate giants reported strong earnings in the second quarter.

Click for List of Earnings

Procter & Gamble Co. (PG), the maker of Tide laundry detergent, Pringles potato chips and about 300 other consumer products, said profit rose as newer products and the weak dollar helped boost sales. Shares rose 12 cents to $87.87 on the New York Stock Exchange.

Exxon Mobil Corp. (XOM), the world's biggest publicly traded oil company, said its second-quarter profit rose on higher oil and gas prices and improved refining margins. Exxon gained 26 cents to $35.58.

Insurer Chubb Corp. (CB) said after the close of trading on Wednesday that its quarterly profit rose 20 percent. Its shares were up 4.6 percent, or $2.90, to $64.80.

CVS Corp. (CVS) climbed $1.04 to $29.99, adding to the $1.20 it gained Wednesday when the drug store company reported second-quarter profits that beat analysts' expectations by a penny a share. On Thursday, Morgan Stanley upgraded CVS to "overweight" from "equal-weight."

Merrill Lynch helped bolster the semiconductor sector after it raised its ratings on a number of companies in the sector, including National Semiconductor Corp. (NSM), which rose $1.59, or 8 percent, to $22.35. The Philadelphia Stock Exchange semiconductor index rose 2.22 percent.

Weighing on the market was Cardinal Health Inc. (CAH), which tumbled after the drug wholesaler's fiscal 2004 earnings forecast disappointed Wall Street. Its shares fell $9.71, or 15 percent, to $54.75.

Consumer products maker Newell Rubbermaid Inc. (NWL) also took a hit after it said its profit fell 17 percent amid weaker retail orders and it cut its earnings forecast for the year. Its shares dropped $4.79, or 17 percent, to $23.63.

The bond market had stock investors on edge again. U.S. Treasury prices crumbled and yields surged to one-year highs. The move fanned fears higher borrowing costs could deflate the housing market — an area of strength in an otherwise soggy economy.

Despite having the lead for most of the session, advancing issues ended up matching decliners on the New York Stock Exchange. Trading volume was moderate.

The Russell 2000 index, which tracks smaller company stocks, rose 3.22, or 0.68 percent, to 4768.02.

Overseas, Japan's Nikkei stock average finished Thursday down 0.7 percent. In Europe, Britain's FTSE 100 gained 0.4 percent, France's CAC-40 rose 1.2 percent and Germany's DAX index advanced 1.3 percent.

Reuters and The Associated Press contributed to this report.


So do you all think the economy is going to start shaping up or this is just hype over nothing?

[Freedom Tower]

GDP Surges on Defense Spending
Thursday, July 31, 2003

WASHINGTON — The biggest surge in defense spending since the Korean War era helped drive U.S. economic growth ahead at a surprisingly brisk 2.4 percent annual clip in the second quarter, the Commerce Department (search) said on Thursday.

The pickup in gross domestic product, or GDP (search), from an anemic annual rate of 1.4 percent in each of the two prior quarters, easily beat Wall Street economists' forecasts for a 1.5 percent pace of second-quarter growth and showed relatively broad-based gains.

It was the most robust expansion in GDP since a 4 percent annual rate of increase in the third quarter of last year and is certain to buttress forecasts from Bush administration officials and private analysts for an economic acceleration in the second half of 2003.

"Growth in the second quarter was boosted by federal defense spending, by business investment in plant and equipment, and by consumer spending," Commerce noted. Spending on defense, much of it to support the war in Iraq, shot up at a 44.1 percent rate — the strongest since a jump of 110 percent in the third quarter of 1951 — after falling 3.3 percent in the first three months of the year.

The dollar's value climbed against other major currencies immediately after the GDP data was issued, in the apparent belief a U.S. economic rebound will outstrip those in other major regions and make U.S. investments relatively more attractive.

Business Spending Revives

Business investment, which has lagged during the slow expansion from the 2001 recession, showed definite signs of revival in the spring quarter.

Nonresidential spending — the broadest category of investment — climbed at a 6.9 percent annual rate in the second quarter after decreasing 4.4 percent in the first three months. It was the strongest advance in investment spending in three years, since a 10.2 percent jump in the second quarter of 2002.

Consumer spending, which fuels two-thirds of national economic activity, added to the second-quarter pace of expansion. Spending, especially on new cars and other costly durable goods, climbed to a 3.3 percent rate from 2 percent in the first three months of the year, and was the strongest since a 4.2 percent increase in the third quarter of last year.

The Federal Reserve, which has cut U.S. short-term interest rates to 45-year lows in a bid to spark a stronger recovery, said on Wednesday it saw signs in June and early July that a more vigorous pace of growth was budding as manufacturing activity grew.

"Several districts noted increased optimism about economic prospects in coming months," the U.S. central bank said in its periodic beige book summary of national economic conditions in the 12 Fed districts, adding it saw "nascent signs of a recovery" in a down-trodden manufacturing sector that has shed an estimated 2.6 million jobs since mid-2000.

Spreading the Word

Treasury Secretary John Snow (search), touring two states in the Midwest in company with Commerce Secretary Don Evans and Labor Secretary Elaine Chao on Tuesday and Wednesday, similarly maintained the economy was "spring loaded" for a more powerful second-half performance with growth rising to around a three percent rate in the third quarter and 3.5 percent by the final quarter this year.

The GDP report showed businesses reduced their inventories of unsold goods at a $17.9 billion annual rate in the second quarter after building them up at rates of $4.8 billion in the first quarter and $25.8 billion in the final three months last year.

Slimmed-down inventories generally are considered promising for the future, since it means companies must quickly ramp up production and potentially hire more employees once stronger demand is firmly established.

[Qtrainat1251]

All I can say is its still quite bad here on Long Island. Roosevelt Field mall lost over 10 stores since the beginning of the year, it just lost 2 more last week.
Dont see the city doing that well either. Hopefully though things have turned the corner, but the effects always lag in New York and Long Island.

[ZippyTheChimp]

StocksView: Confidence Lags on Wall St.

Sat Aug 2, 8:48 AM ET

By Dick Satran

NEW YORK (Reuters) - Like voters in the nation's most populous state, stock market investors are trying hard to erase the grim memories of the past three years and move forward.

But the reality is that California, and the stock market, might have some hard slogging to go through before things get a lot better. In both cases, a sluggish economy and a crisis of confidence are sapping prospects for a strong rebound.

"Confidence is vulnerable right now," said Robert Shiller, a professor of behavioral economics at Yale University's International Center of Finance. "There's distrust and dissatisfaction with the people on Wall Street -- the talking heads and analysts who kept telling them the market would keep going up when it didn't."

Californians know all about distrust. Facing ballooning budget deficits and economic malaise, they've backed a historic recall election of Gov. Gray Davis (news - web sites).

Wall Street's lack of confidence shows up when investors sit on their wallets -- but the signs are mixed about what hey'll do next. The major averages have climbed now for five straight months, but are still far below their all-time highs.

Few analysts expect stocks to continue the first-half boom, especially after the latest round of corporate earnings appeared suspect, pumped up by one-time gains and cost cuts, and unemployment still near nine-year highs.

Thursday's surprisingly strong 2.4 percent growth in gross domestic product bolstered optimists. John *Bitner, chief economist for Eastern Investment Advisors, said the figures show "we're on the cusp of a stronger recovery." He sees growth rising to 3.5 percent a year -- still moderate but good for stocks, as it doesn't trigger steep gains in interest rates or inflation.

So far, though, the economy hasn't shown the ability to create new jobs, and that's been a source of major concern for investors. Friday's employment data showed overall unemployment falling to 6.2 percent but jobs still disappearing.

The jobs picture is one of the big factors sapping investor confidence, said Shiller. In surveys of investor confidence, he finds investors are increasingly willing to put money into stocks, but not for the long term. Most people still don't trust the market as a long-term investment, he said.

Back in 2000, when stocks were near their all-time peaks, the vast majority of people were true believers, with 76 percent "strongly agreeing" with the statement: "The stock market is the best investment for long-term holders." But that figure declined precipitously since then to just 39 percent this year.

BUDGET DEFICIT

The economy has undermined investor confidence and California politics. California is ground zero of a malaise" that's infected almost every state trying to cope with a cutback in federal funding. The state's whopping budget deficit of almost $40 billion sparked the recall election of Davis.

But there are plenty of economists who see the embattled governor as more scapegoat than perpetrator in the budget crisis. About half of the state's $20 billion deficit can be blamed on lost tax revenues caused by the tech bubble's collapse, says Stephen Levy, senior economist at the Palo Alto, California-based Center for Continuing Study of the California Economy.

The economic downturn has been dramatic in the tech industry. The San Francisco Bay Area lost more than 275,000 jobs in the past three years, or 10 percent of all jobs lost in the recession. In this week's Federal Reserve (news - web sites) "Beige Book" Report on regional economies in the United States, the Bay area was cited as one of three remaining trouble spots nationally.

To be sure, job losses all around the country have battered consumer and investor confidence alike. That helped knock the Conference Board (news - web sites)'s consumer confidence indicator down 10 percentage points on Thursday, pushing stocks downward.

"The fact that the economy has lost 2.5 million jobs is an enormous negative," said Shiller. "It's a confidence destroyer."

Still, Bitner sees the economic recovery finally reaching the level where new job creation will take place and moderate growth will allow stocks to gain 8 percent to 10 percent a year.

"A lot of people have been talking as if the economy will jump up like a coiled spring -- but what I see is something moderate," said Bitner.

California's troubles, he said, are not likely to spill over into the national economy. Still, he sees the legacy of stock market scandals and stock bubbles sparking a different kind of malaise for investors all over America.

"People have to overcome their fear, and they have to see that the government really has clamped down on the stock market excesses. They have to realize that it's safe to go back in the water," Bitner said. The legacy of terror attacks, the sluggish economy and the Iraq (news - web sites) war also continue to shred confidence. "It will take a while to wipe that away."

Copyright Reuters

In the long term, the balooning budget deficit is worrisome.

[ZippyTheChimp]

October 14, 2003

Don't Look Down

By PAUL KRUGMAN

During the 1990's I spent much of my time focusing on economic crises around the world — in particular, on currency crises like those that struck Southeast Asia in 1997 and Argentina in 2001. The timing of such crises is hard to predict. But there are warning signs, like big trade and budget deficits and rising debt burdens.

And there's one thing I can't help noticing: a third world country with America's recent numbers — its huge budget and trade deficits, its growing reliance on short-term borrowing from the rest of the world — would definitely be on the watch list.

I'm not the only one thinking that. Lehman Brothers has a mathematical model known as Damocles that it calls "an early warning system to identify the likelihood of countries entering into financial crises." Developing nations are looking pretty safe these days. But applying the same model to some advanced countries "would set Damocles' alarm bells ringing." Lehman's press release adds, "Most conspicuous of these threats is the United States."

O.K., let's run through some reassuring counterarguments.

