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Robert Kuttner: Business Doesn’t Need American Workers

February 7, 2011

Once again, the job numbers are dismal. In January, the U.S. economy created just 36,000 domestic jobs, far below the roughly 145,000 that economists had forecast. The unemployment rate fell, to 9 percent, but only because more and more discouraged workers are giving up and leaving the workforce. The U.S. still has a jobs gap of about 14 million jobs, and that number is increasing as the labor force grows. Counting people who’ve given up, or who are working part time when they want full time jobs, the real unemployment number is around 17 percent. America now has about 25 million people either out of work or underemployed. Meanwhile, corporate profits continue to set records. Profits in the third quarter of 2010 were 1.659 trillion, about 28 percent higher than a year before, and the highest year-to-year increase on record. What’s going on? Very simply, America’s corporations no longer need America’s workers. As Harold Meyerson documents in a brilliant piece for The American Prospect , our most admired corporations — GE, Apple, Hewlett Packard, Intel — are creating ever more jobs overseas and relatively fewer at home. This has the double benefit of taking advantage of cheap labor abroad and disciplining workers to accept low wages at home. Along with the high unemployment rates have come declining earnings. Meyerson writes: “In 2001, 32 percent of the income of the firms on Standard & Poor’s index of the 500 largest publicly traded U.S. companies came from abroad. By 2008, that figure had grown to 48 percent.” This record contrasts dramatically with that of the right’s favorite whipping boy — Western Europe. Germany is gaining jobs at a rapid clip. Its industrialists are committed to producing at home, and just in case they get ideas of making outsourcing a way of life, they have strong unions who negotiate agreements on where production is located. Germany’s labor costs are the highest in the world, but Germany nonetheless runs the world’s largest export surplus — 7 percent of GDP — while America runs chronic trade deficits. Barring drastic policy changes, our jobless recovery is likely to continue. There are three parts to the problem. First, while the economy is still in deep recession, both the administration and its Republican critics are already talking about steeper budget cuts. President Obama talks a good game about infrastructure spending, but it’s hard to see where the funds will come from as deficit hawks in both parties prevail. In Sunday’s New York Times , Jacob Lew, the president’s budget director, wrote a depressing (in both senses of the word) oped piece on the case for deeper budget cuts. In theory, massive infrastructure spending could create a lot of good jobs, but the Obama budget is likely to offer new spending at token levels to prove his good faith as a deficit-hawk, and the Republicans will likely deny him even that. Then there is the problem that Meyerson nails. The Obama administration is not about to take issue with American companies that profit from locating ever more production abroad. The corporate elite is fiercely opposed to any limits on its freedom to relocate, and Obama is on a mission to make peace with big business. The administration continues to promote “free trade” deals on the premise that they will create jobs — but more and more of those jobs get created offshore. Both political parties are in denial about the plain fact that American industry is competing against an industrial system in China radically different from our own. If a company like GE wants to operate in China, the Beijing regime extracts conditions that violate the spirit if not the letter of the World Trade Organization. Companies are made to take on Chinese partners, to transfer sensitive proprietary technology, and to shift their production and R&D to China. In exchange, they get government subsidies and docile workers. Eventually, much of their production is displaced by their Chinese partners, but in the meantime they make a lot of money. In the past two decades, company after company concluded that the U.S. government didn’t really care if we lost our manufacturing base. The Chinese government was making them an offer they couldn’t refuse, so one by one they made a separate peace with Beijing. At the latest U.S.-China summit, there was clucking about its overvalued currency, though last week the Treasury, out of solicitude for the feelings of Beijing’s leaders, once again declined to name China as a currency manipulator. But the overvalued Renminbi is a sideshow. The main game, which even relative hawks in the U.S. government just won’t raise, is China’s rigged industrial system. Why won’t American officials go there? Because American corporations have adapted just fine. Finally, there is the service economy. As many defenders of off-shoring have pointed out, even if Apple produces most of its products in China, a lot of the value-added stays in the U.S. Apple sales create jobs for workers in retail stores, warehouses, and shipping, as well as a relative handful of elite software and hardware designer jobs, not to mention corporate profits. Swell, but in the absence of a labor movement, or higher minimum wages, or other pressure for decent retailing wages, the service economy is turning into a Wal-Mart economy, where domestic service jobs that are created mostly pay lousy wages. These alarming job trends were not caused by the financial collapse that began in 2007. Rather, the prolonged recession revealed deep structural changes in the U.S. economy that reflect a gross imbalance between a corporate elite and ordinary working people. So if you want to know why the Democratic Party did so badly in the 2010 midterms, it’s because the administration lacked a plausible story about how to alter these basic dynamics. And it lacked that story because it was unwilling to challenge the corporate business model that disdains American workers. In light of that reality, the latest gestures by the president to show the business elite just what a good fellow he is are not just disappointing, but they are foolish politics. The president’s approval ratings may be up slightly in the wake of the Tucson shootings. The attack gave Obama an opening to shame the Republicans for their shrill partisanship and to model civility. But high-minded gestures will not cure the jobs crisis. The 2012 election will be won or lost in the industrial heartland, where states like Michigan, Ohio, Wisconsin, Missouri, and Pennsylvania are devastated from the recession, and whose jobs are not coming back as long as current policies continue. There is a whole other strategy available for dealing with the jobs crisis — a constructive economic nationalism. But neither the White House nor the Republican opposition is offering it. Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos. His latest book is A Presidency in Peril .