First, economists are very good at devising models that would have predicted past crises, but each new crisis tends to happen where and when they didn't expect it. So even though our budget deficit is bigger relative to the economy than Argentina's in 2000, and our trade deficit is bigger relative to the economy than Indonesia's in 1996, our experience needn't be the same.

Second, nasty crises in third world countries have a lot to do with the fact that their debt is in foreign currency, usually dollars. As a result, when the peso or the rupiah plunges, debts explode while assets don't, and balance sheets collapse. By contrast, thanks to the special international role of the dollar, America's burgeoning foreign debt is in our own currency.

Finally, financial markets are generally willing to give advanced countries the benefit of the doubt. Even when an advanced country seems to be deep in a financial hole, lenders usually assume that it will somehow find the resources and political will to climb back out.

So is America safe, despite its scary numbers?

Third world countries typically suffer from institutional weaknesses. They have poor corporate governance: you can't trust business accounting, and insiders often enrich themselves at stockholders' expense. Meanwhile, cronyism is rampant, with close personal and financial links between powerful politicians and the very companies that benefit from public largesse. Luckily, in America we don't have any of these weaknesses. Oh, wait. . . . (Isn't that all history? No. According to The Wall Street Journal, we are again hearing warnings that "optimism is based on massaged earnings.")

Still, there's no question that the U.S. has the resources to climb out of its financial hole. The question is whether it has the political will.

There is now a huge structural gap — that is, a gap that won't go away even if the economy recovers — between U.S. spending and revenue. For the time being, borrowing can fill that gap. But eventually there must be either a large tax increase or major cuts in popular programs. If our political system can't bring itself to choose one alternative or the other — and so far the commander in chief refuses even to admit that we have a problem — we will eventually face a nasty financial crisis.

The crisis won't come immediately. For a few years, America will still be able to borrow freely, simply because lenders assume that things will somehow work out.

But at a certain point we'll have a Wile E. Coyote moment. For those not familiar with the Road Runner cartoons, Mr. Coyote had a habit of running off cliffs and taking several steps on thin air before noticing that there was nothing underneath his feet. Only then would he plunge.

What will that plunge look like? It will certainly involve a sharp fall in the dollar and a sharp rise in interest rates. In the worst-case scenario, the government's access to borrowing will be cut off, creating a cash crisis that throws the nation into chaos.

I know: it all sounds unbelievable. But would you have believed, three years ago, that the U.S. budget would plunge so quickly from a record surplus to a record deficit? And would you have believed that, confronted with that plunge, our leaders would offer excuses rather than solutions?


Copyright 2003 The New York Times Company

[Jasonik]

http://www.internetweekly.org/images/bush_2004_poster.jpg
http://www.internetweekly.org/photo_cartoons/cartoon_bush_economy.html

[Freedom Tower]

Actually if anyone's been paying attention the economy has recently started to get back on its feet. Stocks are going up. The unemployment rate hasn't gone up in a while. And President Bush does care about the economy, that's why he issued tax cuts. And they are starting to work. However, maybe he is slow to make new changes to help the economy because anything he does gets criticized from the left.

[ZippyTheChimp]

He's afraid to do anything out of fear of criticism?
Even I give him more credit than that.

[Freedom Tower]

Well he has good reason to be afraid of criticism Zippy. Originally he didn't worry about criticism if he knew the cause was just. He went through with the tax cuts, and the war in iraq. He knew that those two things were neceassary and he did them, despite criticism. But criticism of him is getting way out of hand. He is probably realizing that even though things he does may be right, like trying to get rid of affirmative action, he will be criticized severly for doing them. I didn't say he wouldn't do more for the economy, just that it is possible that he will take longer to do things because of fear from criticism. But that is a guess, not a fact. I'm just guessing that he will be slower in making ANY decision because he wants to think about what will be criticized about it first. When Clinton was in office he was hardly ever criticized, despite Waco, Monica, lying to the entire country, and not going after terrorists in 1993. Why is that? I don't know. Clinton should have been criticized much more than he was. President Bush should be criticized a lot less than he is being criticized. IMO liberals are just more dirty in politics. They will attack President Bush on nearly anything, which will most likely slow down any decisions he makes. But that is just my guess for why he hasn't done more than tax cuts, and lower interest rates for the economy. Although those two things are definately improving the economy and preventing it from getting worse.

[ZippyTheChimp]

The last time I checked, Clinton was not the president. When things start to go bad, the argument becomes, "Well, he's not as bad as so-and-so."

When Clinton was in office he was hardly ever criticized,
Really?

A president who is afraid of criticism is not presidential. Bush did not fear criticism two years ago because he wasn't getting any. He was riding his huge bump in popularity because of the terror attacks. Democrats were politically afraid to voice opposition (to their discredit). Now that his popularity is back down to reasonable levels, his administration is politically vulnerable.

I have said before that the war in Iraq would become a political and economic issue. Now we are stuck for the long haul. Iraq has replaced Afghanistan as the base for terrorism. A cleric set up his own Islamic government in the south. The death toll since Bush declared hostilities over is 100. Bush blames the press for the negativity. It appears that we are finally getting the idiot we elected.

[Freedom Tower]

And the clinton thing was a point. It doesn't matter whether or not he is in office now. I'm comparing the two parties. Because the TV news has a liberal slant when clinton was making bad choices they didn't criticize him. When President Bush makes a GOOD choice, they find something bad about it. It's a double standard I'm talking about. You or another liberal has probably criticized a past Republican President at one time or another, and I bet you no one said "Well he isn't the presidnet anymore so it doesn't count." That is another double standard because when I criticize a past democratic president, which is my right, I am told not to.

[ZippyTheChimp]

That is another double standard because when I criticize a past democratic president, which is my right, I am told not to.
I am sorry that you have problems with reading comprehension. I was expressing my opinion that it's not relevant to this discussion. No one told you not to do it.

When President Bush makes a GOOD choice, they find something bad about it.
You're just going to have to accept the fact that some people think they are BAD choices.

You or another liberal has probably criticized a past Republican President at one time or another, and I bet you no one said "Well he isn't the presidnet anymore so it doesn't count."
I would appreciate it if you would limit your criticisms to statements I have actually made in this forum (you seem to be having enough trouble with that), and not guess at statements you think I may have made in the past.

Bush still has Fox News and that rag the NY Post - who seemed to have problems figuring out who won the Yankee-Red sox game.

[Eugenius]

As long as Zippy brought up Iraq, I think we may need to readdress the issue of "why did we ever get involved."

The original choice on Iraq was to either A) Leave sanctions in place, continue to pressure Saddam Hussein; B) Lift sanctions, and let Saddam rejoin the world community on his own terms, or C) Go in guns blazing, and get our hands dirty, remove Saddam, and face the consequences.

Choice A was rapidly becoming politically unacceptable. Europe and Russia were clamoring to lift sanctions, so that they could recover billions in loans to Saddam and dormant oil investments. Saddam was lobbying hard to have sanctions lifted, claiming he didn't have weapons of mass destruction.

Choice B was virtually unthinkable. Given an enormous resource base that is Iraq's oil reserves, Saddam with his hands untied could recreate his WMD program from scratch in 3-4 years, tops. Then we would REALLY have some fun.

It is obvious that choice C was the only plausible solution. The fact that Saddam didn't actually possess WMD is moot. In fact, it is precisely because he did not yet have those weapons that we were able to attack him with impunity in the first place. Given more time and and a lax enforcement policy, Iraq would not take long to turn into a North-Korea-like mess.

I will not deny that the Bush administration bungled the diplomatic effort that accompanied the war with Iraq. They should have told it like it was, and not relied on bogus terrorism and WMD claims. However, that does not negate the fact that the war was necessary.

It is, of course, unfortunate that over 100 american soldiers have died since the official end of the war, as announced by Bush. However, we should also keep in mind that 100 is a very low casualty rate for an occupation of this size (140,000 troops), and is probably right up there with the rate at which those soldiers would die in traffic accidents at home.

To all those, who would call for an early return of American troops, remember the lessons learned from Somalia. Because Americans turned tail and ran at the first whiff of casualties, the emboldened terrorists decided that they can strike us with no fear of retribution.

[ZippyTheChimp]

Choice C is the obvious choice among the three, but there was a fourth:

D. Gradual escalation. There was no immediacy as the public was led to believe. As a result of the rush for a spectacular military victory, no real planning was made for the aftermath.

The war, coupled with the tax cuts, has become a huge political and economic issue.

and is probably right up there with the rate at which those soldiers would die in traffic accidents at home.
Repugnant.

[Freedom Tower]

"To all those, who would call for an early return of American troops, remember the lessons learned from Somalia. Because Americans turned tail and ran at the first whiff of casualties, the emboldened terrorists decided that they can strike us with no fear of retribution."

Even though I said I wouldn't bother posting, I couldn't help but agree with that statement made by euGENIUS. Not to mention how the anti-war protesters only bolstered the morale for Saddam and his goons. The anti-war and "pull-back the troops" movements also screwed up Vietnam. We, believe it or not, had killed a lot more North Vietnamese then we lost in Americans but then on days people protested bombing raids would stop. The war wasn't fought with full effort becuase there was so much criticism of it. The more the war is criticized the worse it is going to turn out.

[ZippyTheChimp]

Please don't drift too far off topic. The Iraq war has a connection to the economy. The Vietnam war doesn't. If you wish to give your view on Vietnam, open a new thread. I'm sure it'll be a beaut.

[Freedom Tower]

I'm just saying that the more people publicly go against the war, the worse off consumer confidence is, then the worse off the economy is. If you really want something to blame its not the war, its the people who say the war isn't going well. I'm not saying the war doesn't have problems, there are problems in every war obviously. But look, we aren't seeing death tolls in the tens of thousands as in Vietnam or in the millions like WWII. Although any coalition or civilian death is tragic, the numbers are a lot lower than they could be.

[dbhstockton]

I'd be ready to go toe-to-toe with you if you open a thread on Vietnam.

[ZippyTheChimp]

The difference between those other wars and Iraq, from an economic standpoint, is that taxes were not lowered while they were being fought. Despite the huge cost, America emerged from WWII in good economic condition.

[Freedom Tower]

WWII was a much larger war. That means that we had to purchase MANY MANY more tanks. And we had to keep purchasing them because they kept getting blown up. In Iraq, although we are losing some lives and equipment they don't even come close to approaching the numbers lost in WWII. Plus so many people were drafted for WWII that the unemployment was very very low since jobs at home had less people to hire. Pretty much everyone was employed back then. This war is different. We didn't send millions of troops over there. So we didn't lose millions of employees who need to be replaced. If we did than unemployment would be very low and there'd be less of a need for tax cuts. There'd be less of a need for tax cuts because there'd be more purchasing going on. Between the war supplies and the people with jobs. Now there isn't as many war supplies needed and more unemployed because less troops were sent overseas. Because of that we do not have a high demand for goods and therefor tax-cuts will create that demand.

[ZippyTheChimp]

The word you overlooked is emerged. That means the end of the war, when those millions of troops came back home and re-entered the job market.

So far, the tax cut has not created one job, but it has created a record deficit, and the interest payments on that deficit will cut into future spending.

[Freedom Tower]

When they came back from World War II, the demand for houses was very high. That added jobs in construction. Not to mention cars they wanted which added to manufacturing. Also, the tax cuts aren't supposed to directly create jobs. They create jobs indirectly. The tax cuts entice more spending, which is also an increase in sales. That sales increase will make businesses stop laying people off and start hiring new employees. So yes the tax cuts have created MANY jobs, and stopped many others from being lost. Just that it did not happen directly. There is no way to prove that but to show that spending has increased. And if not increased at least the spending stopped slipping as fast as it was slipping before. Had there been no tax cuts I'm afraid to know what the economy would be like right now.

[ZippyTheChimp]

I understand how tax-cuts are supposed to work.

Total retail sales in the US dropped last month.

I've already given my opinion on this, but again - tax cuts in the environment of high unemployment are not a stimulus to consumer confidence. Bloomberg (who I'm sure knows more about economics than both of us) speaks of jobs and fiscal policy here:

http://forums.wirednewyork.com/viewtopic.php?t=142&start=15

[Freedom Tower]

I know sales went down, but sales probably would have dropped MORE than they did if there were no tax cuts. And it's true that tax cuts don't do much for confidence. However, increased sales, resulting from tax cuts should help confidence. And if sales dropped more than they did, which would be likely with no tax cuts at all, confidence would be lower too. So tax cuts aren't necesarily "not working", they are just beginning to turn the economy around. It will probably take a month or so before we really notice a difference from them. I am going to read your link now, in the meantime look at this one. www.cnn.com/2003/TECH/biztech/10/22/industrial.robots.ap/index.html

[Freedom Tower]

Conference Board Consumer Confidence Index Jumps in Oct.

Tuesday, October 28, 2003

NEW YORK — Signs of improvement in the job market triggered a rebound in a measure of consumers' confidence in the economy in October, a private research group reported Tuesday.

After posting a decline in September, the Conference Board (search) 's Consumer Confidence Index (search) jumped to 81.1 in October, up from a revised 77.0 in September. The reading was well ahead of the 80.0 that analysts had been expecting.

Lynn Franco, director of the board's consumer research center, said a brightening job market was a "major factor" in the rebound, as was growing hope that employment trends would continue to improve.

"With the holiday season around the corner, this improvement in consumers' spirits is a good omen for upcoming retail sales," Franco said.

The report was released the same day that the Commerce Department (search) delivered another dose of good news for the economy with a report showing that new orders for durable goods rebounded in September. The figure, which rose by 0.8 percent, reflected stronger demand for a wide variety of goods, including cars, communications equipment and machinery.

The positive economic news helped send stocks higher on Wall Street. The Dow Jones industrial average rose 54.15 points to 9,662.31 in morning trading.

The Conference Board's indexes were derived from responses received through Oct. 21 to a survey mailed to 5,000 households in a consumer research panel. The figures released Tuesday include responses from at least 2,500 households. The figures for September were revised after all the surveys were tabulated.

The Conference Board also reported that an indicator measuring consumers' appraisal of current economic conditions rose in October following five consecutive months of decline. That measure, the Present Situations index, jumped to 66.8 from 59.7 last month.

Consumers' short-term business outlook and the outlook on job conditions also improved. Those expecting business conditions to improve over the next six months rose to 23.2 percent from 21.3 percent, and slightly fewer respondents expected conditions to worsen. Those expecting jobs to become available in the next six months increased to 19.7 percent from 16.6 percent.

Economists keep a careful watch on indicators of consumer confidence since spending by consumers makes up approximately two-thirds of U.S. economic activity. The improvement in the indicator could be a good sign for major retailing companies just ahead of their critical holiday shopping season.

The Conference Board's measure of consumer confidence has fluctuated since April, when it rebounded following the end of major military operations in Iraq. Before that, it had been declining steadily since spring 2002.

[Freedom Tower]

Durable-Goods Orders Bounce Back in September

Tuesday, October 28, 2003

WASHINGTON — America's factories saw orders for big-ticket goods rebound in September, a fresh dose of good news for manufacturers and a harbinger of better times ahead for the economy as a whole.

The Commerce Department (search) reported Tuesday that new orders for "durable goods" — costly manufactured products expected to last at least three years — rose by 0.8 percent last month. The figure reflected stronger demand for a wide variety of goods, including cars, communications equipment and machinery.

The bounce-back in demand comes after new orders for durable goods dipped by 0.1 percent in August, according to revised figures.

Although September's increase was slightly weaker than the 1 percent advance that some economists were forecasting, August's dip was revised Tuesday to show a much smaller decline than the 1.1 percent drop initially reported.

The 0.8 percent rise registered in September was the best showing since July, when new orders for durable goods went up by 1.6 percent.

Excluding orders for transportation equipment (search), which can swing widely from month to month, all other orders for durable goods rose by 1.2 percent in September, marking the fifth consecutive monthly increase.

Tuesday's report is consistent with a Federal Reserve (search) report and some other recent data showing improvement in the manufacturing sector. Factories were hardest hit by the 2001 recession and have struggled the most to get back on firmer footing.

Manufacturers have not only suffered from economic hard times at home and abroad but they also have had to compete with a flood of imported goods flowing into the United States. The situation has contributed to millions of manufacturing job losses in the last three years.

Shipments — a good barometer of current demand — rose by 2.5 percent in September, a turnaround from the 2.6 percent drop posted in August.

New orders for cars, meanwhile, rose 7.6 percent in September, the largest increase since January, and an improvement from the 7.1 percent decrease seen in August.

For communications equipment, orders rose 5.8 percent in September, compared with a 2.2 drop the month before. Orders for machinery increased 1 percent, after a 0.2 percent dip in August. For electrical equipment and appliances, orders went up 1.4 percent in September, on top of a 0.9 percent gain.

However, orders for fabricated metal products, primary metals, which includes steel, and computers went down in September.

[Freedom Tower]

Sales of durable goods are up and confidence is up too. The economy is starting to improve. Lowering the unemployment rate may take a bit longer though.

[Freedom Tower]

GDP Jumps 7.2 Percent, Biggest Increase in Nearly 20 Years

Thursday, October 30, 2003

WASHINGTON — The economy grew at a scorching 7.2 percent annual rate in the third quarter in the strongest pace in nearly two decades. Consumers spent with abandon and businesses ramped up investment, compelling new evidence of an economic resurgence.

The increase in gross domestic product (search), the broadest measure of the economy's performance, in the July-September quarter was more than double the 3.3 percent rate registered in the second quarter, the Commerce Department (search) reported Thursday.

The 7.2 percent pace marked the best showing since the first quarter of 1984. It exceeded analysts' forecasts for a 6 percent growth rate for third-quarter GDP, which measures the value of all goods and services produced within the United States.

The economy's recovery from the 2001 recession has resembled the side of a jagged cliff; a quarter of strength often has been followed by a quarter of weakness. But analysts are saying that pattern could be broken, considering increasing signs the economy finally has shaken its lethargy and is perking up.

Near rock-bottom short-term interest rates, along with President Bush's third round of tax cuts, have helped the economy shift into a higher gear during the summer, economists say. The next challenge is making sure the rebound is self-sustaining, they say.

Democrats, however, argue that the tax cuts contributed to a record budget deficit in the recently ended 2003 fiscal year and have done little to spur significant job growth.

Although the nation's payrolls grew by 57,000 in September — the first increase in eight months — the economy needs to add a lot more jobs than that each month to drive down the 6.1 percent unemployment rate, analysts have said.

The administration has argued that as economic growth improves, meaningful job creation will follow. Bush will be counting on that as he heads into the 2004 presidential election season.

In other encouraging economic news from the Labor Department (search), new claims for unemployment benefits last week dropped by 5,000 to 386,000, a sign that layoffs are slowing. U.S. workers' wages and benefits went up by 1 percent in the third quarter, up slightly from a 0.9 percent increase in the previous quarter.

Amid signs that the recovery is regaining traction, the Federal Reserve (search) on Tuesday decided to hold a key short-term interest rate at a 45-year low of 1 percent. Super-low short-term rates may give consumers and businesses an incentive to spend and invest more, boosting economic growth.



Economists believe the economy will grow at a slower — but still healthy — 4 percent rate in the final quarter.

In the third quarter, consumers ratcheted up their spending at a brisk 6.6 percent annual rate. That was the biggest increase since the first quarter of 1988 and was up from a 3.8 percent pace in the second quarter.

Consumers in the third quarter spent lavishly on big-ticket items, such as cars, boosting such spending by a whopping 26.9 percent rate. And, they also spent briskly on "nondurables" such as food and clothes, which grew at a 7.9 percent pace, the strongest showing since the first quarter of 1976.

While consumers have been the main force keeping the economy going, there are more signs that businesses are starting to do their part.

Especially encouraging was the 15.4 percent growth rate in spending by businesses on equipment and software in the third quarter. That marked the largest increase since the first quarter of 2000 and was up from a 8.3 percent growth rate in the second quarter.

Sustained turnarounds in capital spending and in hiring are crucial to the economy's return to full throttle. Economists said business wants profits to improve and wants to be sure of the recovery's vigor before it goes on a spending and hiring spree.

The red-hot housing market, powered by low mortgage rates (search), also contributed to the strong showing on third quarter GDP. Investment on residential projects grew at a 20.4 percent rate, the biggest increase since the second quarter of 1996, and more than three times the 6.6 percent growth rate seen in the second quarter.

Federal government spending, which grew at a 1.4 percent rate, was only a minor contributor to GDP in the third quarter. Spending on national defense was flat. But in the second quarter, military spending on the Iraq war — which grew at a whopping 45.8 percent rate — helped to catapult economic growth.

A better trade picture in the third quarter also contributed to GDP growth.

But inventory reduction by businesses continued to be a drag on the economy and reduced third-quarter GDP by 0.67 percentage point. And a continuing reluctance by businesses to build up stocks suggest that executives remain wary of the rebound's staying power.

[Jasonik]

Sez who?

[dbhstockton]

Associated Press, I believe. In the future, please cite your sources.

[Freedom Tower]

I usually get my stuff from www.foxnews.com I am pretty sure it is there. Usually the source pastes with it. Guess I have to start double checking.

[ZippyTheChimp]

January 4, 2004

Bush's Budget for 2005 Seeks to Rein In Domestic Costs

By ROBERT PEAR

WASHINGTON, Jan. 3 — Facing a record budget deficit, Bush administration officials say they have drafted an election-year budget that will rein in the growth of domestic spending without alienating politically influential constituencies.

They said the president's proposed budget for the 2005 fiscal year, which begins Oct. 1, would control the rising cost of housing vouchers for the poor, require some veterans to pay more for health care, slow the growth in spending on biomedical research and merge or eliminate some job training and employment programs. The moves are intended to trim the programs without damaging any essential services, the administration said.

Even with the improving economic outlook, administration officials said, the federal budget deficit in the current fiscal year is likely to exceed last year's deficit of $374 billion, the largest on record.

The Congressional Budget Office and the White House budget office have projected a deficit of more than $450 billion this year.

But Joshua B. Bolten, director of the White House Office of Management and Budget, has said the president's policies will cut the deficit in half within five years, through a combination of economic growth and fiscal restraint.

Mr. Bush's budget request, to be sent to Congress by Feb. 2, includes several tax cut proposals, including new incentives for individual saving and tax credits to help uninsured people buy health insurance. The Democratic candidates for president have accused Mr. Bush of doing little to halt the recent rapid increase in the number of uninsured.

Administration officials said the president's budget would call for an overall increase of about 3 percent in appropriations for so-called domestic discretionary spending, which excludes the Department of Homeland Security, the Defense Department and insurance benefits like Medicare and Medicaid.

As he completes work on his budget, Mr. Bush faces criticism from conservatives, who say he has presided over a big increase in federal spending, and liberals, who say his tax cuts have converted a large budget surplus to a deficit.

Total federal revenues have declined for three consecutive years, apparently the first time that has happened since the early 1920's. But in those years, from 2000 to 2003, total federal spending has increased slightly more than 20 percent, to $2.16 trillion last year.

Brian M. Riedl, an economist at the conservative Heritage Foundation, said: "President Bush is not focusing on his fiscal conservative base right now. He's trying to position himself in between conservatives in Congress and the Democratic Party. It may be good politics, but it's bad policy, a lost opportunity to get runaway government spending under control."

White House officials deny that they have acquiesced in a domestic spending spree. They insist, as do some liberal advocacy groups, that appropriations for domestic programs are not exploding.

Such spending, they say, will increase 3 percent in 2004, after increases of 5 percent in 2003, 6 percent in 2002 and 15 percent in 2001. Moreover, they say, increased corporate profits should lead to an increase in corporate tax payments, lifting revenues in the coming years.

Richard Kogan, a budget analyst at the Center on Budget and Policy Priorities, a liberal-leaning research and advocacy group, said the increase in military and domestic security spending in the last two years dwarfed the increase in domestic discretionary programs, which did not quite keep pace with inflation.

"The increases for defense, international affairs and homeland security have been much greater — and thus have played a much larger role in the return to deficits — than the increases for domestic appropriations," Mr. Kogan said.

Housing officials said the administration was alarmed at increases in the cost of vouchers, which provide rental assistance to low-income families, and would take steps to prevent local housing agencies from issuing more vouchers than Congress had authorized. Congress has tentatively decided to provide $14.2 billion for renewal of vouchers this year, an increase of about 15 percent.

Federal officials said they would also require families seeking housing aid to help the government obtain more accurate information on their earnings. As a condition of receiving aid, families would have to consent to the disclosure of income data reported to a national directory of newly hired employees. The directory was created under a 1996 law to help enforce child-support obligations.

Administration officials said the president's budget would also slow the growth of spending at the National Institutes of Health, which doubled in the last five years, reaching $27.1 billion in 2003. Congress has tentatively agreed to provide $28 billion this year, slightly more than Mr. Bush requested, and administration officials said they would seek an increase of 3 percent or less for 2005.

Budget officials defended the proposal, saying they wanted to be sure the agency was properly managing a huge infusion of federal money.

Mr. Bush proposed last year to double co-payments on prescription drugs for many veterans, primarily those with higher incomes and no service-connected disabilities. The White House reaffirmed its support for that proposal in November.

In the last week, the Pentagon has been considering a new proposal to increase pharmacy co-payments for retirees with at least 20 years of military service. Under the proposal, the charge for a generic drug would rise to $10, from $3, while the charge for a brand-name medicine would rise to $20, from $9.

The Military Officers Association of America criticized this as "a grossly insensitive and wrong-headed proposal." In e-mail messages to the White House, members of the association asked Mr. Bush, "Why do your budget officials persist in trying to cut military benefits?"

Col. Steven P. Strobridge, director of government relations at the association, said he understood that the Pentagon was now inclined to study the issue for a year and renew the proposal, as part of a systematic effort to "reduce military health care costs."

Administration officials said they expected Mr. Bush to seek increases of $1 billion, or 10 percent, for the education of children with disabilities and $1 billion, or 8 percent, in Title I grants for schools with high concentrations of students from low-income families.

Budget officials said they were concerned that they did not have enough money for Pell grants to keep pace with a recent surge in low-income students seeking help with college costs. They said Mr. Bush would address that problem in some way, without seeking an increase in the maximum grant, now $4,050.

The budget also seeks money to train more nurses, to encourage sexual abstinence among teenagers and to recruit "volunteers in homeland security," who can respond to emergencies, including terrorist attacks.

Copyright 2004 The New York Times Company



January 4, 2004

The Joyless Recovery

By EDMUND L. ANDREWS

ROCKFORD, Ill.

THE stock market is surging and the economy appears to be booming, but Judith Pike is getting out of business. "I'm finished; I'm out of here," said Mrs. Pike, owner of Acme Grinding, whose customers have been vanishing and whose work force has shrunk from 40 to 4. Two days before Christmas, Mrs. Pike sold her business and more than 40 machines used to grind and finish metal parts. "It will be for pennies on the dollar," she said. "Less than what it cost to buy just one of these machines."

Considering that nearly every scrap of data suggests that the American economy has finally climbed out of the doldrums and is humming at its fastest pace in at least four years, Mrs. Pike's timing may seem unfortunate. But here in Rockford, and in the nation as a whole, factory owners like her have seen their worlds turned upside down. And their struggle goes a long way toward explaining why this continues to be such a joyless recovery.

More than 11,000 jobs have disappeared in and around Rockford in the last three years, and many of those are not expected to return. Motorola shut down a big repair plant not far from Mrs. Pike's company last year, eliminating more than 1,000 jobs, even as it invested $1.9 billion in a new electronics factory in China. Textron is closing several factories that make metal fasteners. And industrial parks are swimming in "for sale" and "for lease" signs.

"We've been through downturns before, but this time it's different," said Malcolm Anderberg, owner of Dial Machine Inc., which does contract manufacturing. "This time, the work is leaving the country, and it's not coming back."

In part, this is an old story - and one not unique to Rockford. Manufacturers have been shedding jobs in the United States for decades, moving plants to low-wage countries or squeezing ever more production from fewer workers at home. But the process accelerated recently, with manufacturers trimming a whopping 2.8 million jobs over the last three years alone. A study published in August by the Federal Reserve Bank of New York concluded that more than half of those job losses stemmed from structural changes and were likely permanent.

History leaves little doubt that new jobs will eventually replace the old, and that workers' incomes can still rise. But the outlook for the short and medium term remains grim. This is the second "jobless recovery,'' the first having occurred after the slowdown in 1990 and 1991. Before then, factories in cyclical industries had tended to be the biggest source of employment gains once the economy began to revive. Now the bounce has to come from other areas. And this time, even those sectors have been less than gung-ho about hiring.

Still, Rockford has become a case study of how an industrial area can respond to a shifting economic landscape. This city has long been synonymous with manufacturing. It has scores of automobile suppliers, tool-and-die makers, machine-tool producers and small companies that provide contract manufacturing services. The unemployment rate is nearly 11 percent in the city and about 8 percent in the surrounding Rock River Valley, much higher than the national average of 5.9 percent.

But the news is not all bleak. Confronted with the choice between adapting or dying off, Rockford has tried to reinvent itself. "We are in a global economy, and we are in the throes of a major transformation," said Robert Levin, executive director of the Council of 100, a business-promotion group here.

Rockford's sprawling airport, which has almost no passenger traffic, has become a fast-growing cargo handling center. United Parcel Service employs 1,500 people there, making the airport its second-largest hub, after Louisville, Ky. All told, 3,000 people work at the airport, which handled 1.4 billion pounds of freight last year.

Telephone call centers just outside town employ about 5,000 people, mostly part-time workers who earn about $10 an hour. The pay is lower than in most factories, and many people worry that even these jobs will be pulled away to the fast-growing call centers of India or the Philippines. But MCI, the long-distance carrier, has built a center with more than 1,000 workers and is still hiring.

Rockford is also becoming a bedroom community. New housing developments are attracting people from Chicago's western suburbs, about 70 miles away. (The prospect of four-bedroom homes for $169,000 seems to make the commute more tolerable.) Reflecting the influx, Wal-Mart, which already owns one big store outside town, is building two more in the area. Target and Home Depot are each opening a second store in the area as well.

So far, none of this has come close to filling the void left by the loss of manufacturing jobs. The big question is whether the remaining industries also transform themselves or move away entirely. The answer could determine the shape of the economic expansion in the months and years ahead.

THOUGH more extreme than in some other parts of the country, Rockford's unemployment problems fit in with a broader national trend. Like their counterparts elsewhere, many executives here are increasingly confident that business is picking up, but they are also reluctant to hire extra workers. Companies are either convinced that they can extract more productivity from the employees they already have or are worried that they will be overstaffed if the expansion turns out to be another false start.

Most evidence suggests that the economy is moving into high gear after one of the feeblest recoveries in history. Economic growth soared at an annual rate of 8.2 percent in the third quarter of 2003, and economists say they think it will climb nearly 4 percent this year.

Business spending, the weakest component of the economy more than a year after the recession officially ended, is now growing rapidly. Orders for new equipment shot up at the fastest pace in 20 years in December, rising for the sixth month in a row, according to a survey by the Institute for Supply Management that was released on Friday. Industrial production jumped 0.9 percent in November, the third increase in a row and the biggest in four years, according to the Federal Reserve. Perhaps most encouraging, the increases were spread across most sectors of industry.

Despite all the good news, employment continues to climb much more slowly than in previous recoveries. Many people took heart when the Labor Department reported that the economy added a total of 236,000 jobs in September and October. But just 57,000 jobs were created in November, and most employers remain cautious about expanding their payrolls.

Given the growth of the working-age population, the nation needs to add around 250,000 jobs a month to achieve a significant decline in unemployment before the November election. Economists are skeptical that job creation will hit that pace, in part because companies of all types have been getting ever more work out of the same number of workers.

Productivity climbed at an annual rate of 9.4 percent in the third quarter of 2003, and it has risen at an annual rate of 5 percent for the last several quarters. If the pace continues at anywhere near that level, the economy would have to grow by far more than 4 percent a year to bring down the jobless rate.

China is the other big factor. Lobbyists for manufacturers attribute many of their woes to that nation, which is running a trade surplus with the United States of roughly $125 billion. But a large percentage of Chinese imports come from subcontractors of American manufacturers, which are themselves trying to take advantage of China's low costs.

Whether jobs are being lost to China or merely to higher productivity, many companies remain nervous about hiring even if business is picking up. "It's busier for us than it has been for the past four years," said Eric Anderberg, general manager of Dial Machine and the son of the founder. "The problem is, there's nothing that gives me the sense of a sustained recovery."

FOUNDED in 1890 at the dawn of the automotive era, Rockford Powertrain, a maker of transmission equipment for heavy-duty trucks, is still profitable and exports its products all over the world. But these days, it does little manufacturing. Its main business is logistics.

"We want to stay in Rockford," said Thomas M. Corcoran, the company's president. "We just don't want to manufacture here."

Over the past decade, Rockford Powertrain has stopped producing most of its components at home and started buying almost all of them abroad - from South Korea, Poland, Germany and, most of all, China. The number of employees in Rockford has dropped from 800 in 1988 to 250, and the work is limited largely to assembly, quality control and management.

In October, Mr. Corcoran took his international plans further, selling what he called a "substantial minority stake" in the company to the Wanxiang Group, one of China's largest auto parts suppliers. The deal, he said, will give him more reliable access to a major Chinese supplier and to the booming Chinese market.

There may be more deals like that to come. Given the globalization of both suppliers and customers, he said he could imagine selling off additional stakes to investors in India, Germany and other countries.

Rockford Powertrain still occupies a 625,000-square-foot factory here, but that, too, is changing. Two weeks ago, Mr. Corcoran agreed to sell the plant and lease back about half the space until he can move the company to a smaller and more appropriate location. "The plant was designed for a different business model," Mr. Corcoran said. "We don't need that much space today."

Rockford Powertrain is but one example of a broader shift away from domestic manufacturing, a trend that appears to have accelerated sharply since the economic downturn in 2001. Intense global competition is expected to force factories to keep squeezing their work forces and to focus tightly on areas where they have a special technological edge or can offer highly customized services. Even if some manufacturing companies remain vibrant, they are not expected to supply many new jobs, and the real economic growth will continue to come from services.

"The relative decline in manufacturing employment is real, as is the decline in the manufacturing share of national income," said N. Gregory Mankiw, chairman of the White House Council of Economic Advisers, in a speech last month.

Mr. Mankiw compared the trend in manufacturing to that in farming over the last century. Farm production has increased, but the proportion of people working in agriculture has dropped from 40 percent a century ago to 2 percent now.

"Both job creation and job destruction are part of the process by which countries gain from trade," he said. "Free trade encourages each country to specialize in what it does best. It thereby raises national incomes both at home and abroad."

In Rockford, industry is far from dead. But business has been transformed, often with great pain. One of the few thriving metalworking industries here is the business of scrap metal - mainly because of voracious demand from Chinese steel mills. Some of the metal is discarded industrial machinery from factories that have closed.

"China has a need for a tremendous amount of raw material," said Bill Day, chief financial officer at Joseph Behr & Sons, a large trader in scrap metal here.

Generally, production at home is becoming less important than logistics and shipping. Companies that once sold easy-to-replicate products to nearby car companies are being bypassed by distant rivals in China. "We have lost our technological edge, our pricing edge and in many cases our quality advantage," said Eric Anderberg of Dial Machine, testifying before a recent panel on manufacturing that was convened by the Commerce Department.

Carl Bradberry, owner of a small machining shop near Rockford called S&B Jig Grinding, produces machine parts engineered to a precision of less than the diameter of a human hair. Mr. Bradberry took out a second mortgage on his vacation cabin to keep the company going, and in November he saw his first profit in nearly four years. But even now, many of his machines are idle.

Increasingly, the companies that survive are those that function like boutiques. They offer specialized products with unusual craftsmanship, and they deliver on short notice.

North American Tool, which makes precision tool parts, was able to retain its 100 employees over the last three years and is now beginning to have a solid pickup in demand. But it specializes in customized parts ordered by the dozens rather than the thousands, and it has shrunk its delivery time on most orders to just one day. Even with all that, company executives say they must constantly look for new market niches or the next idea.

"The good old days are gone for good," said Roger K. Taylor, the chief executive. "I don't know what our company will be doing in two years, but it will almost certainly be different from what it looks like today."

Here is Robert O'Brien's next big idea: nonstop passenger flights between Rockford and Budapest. As in Hungary.

Far-fetched? Not necessarily. As executive director of the Northwest Chicagoland Regional Airport, Rockford's sprawling but underused airport, Mr. O'Brien is confident that this region is on the verge of becoming a major logistical center.

Though it is big enough to handle Boeing 747's and military transport planes, the airport has become so overshadowed by O'Hare International in Chicago that it has had virtually no passenger air service for more than a decade.

But rather than go out of business, the Rockford airport has turned itself into a busy cargo center. In addition to the U.P.S. hub, the airport also houses some operations of BAX Global and DHL, two other big shipping concerns.

That transformation mirrors a strategic shift for the Rock River Valley area. Manufacturing is either stagnant or in decline, but transportation and logistics are booming. In the town of Rochelle, 30 miles to the south, the Union Pacific Corporation has built a new "intermodal" transportation center that it hopes will become a major transfer point for truck and rail cargo.

Local officials say they have a big opportunity to steal cargo business from Chicago. "I think we're sitting on top of a gold mine," said Mr. O'Brien, the airport executive.

BUT even with the increase in cargo traffic, he said the airport was still operating at less than 10 percent of its capacity. So he and other local leaders want to resurrect passenger air service.

Knowing they had no chance to compete against O'Hare on flights to most American cities, they decided to focus on specialty routes and little-known airlines. In August, TransMeridian Airlines, a small charter company, started regular flights to Las Vegas and Orlando, Fla. The service has carried about 11,000 passengers so far, Mr. O'Brien said.

Now he is pushing a deal with Malev, the Hungarian airline, to offer regular nonstop flights between Rockford and Budapest. Demand for that route may seem limited, but Rockford officials say Malev would attract tens of thousands of American travelers who would use Budapest as a low-cost jumping-off point to the rest of Europe.

Mr. O'Brien envisions Rockford playing host to an array of low-cost airlines, domestic and international, that would offer travelers low prices in exchange for destinations that are slightly less convenient.

Last month, Rockford officials welcomed Hungary's ambassador to the United States and executives from Malev. The Hungarians said they were intrigued, but they have not yet bought into the idea.

If they do not, Mr. O'Brien says, he has other deals in the works.

Copyright 2004 The New York Times Company

[Kris]

January 8, 2004

I.M.F. Says Rise in U.S. Debts Is Threat to World's Economy

By ELIZABETH BECKER and EDMUND L. ANDREWS

WASHINGTON, Jan. 7 — With its rising budget deficit and ballooning trade imbalance, the United States is running up a foreign debt of such record-breaking proportions that it threatens the financial stability of the global economy, according to a report released Wednesday by the International Monetary Fund.

Prepared by a team of I.M.F. economists, the report sounded a loud alarm about the shaky fiscal foundation of the United States, questioning the wisdom of the Bush administration's tax cuts and warning that large budget deficits pose "significant risks" not just for the United States but for the rest of the world.

The report warns that the United States' net financial obligations to the rest of the world could be equal to 40 percent of its total economy within a few years — "an unprecedented level of external debt for a large industrial country," according to the fund, that could play havoc with the value of the dollar and international exchange rates.

The danger, according to the report, is that the United States' voracious appetite for borrowing could push up global interest rates and thus slow global investment and economic growth.

"Higher borrowing costs abroad would mean that the adverse effects of U.S. fiscal deficits would spill over into global investment and output," the report said.

White House officials dismissed the report as alarmist, saying that President Bush has already vowed to reduce the budget deficit by half over the next five years. The deficit reached $374 billion last year, a record in dollar terms but not as a share of the total economy, and it is expected to exceed $400 billion this year.

But many international economists said they were pleased that the report raised the issue.

"The I.M.F. is right," said C. Fred Bergsten, director of the Institute for International Economics in Washington. "If those twin deficits — of the federal budget and the trade deficit — continue to grow you are increasing the risk of a day of reckoning when things can get pretty nasty."

Administration officials have made it clear they are not alarmed about the United States' burgeoning external debt or the declining value of the dollar, which has lost more than one-quarter of its value against the euro in the last 18 months and which hit new lows earlier this week.

"Without those tax cuts I do not believe the downturn would have been one of the shortest and shallowest in U.S. history," said John B. Taylor, under secretary of the Treasury for international affairs.

Though the International Monetary Fund has criticized the United States on its budget and trade deficits repeatedly in the last few years, this report was unusually lengthy and pointed. And the I.M.F. went to lengths to publicize the report and seemed intent on getting American attention.

"I think it's encouraging that these are issues that are now at play in the presidential campaign that's just now getting under way," said Charles Collyns, deputy director of the I.M.F.'s Western Hemisphere department. "We're trying to contribute to persuade the climate of public opinion that this is an important issue that has to be dealt with, and political capital will need to be expended."

The I.M.F. has often been accused of being an adjunct of the United States, its largest shareholder.

But in the report, fund economists warned that the long-term fiscal outlook was far grimmer, predicting that underfunding for Social Security and Medicare will lead to shortages as high as $47 trillion over the next 70 years or nearly 500 percent of the current gross domestic product in the coming decades.

Some outside economists remain sanguine, noting that the United States is hardly the only country to run big budget deficits and that the nation's underlying economic conditions continue to be robust.

"Is the U.S. fiscal position unique? Probably not," said Kermit L. Schoenholtz, chief economist at Citigroup Global Markets. Japan's budget deficit is much higher than that of the United States, Mr. Schoenholtz said, and those of Germany and France are climbing rapidly.

In a paper presented last weekend, Robert E. Rubin, the former secretary of the Treasury, said that the federal budget was "on an unsustainable path" and that the "scale of the nation's projected budgetary imbalance is now so large that the risk of severe adverse consequences must be taken very seriously, although it is impossible to predict when such consequences may occur."

Other economists said they were afraid that this was a replay of the 1980's when the United States went from the world's largest creditor nation to its biggest debtor nation following tax cuts and a large military build-up under President Ronald Reagan.

John Vail, senior strategist for Mizuho Securities USA, said the I.M.F. report reflected the concerns of many foreign investors.

"I would say they reflect the majority of international opinion about the United States," he said. And he added, "The currency doesn't have the safe-haven status that it has had in recent years."

Many economists predict that the dollar will continue to decline for some time, and that the declining dollar will help lift American industry by making American products cheaper in countries with strengthening currencies.

"In the short term, it is probably helping the United States," said Robert D. Hormats, vice chairman of Goldman Sachs International.

Fund officials and most economists agreed that the short-term impact of deficit spending has helped pull the economy through a succession of crisis. And unlike Argentina and other developing nations that suffered through debt crises, the United States remains a magnet for foreign investment.

Treasury Secretary John W. Snow did not address the fund's report directly. But in a speech to the United States Chamber of Commerce on Wednesday, he said Mr. Bush's tax cuts were central to spurring growth and reiterated the administration's pledge to reduce the deficit in half within five years.

"The deficit's important," Mr. Snow said. "It's going to be addressed. We're going to cut it in half. You're going to see the administration committed to it. But we need that growth in the economy. We had an obligation to the American work force and the American businesses to get the economy on a stronger path. We've done it and we have time to deal with the deficit."

But the report said that even if the administration succeeded it would not be enough to address the long-term problems posed by retiring baby boomers.

Moreover, the fund economists said that the administration's tax cuts could eventually lower United States productivity and the budget deficits could raise interest rates by as much as one percentage point in the industrialized world.

"An abrupt weakening of investor sentiments vis-à-vis the dollar could possibly lead to adverse consequences both domestically and abroad," the report said.

Copyright 2004 The New York Times Company

[Ninjahedge]

I have one simple question...

Who do we owe all this money TO? It seems kind of odd to me that everyone seems to be in debt. SOMEONE has to be owed, and the mere fact that they are owed this money, and are most likely being paid interest for it not being repaid, is in itself a sign of finantial transfer and income to these people.

I always wonder why we have not paid off all of our debts, one by one. I wonder if some of tem are deliberately kept to insure a good return on money or services "lent" to the US by way of fiscal payments or preferred status on any government contract....

[Kris]

January 12, 2004

America's Red Ink

The International Monetary Fund has long been accused of failing to sound the alarm before countries with reckless fiscal policies implode. So it was nice to see staff members of the fund's Western Hemisphere department hold a press conference last week to publicize one nation's worrisome trends, which threaten foreign investors and the global economy.

Who was in for the scolding? Haiti? Argentina? Mexico? Not exactly. It's the United States the fund is worried about. An economic slowdown and President Bush's huge tax cuts conspired to swing America's federal budget from a surplus of 2.5 percent of gross domestic product in 2000 to a deficit of some 4 percent in 2003. Add the states' own budget shortfalls and the country's trade deficit, the I.M.F. report notes, and the United States faces an "unprecedented level of external debt for a large industrial country."

Robert Rubin, the former Treasury secretary, and Donald Kohn, a Federal Reserve governor, have also railed against the deficit in recent days. But there is something humbling about hearing it from an international organization charged with monitoring economies on the brink.

In most countries, the I.M.F. is often viewed as America's agent, preaching the inconvenient gospel of fiscal discipline and austerity. There is a certain poignancy now in having the I.M.F. preach the so-called "Washington consensus" to Washington.

The I.M.F. forcefully argues that the United States will need to adjust taxes and spending to bring its finances under control; the recovery alone won't do it. The fund's report warns that America's profligacy and its voracious appetite for credit will drive up interest rates around the world, threatening the global economic recovery and American productivity growth.

Foreign investors are already selling the dollar in reaction to Washington's fiscal recklessness, but the fund warns that this selling could accelerate and create a currency crisis. It also notes that present trends pose dangers for the future of Medicare and Social Security.

Most damning of all, the report attacks the "complicated and nontransparent manner" in which the administration's $1.7 trillion in tax cuts were enacted, designed as they were to mask their true budgetary impact. The I.M.F.'s frustration is understandable. The United States has provided other nations with a terrible model of obfuscatory governance. Congress and the Bush administration enacted "phased in" tax cuts that were supposed to be retired in a decade, accelerated their phasing in and then, after they were priced under the assumption that they would fade away, pledged to make them permanent.

No wonder the rest of the world is appalled.

Copyright 2004 The New York Times Company

[ZippyTheChimp]

January 27, 2004

Budget Office Forecasts Record Deficit in '04

By EDMUND L. ANDREWS

WASHINGTON, Jan. 26 — The Congressional Budget Office predicted on Monday that the federal budget deficit would hit a record $477 billion this year and that accumulated deficits over the next decade would total $1.9 trillion.

The nonpartisan budget office's outlook for the long term is significantly more pessimistic than it was just one year ago. It casts new doubt on the ability of President Bush to fulfill his promise of cutting the deficit in half over the next five years, particularly if he persuades Congress to make his tax cuts permanent, which he has vowed to do.

If Congress extends all tax breaks that are scheduled to expire, the agency predicted, the total cost would add up to more than $2 trillion in additional borrowing over the next decade.

And if Congress moves to stop an explosive rise in what is known as the alternative minimum tax, a provision that is expected to raise taxes on millions of families as their incomes rise, the Treasury would lose an additional $469 billion over 10 years.

Extending the tax cuts would increase the accumulated deficit more than $1.2 trillion above the agency's basic forecast. They are now scheduled to expire at various points between now and 2011.

Just a year ago, before the war in Iraq and before Congress passed a sweeping expansion of Medicare, Congressional forecasters predicted that the deficit could melt away by 2007 and that the government could rack up $1.3 trillion in accumulated surpluses within 10 years.

Democrats immediately pounced on the new report, saying it provided more evidence of Mr. Bush's fiscal recklessness.

"It is becoming clear that the Bush administration has no plan to eliminate these deficits," said Representative John M. Spratt Jr. of South Carolina, the senior Democrat on the House Budget Committee. "In the face of mounting deficits, the president proposes another round of tax cuts reducing revenues by more than $1 trillion and driving the budget further into the red."

Administration officials contend that today's deficits are "manageable," given the need for spending on domestic security and the war in Iraq as well as the need to help the economy rebound from the recession of 2001.

The federal deficit reached $374 billion in 2003, a record in dollar terms though not as a percentage of the total economy. The new forecast calls for the deficit to reach $477 billion in 2004, which is essentially what the White House predicted last summer.

But the new budget estimate painted a much gloomier picture for the long-term outlook, even though Congressional analysts are expecting rapid economic growth to lead to big increases in tax revenue for the next several years.

The agency predicts that the economy will grow at the extremely fast rate of 4.8 percent this year and 4.2 percent next year, which is slightly more optimistic than the consensus view among private economists.

The agency also expects tax revenues to surge even faster than the economy, after having fallen for three years in a row.

But the agency's long-term outlook is more subdued. The agency predicts that economic growth will slow to just 2.5 percent a year beginning in 2010. The expected slowdown reflects slower growth in the size of the labor force, but also to some extent the economic drag created by higher deficits.

Douglas Holtz-Eakin, director of the Congressional Budget Office and a former economist in the Bush White House, said on Thursday that making Mr. Bush's tax cuts permanent would most likely have a "modestly negative" impact on long-term economic growth.

Mr. Holtz-Eakin said the initial impact of Mr. Bush's tax cuts was positive, because the cuts lowered marginal tax rates and gave people more incentive to work and produce.

But to the extent the tax cuts lead to higher deficits and greater government borrowing, he warned, they could have a "cumulative corrosive effect on capital accumulation, on national saving and on productivity."

Economists prefer to look at budget deficits in relation to the size of the overall economy, rather than to the absolute dollar amounts.

If this year's deficit turns out as both Congressional and White House budget analysts have been predicting, it would equal about 4.5 percent of the nation's gross domestic product. That is high, but well short of the record set under President Ronald Reagan in 1983, when the deficit was equal to 6 percent of the economy.

Treasury Secretary John W. Snow, in a speech delivered by satellite to a business conference in London, said today's deficits were "not historically out of range" and said the deficit would be equal to less than 2 percent of gross domestic product by 2009.

To be sure, the Congressional report includes a few assumptions about spending that are unrealistically high. To comply with its own legal requirements, the agency assumed that the government would repeat last year's $87 billion in extra spending for Iraq and Afghanistan.

Most analysts assume that the costs of occupying those countries will decline in the next few years, though they are unlikely to disappear.

But if the Congressional Budget Office assumed an unrealistically high level of spending on Iraq, it may have been too optimistic about the willingness of either Mr. Bush or Congress to restrain the overall growth in spending.

The new report assumes that discretionary spending, which includes money for everything from military programs to education and environmental programs, will climb only at the rate of inflation — about 2.5 percent a year.

But White House officials have said they will propose to increase discretionary spending by 4 percent in 2005 and defense spending by 7 percent. Those costs will not include additional money for occupying or rebuilding Iraq, which the administration has thus far sought through supplementary budget requests to Congress.

Republicans took heart that the new report confirmed a strong rebound in the economy, which they said proved the value of Mr. Bush's tax cuts.

"I am pleased that our economic outlook has improved and the unemployment rate is projected to continue to fall," said Representative Jim Nussle, Republican of Iowa and chairman of the House Budget Committee. But Mr. Nussle also hinted at frustration about the administration's refusal to include cost estimates for Iraq in the budget plan for 2005 that is to be unveiled next Monday.

"At this point, the immediate, necessary spending we've had to do as a result of `emergency' circumstances is now largely known," Mr. Nussle said, "and can be worked into our regular budget planning."


Copyright 2004 The New York Times Company

[ZippyTheChimp]

February 3, 2004

Bush, in Budget, Seeks Increases Tied to Security

By RICHARD W. STEVENSON

WASHINGTON, Feb. 2 — President Bush submitted a $2.4 trillion budget on Monday that would substantially increase spending next year for national security and give the administration a claim to reducing the deficit but would also cut or strictly limit money for most domestic programs.

The release of Mr. Bush's budget for the fiscal year starting Oct. 1 amounted to a statement of his election-year priorities, and it underscored the degree to which the administration's policy and political focus are on fighting terrorism and building up the military.

The budget immediately drew fire from Democrats, who said that its deficit reduction claims were illusory and that it would shortchange a broad range of national priorities to pay for the tax cuts Mr. Bush has pushed through Congress over the past three years.

The plan called for an increase in military spending of 7 percent, or $26.5 billion, to $401.7 billion. But that figure did not include money, which the administration said could be as much as $50 billion, for continued military operations next year in Iraq and Afghanistan. The administration said it would specify and seek financing for the expense only after the presidential election. [Page A15.]

For domestic security programs, the White House said it wanted a budget increase of 9.7 percent, or $2.7 billion, to $30.5 billion.

By contrast, the budget proposed that the overall growth in spending on other government operations outside of Social Security and Medicare — a category that encompasses everything from the national parks to the National Institutes of Health — be held to one-half of 1 percent, or $2 billion, to $386 billion. Seven of the 16 cabinet-level departments would see their budgets reduced.

Mr. Bush's stringent spending plan would make exceptions for some politically important issues like education, but it would generally require his own party, as the majority in Congress, to cut, freeze or kill many programs in the months leading up to Election Day. It asked Congress to hold spending on new and improved highways to $256 billion over the next six years, $119 billion less than authorized by legislation proposed by Republicans in the House. It called for the elimination of 65 government programs, including grants to companies pursuing new technologies and an initiative to tear down dilapidated public housing, and outright cuts in 63 more.

The budget showed Mr. Bush making good on his pledge to cut the deficit in half within five years from its projected level this year of $521 billion to $364 billion next year and $237 billion in 2009.

But the White House did not provide figures on what would happen to the deficit in the years beyond the next half-decade, when the president's call to make permanent the 10-year tax cuts he pushed through Congress in 2001 and 2003 would show up in the budget. And to show he could meet the deficit reduction target in the next five years, the president left out of his calculations any money for some needs both parties say will have to be met.

Democrats pointed in particular to Mr. Bush's decision to delay requesting additional money to pay for the occupation of Iraq and continued military operations in Afghanistan, saying that was one example of fiscal gimmickry in the budget.

The current well of money being used for military needs in Iraq and Afghanistan — $62 billion out of the $87 billion supplemental spending bill passed by Congress last fall — is likely to run dry at some point in the 2005 fiscal year.

Joshua B. Bolten, the director of the White House's Office of Management and Budget, said the United States was currently spending at a rate of less than $50 billion a year on its military forces in Iraq and Afghanistan. He suggested that $50 billion was the upper limit of what the administration would ultimately seek from Congress and said the White House would not make the request until next year, when it would have a clearer idea of the military's needs.

For an election-year budget, Mr. Bush's plan was a bit of an oddity. It included almost no new programs beyond his call for manned exploration of Mars. Other than calling for making the 2001 and 2003 tax cuts permanent, it offered his conservative base no substantial new tax reductions beyond a previously proposed set of tax breaks for a new form of savings and investment accounts. And while his call for additional restraint in some spending categories was welcomed by fiscal conservatives, it was largely offset by new administration figures showing that the Medicare prescription drug benefit will cost far more than Congress had projected.

Speaking to reporters at the White House after meeting with his cabinet Monday morning, Mr. Bush said the budget reflected the progress the country was making in dealing with terrorism, war and recession.

The budget "sets clear priorities: winning the war on terror, protecting our homeland, making sure our children get educated, making sure the seniors get a modern Medicare system," Mr. Bush said. "And at the same time we're calling upon Congress to be wise with the taxpayers' money."

Congressional Democrats sharply criticized the plan as a continuation of fiscally irresponsible policies that have led to a swing from huge projected surpluses to big and persistent deficits during Mr. Bush's presidency. They said blame for the deficits rested far more with the tax cuts than on the spending programs he now wants to rein in or cut. And, they said, the Bush tax cuts have failed to live up to their billing of creating millions of new jobs.

The Democratic presidential candidates also attacked the budget, emphasizing a theme that Mr. Bush had rewarded the affluent while shortchanging the programs most needed by the middle class.

"The new Bush budget is more of the same: record deficits, tax cuts for the wealthy and special interests, and cuts in areas that matter to families — such as health care and education," Senator John Kerry of Massachusetts said in a statement. "This is the same failed Republican prescription that has caused Bush to lose 2.5 million jobs in the last three years."

Republicans on Capitol Hill said they supported the president's goals, but many of them made it clear that the proposals would be changed, probably substantially, as Congress goes through the process of developing a budget resolution and passing the annual spending bills.

Representative Jim Nussle, the Iowa Republican who is chairman of the House Budget Committee, called the president's budget "a great starting point from which to begin our work."

The chairman of the House Appropriations Committee, Representative C. W. Bill Young, Republican of Florida, suggested that it would be possible to meet Mr. Bush's overall spending targets, but not without allocating the money differently from the way the White House would want it allocated, and not without trimming back some of the administration's few spending increases.

"We will be carefully scrutinizing the administration's new initiatives and proposed funding increases to see if we can afford them in a lean budget year," Mr. Young said in a statement. "They will have to be reconciled with proven programs and traditional Congressional priorities."

Mr. Bolten was asked about the political pressures on the budget this year and the lack of provision in the proposal for other bipartisan goals like dealing with the aspect in the tax code that will subject many more middle-income people to a tax increase because of the alternative minimum tax. "The numbers are highly realistic," he replied.

When Mr. Bush took office, the Congressional Budget Office was forecasting $5.6 trillion in budget surpluses over the next decade.

The $521 billion deficit Mr. Bush is forecasting for the current fiscal year would be a record in dollar terms, though not in comparison to the size of the economy. Mr. Bush regularly blames the terrorist attacks, war and recession for the swing in the nation's fiscal fortunes. Democrats have made a case that the tax cuts are the main culprit.

Mr. Bush's budget projects deficits only up through 2009, with most of the improvement coming between this year and 2006, when the deficit would drop to $268 billion. But if Mr. Bush's tax cuts were made permanent, the budget would come under new stresses early in the next decade.

The Democratic staff of the House Budget Committee said making the Bush tax cuts permanent would reduce federal revenues by more than $200 billion in 2011 and by more than $300 billion in 2012, with the price tag rising each year thereafter.

Copyright 2004 The New York Times Company

[Kris]

February 7, 2004

TODAY'S EDITORIALS

A Stingy Recovery

It's a presidential election year, so the economy is being described as both feast and famine. The Bush administration would have you believe that the good times are roaring back, while Democrats paint a bleak picture of a broken nation, about to export its last few jobs to India and China.

Neither portrait is accurate or conducive to a sound policy debate. Though there is a real recovery under way, the growth has yet to be translated into an equally robust expansion of corporate payrolls. The economy added 112,000 nonfarm jobs for the month — a decent number, but far below expectations. The administration, which has presided over the loss of some two million jobs, predicted last fall that the economy would soon be creating some 200,000 new jobs a month. That target has not been reached, despite overall economic growth of 6 percent in the second half of 2003. The pace of growth is slowing, in fact, and public anxieties about the job market remain high.

It will be interesting to see how the president characterizes the economy when he appears on "Meet the Press" tomorrow. Mr. Bush would be wise to start tempering his triumphalism, lest he appear as out of touch as his father did in 1992. Republicans are stubbornly opposing an extension of federal unemployment benefits. Mr. Bush also exaggerates the short-term stimulative impact of his tax cuts, while denying the long-term threat posed by the resulting deficits.

Because the White House's view of the economy is driven by a political narrative, little effort is made to grapple with some of the thorny questions posed by the slow job growth. Has technology-driven productivity growth and outsourcing placed a new speed limit on the rate of job creation? Can the government raise this speed limit?

The Democrats are enamored of their own narrative of corporate robber barons' conspiring with low-paid overseas workers to destroy the American middle class. So the Democratic candidates also fail to engage the complex reality and are too quick to resort to protectionist demagoguery.

The Federal Reserve Board, by necessity, is grappling with the new disconnect between tepid job creation and far frothier indicators. Alan Greenspan and his colleagues are keeping short-term interest rates at record-low levels, though earlier this month they signaled that the status quo could not last forever. Unable to indulge in political fables, the Fed, like many Americans, is clearly torn about how to react to this stingy recovery.


OP-ED CONTRIBUTOR

The Nixon Recovery

By CHARLES R. MORRIS

Yesterday's good news on the job front, on top of strong growth in the last half of 2003, may finally signal that President Bush's economic recovery is on solid ground. There is still plenty to worry about. Unused production capacity continues to drag down business profits, and job growth, while finally rebounding, remains slow. Consumers have loaded up on debt and could be devastated by a spike in interest rates. But the economic tea leaves are more positive than they have been for a long time.

If President Bush can maintain the recovery through his re-election campaign, he will be in rarefied company. Richard M. Nixon, in fact, may be the only recent president to accomplish this feat, timing a recovery from a midterm recession to coincide with his 1972 race. The reason this is so hard is that, despite all the bragging about creating jobs or speeding growth, presidents really have few economic tools at their disposal. Most federal spending is outside a president's direct control — locked up in things like retirement programs that chug along pretty much by themselves. The same is true of taxes and interest rates. A president can set the agenda, but taxes are ultimately controlled by Congress. Interest rates fall under the domain of the independent Federal Reserve.

Yet Nixon proved that if a president plays his weak hand ruthlessly — without restraint or regard for long-term consequences — he can make the economy sit up and roll over at his command. In the end, of course, the Nixon "recovery" was short-lived and America soon paid a steep price for it. Unfortunately, Mr. Bush's economic performance so far is eerily similar.

Back in the early 1970's, with both high inflation and slow growth, Nixon's economic challenge may have been even more intractable than Mr. Bush's. So, with his re-election in jeopardy, Nixon and his Treasury secretary, John B. Connally, bludgeoned both the Congress and Federal Reserve into a truly radical experiment. Congress passed wage and price controls and the Federal Reserve simultaneously increased the money supply.

The gamble was that a big jolt of money would rev up the economy while the price controls would suppress inflation. It worked, allowing Nixon to win in 1972. But success came at a huge cost. Once the price controls were removed through 1973 and 1974, all the suppressed inflation came roaring out, hitting the double digits and plaguing the second half of the 1970's. Worse, the resulting collapse of the dollar led to the 1973 OPEC "oil price shock." Altogether, it was one of history's most expensive election campaigns.

Many analysts worry that a Bush-style recovery could be similarly catastrophic. Taking a page from the Nixon playbook, Mr. Bush has wielded his fiscal tools aggressively. Over the last two years, there has been a half-trillion dollar swing in the federal books, from a $100 billion surplus in 2001 to a deficit of about $400 billion in 2003, and an expected $521 trillion in red ink for 2004.

The deficits have been driven by deep tax cuts and unrestrained spending. That includes big increases for domestic security, but other initiatives as well, like a generous new subsidy program for industrial farmers. On the surface, this looks like a standard, if unusually forceful, application of textbook economics. The government is supposed to run deficits in slack times and stash away surpluses during the fat years. So why the worries? Mr. Bush's program, like Nixon's, is not the textbook one-time kick in the pants, but a rejection of a half-century's consensus on the proper management of a modern economy.

The Bush program was not originally intended as a response to the recession. Instead, it was just the opening wedge of an unprecedented 10-year program to eliminate virtually all taxes on businesses and investment income, on the theory that everyone's better off when investors are well fed. The administration, in fact, first justified its program as necessary to head off high federal surpluses, then opportunistically switched the argument when the recession started to bite hard. The tax cuts, moreover, have come at a time when federal taxes, as a share of gross domestic product, are already at their lowest level since 1959.

President Bush's planners claim that budgets will be back in balance within the decade. But a recent Brookings Institution study makes those calculations look like sleight of hand. To keep cost estimates down, for example, the administration has built "sunset" provisions into almost all of its tax cut programs. In theory, when the sunset dates arrive, the tax law will switch back to its pre-Bush status. Fat chance. The administration itself is pushing hard to abolish all the sunset provisions. The Brookings analysts foresee deficits increasing every year for the next decade, with total red ink around $8 trillion.

The consequences of that could be bad enough — higher interest rates and declining competitiveness and growth. But it gets worse. In the coming years, baby boomers will start making their first claims on Social Security and Medicare. There is no way the country can run deficits on the scale of the Brookings forecasts and decent retirement programs at the same time. Boomers do not take rejection with good grace, and their tolerance will not improve as they get older. From the perspective of 2010 or so, citizens may look back on the post-Nixon 1970's as halcyon days.

Charles R. Morris is the author, most recently, of "Money, Greed and Risk."

Copyright 2004 The New York Times Company

[ZippyTheChimp]

February 10, 2004

OP-ED COLUMNIST

Jobs, Jobs, Jobs

By PAUL KRUGMAN

Last Friday the Bureau of Labor Statistics delivered yet another disappointing employment report.

Since there's a lot of confusion on this subject, let's talk about the numbers. The bureau actually produces two estimates of employment, one based on a survey that asks each employer in a random sample how many workers are on its payroll, the other on a survey that asks each household in a random sample how many of its members are employed. Most experts regard the employer survey as more reliable; even in the midst of the recovery, that survey has contained nothing but bad news. The household numbers look better, but not particularly good.

For technical reasons involving seasonal adjustment, many economists expected the January report to show a one-time bounce in both measures. Yet employment as measured by the payroll survey rose by only 112,000 — well short of the increase needed just to keep up with a growing population. If employment were rising as rapidly as it did when the economy was emerging from the 1990-1991 recession, we'd be seeing monthly numbers more like 275,000.

Taking a longer view, the payroll numbers tell a dismal story. Since the recovery officially began in November 2001, employment has actually fallen by half a percent, while the working-age population has increased about 2.4 percent. By this measure, jobs are becoming ever scarcer.

The household survey, on which the official unemployment rate is based, tells a less dismal but far from happy story. (Why the discrepancy? We don't know.) The number of people who say they have jobs has risen since the recovery began — but has still lagged behind population growth.

The only seemingly favorable statistic is the unemployment rate, which has recently fallen to 5.6 percent, the same as in November 2001. But how is that possible, when employment has grown more slowly than the population, or even declined? The answer is that people aren't counted as unemployed unless they're looking for work, and a growing fraction of the population isn't even looking. It's hard to see how this is good news.

Other indicators continue to suggest a grim job picture. In the last three months, more than 40 percent of the unemployed have been out of work more than 15 weeks. That's the worst number since 1983, and a sign that jobs remain very hard to find — which is what anyone who has lost a job will tell you.

One last statistic — not about jobs, but about wages. Since the last quarter of 2001, real G.D.P. has risen 7.2 percent. But wage and salary income, after adjusting for inflation, is up only 0.6 percent. This matches what the employer survey is telling us: America's workers have seen very little benefit from this recovery.

In the light of these dreary statistics, President Bush's recent cheerfulness seems almost surreal. On Friday, he said that he was "pleased, obviously, with the new job growth." When Tim Russert asked in the "Meet the Press" interview what happened to all the jobs that Mr. Bush promised his tax cuts would create, he replied: "It's happening. And there is good momentum when it comes to the creation of new jobs."

We expect politicians to place a positive spin on economic news, but to insist that things are going great when many people have personal experience to the contrary seems foolish. Mr. Bush's father lost the 1992 election in large part because he was perceived as being out of touch with the difficulties faced by ordinary Americans. Why is Mr. Bush — whose poll numbers are a bit worse than his father's were at this point in 1992 — running the risk of repeating his experience?

The answer, I think, is that the younger Mr. Bush has no choice. He has literally gone for broke, with repeated tax cuts that have fed a $500 billion deficit. To justify policies that more and more people call irresponsible, he must claim that wonderful things are happening as a result.

For a while, that famous 8 percent growth rate seemed to be just what he needed. But in the fourth quarter, growth dropped to 4 percent. And as we've seen, the jobs still aren't there.

So Mr. Bush must put on a brave face. He and his officials must talk up weak economic statistics as if they represented stunning success, and predict marvelous things any day now. After all, they have to keep this up for only nine more months.


Copyright 2004 The New York Times Company

[krulltime]

POSITIVE THINGS ARE IN 'STORE'

June 16, 2004

Even as stocks fell, jobs van ished and the economy shook, American shoppers stayed busy.

And now, despite rising oil prices and potentially higher interest rates, they look ready to keep on spending to help the nation's economic rebound.

Just yesterday, the University of Michigan's consumer-confidence survey exceeded the expectations of Wall Street's wizards and showed that the American consumer juggernaut isn't ready to slow down.

Companies are hiring more workers, and will continue to do so as shoppers crowd stores from Wal-Mart and Home Depot to Saks Fifth Avenue and Tiffany's.

Now those stores, which were forced to discount products and rethink their business, again are poised to prosper.

The final piece of The Post's Boom Time series looks at the nation's shopping explosion — how it's meant big bucks to stores and why it's not likely to let up anytime soon.

Copyright 2004 NYP Holdings, Inc.

[BrooklynRider]

It's sad to look at the last post in this thread (Jun 2004) and see where we are now.

[nybboy]

You can track an economic recovery from the media reports. First, we were in a recession. Then, by early 2002, the GDP figures were positive again, and continued so ever since in a way above "modest" figures. However, few jobs were gained, thus calling the recovery the "jobless recovery." Then for over a year we have gained jobs in a fast way, well over 1 million jobs have been gained. Now people are admitting that we are gaining many jobs, so now the media says that, "well, the jobs we're gaining are not very well-payed ones." Well, that means that the recovery is nearly complete, because the news tends to be a little slow with analysis of the economic situation. Soon white-collar jobs will be added and the recovery will be complete. You have to remember, that the employment data is almost always the last the set of data to improve in an economic recovery. Yes, the jobs have been very mediocre jobs, but that's normal. A recovery doesn't begin with a surge in demand for white-collar type jobs. But it is still significant that waitresses, etc. are being employed because it reveals an underlying demand for increased goods and services. Which show that people, who do have jobs, have money. And now real-estate growth is the highest ever with record numbers, because are people are using their money to invest in something real and solid not like the IPO's of the late 90's.

[nybboy]

The deficit is a problem because Bush has spent too much money on new programs so that he can get elected. Of course the amount spent on the defense is excusable. The imporant thing about the U.S. deficit is that it's not to other countries, which is important because it is always the "foreign" debt that screws countries, not the "domestic" debt. But the domestic debt will hurt over the long-run, because it decreases faith in the U.S. dollar among foreign investors. However, there is one country we still owe money to, that is Japan. Japan nearly took over our status as largest economy in the world by the early 90's. So the Japanese bailed us out, with over 1 trillion dollars in a loan, that didn't have a set date for us to pay back. We still havn't payed them back yet, but that's ok cuz if we use our resources to pay them, then our economy might go down, which will directly affect the Japanese economy.
However, it is not the deficit that worries "all" economists. Economists look at the net flow of investment into and out of a country because that really determines the financial stability of the country. So for example the debt is put in the "flow-out" category, which is sizable. But the investment in this country and investment from other countries into the U.S. sizabely outweighs the amount in the "flow-out" category. So we are still in the positive territory in terms of financial gains and stability. That's why the economy is still growing, at paces only outdone by the Far eastern asian countries.

[ZippyTheChimp]

I am not going to address your many factual and assumptive errors on the economy. Maybe just one...

Then for over a year we have gained jobs in a fast way, well over 1 million jobs have been gained.
The number of jobs created have not even kept pace with the population growth.

http://www.jobwatch.org/

The amount of foreign investment in the U.S. is extremely dependent on the confidence in economic policy. I believe there is an article about it in this thread. Strange with all the "excusable" money spent on defense, we managed to allow 350 tons of high explosive to vanish

[nybboy]

No, Zippy the Chimp. The jobswatch site never ran contrary to what i said. In fact the job numbers are the same, because the data is all the same. As you know, most of the economic data, including the GDP data, come from the Commerce Dept. Its just that, according the JobsWatch, that the pace of jobs gains is not as fast the working-age pop. growth. You stated, "population growth", maybe you meant "working-age pop.", there's a difference. because that will be really hard to gain jobs faster than pop growth. Plus, since the U.S. population is growing quite fast. We're going to hit 300 million within a couple of years.

[ZippyTheChimp]

Anyone that reads the link I posted would know that the population I referred to was that entering the job market.

All you are doing is picking on one word to disguise the fact that your claim of job recovery is refuted by the data.

It is also refuted by the majority of the population that believes the country is headed in the wrong direction. Even Bush has abondoned the economy as a campaign issue.

I know you are running out of ideas, since your fonts are getting big again.

[BrooklynRider]

I know you are running out of ideas, since your fonts are getting big again.

Thank you for another "laugh out loud moment".

[Edward]

because that will be really hard to gain jobs faster than pop growth.
That's hilarious - because at this rate most of the population would be unemployed...

[nybboy]

The "wrong direction" survey is a very general one, regarding to the respondent's "general" feeling about the state of the country, not "specifically" about the economy. A good indicator would be the Consumer sentiment index. It's an indicator of how people feel, specifically, about their personal financial situation. It's reported quite often, so to see where people's feelings are about their own finances would be to average the several reports.
I just asked you to be more specific w/ pop growth, that's all. Because its impossible to have jobs grow faster than the growth rate of people. And sometimes, the working age pop. growth will be faster than job growth, otherwise the unemployment rate would be well below 4%, which is nearly impossible, and extremely unhealthy on the economy because it tightens the labor market too much.

[nybboy]

Jobs can grow faster than, specifically, working age pop., but not always because that would lead to 0% unemployment. BTW, about 4-5% unemployment rate is considered "full-employment". Right now, last time I checked, we're at around 5.8%. So if we could lower that by 1%, then the country would be at an ideal unemployment level.

[ZippyTheChimp]

Unemployment numbers omit those who have given up, and are no longer actively seeking employment.

They are the WMD of the labor force. We know they are out there, but aren't looking for them anymore.

This is too easy - like shooting Apaches in a barrel.

[TLOZ Link5]

This reminds me of a Reagan-era political cartoon:

:D In other news, 89 percent of Americans are not unemployed. :D

[nybboy]

True, of course, there's no way tell "exactly" why they stopped seeking for labor. Also, a large number of people go back to school at a lower age, and usually they're not counted as part of the labor force. but, yes, of course some of them simply do give up looking for jobs. But none of this analysis changes the fact that 1million + jobs that have been gained in only a year.

[nybboy]

TLOZ are u referring to one of my posts. I stated the data in a way just like the media or the commerce dept. does.

[nybboy]

i meant "older age"

[ZippyTheChimp]

It does not change the fact that the +million jobs are not enough for a healthy economy.

You can spin it any way you want.

You can spin that the deficit is so large because Bush is somehow forced to spend money on programs because of this pesky election, but somehow it's ok that defense spending, a huge component of the budget, has mostly caused the deficit - that along with the fact that Bush is the first president to finance a war with tax cuts. War on the cheap. All the $120 billion has accomplished is