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Stephen M. Wing: Winning the Future Means Closing the Skills Gap

February 6, 2011

In his State of the Union address, President Obama outlined a plan for the United States to win the future through better education, smarter innovation and broader investment. He would have done well to invoke another favorite phrase–”the fierce urgency of now”, itself borrowed from Dr. Martin Luther King, Jr.–to bolster his case. That urgency was imprinted in black and white, quite literally, the next morning. As the day-after analysis of the speech occupied front pages of newspapers across the country, readers needed only flip to page 2 for a reality check. “National science test scores disappoint,” announced one headline. “Less than half of students proficient in science”, proclaimed another. The newest report from the National Assessment of Educational Progress, known as “the nation’s report card”, was but the latest in a litany of sobering findings suggesting today’s generation of young Americans is fully unprepared for the challenges of tomorrow. How, indeed, will we seize our future and out-compete the rest of the world in scientific and technological advances when just one-third of American 8th graders and barely one in five high school seniors are deemed “proficient” in science? How will we out-innovate our global peers in creative pursuits when today’s American 15-year-olds rank 17th internationally in reading comprehension and 31st in math? And–worse still–when a quarter of our students won’t finish high school on time, if at all? These are questions that vex many of the forward-thinking business executives we work with at Corporate Voices for Working Families, the leading national business membership organization shaping conversations and collaborations on policy issues involving working families. Employers are certainly not alone in the collective hand-wringing, but they possess a unique perspective on the skills and knowledge young people need to succeed in the labor market today and the workforce of tomorrow. Our work at Corporate Voices reflects this perspective, and the recognition that employers can and must be active partners in preparing the talent pool of skilled employees. One important way to do so is to invest in their continuing education and training through ” learn and earn ” initiatives–programs offering lower-skilled workers in particular the opportunity to pursue higher education and post-secondary credentials while earning a living at the same time. The need is critical: Of the 47 million jobs projected to be created in the U.S. by 2018, some 30 million will require at least some post-secondary education. Those jobs will simply be out of reach for too many young Americans unless they are able to negotiate the demands of school and work. In a new publication, ” From an ‘Ill-Prepared’ to a Well-Prepared Workforce: The Shared Imperatives for Employers and Community Colleges to Collaborate ,” we explore innovative partnerships between the business sector and community colleges. We highlight the most successful practices in these ‘learn and earn’ programs, and recommend a set of public and private policies to support their growth and replication. Such business-college partnerships are one tiny but promising strategy in support of the ambitious domestic agenda President Obama imagined once again last week. To win the future in a vastly different global landscape of tomorrow, we’ve got to start today–and investing in the best-educated workforce we’re capable of producing is a fine place to start.

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Robert Reich: The Jobs Report, and America’s Two Economies

February 4, 2011

At a time when corporate profits are through the roof, the Dow is flirting with 12,000, Wall Street paychecks are fat again, and big corporations are sitting on more than $1 trillion in cash, you’d expect jobs be coming back. But you’d be wrong. The U.S. economy added just 36,000 jobs in January, according to today’s report from the Bureau of Labor Statistics. Remember, 125,000 are needed just to keep up with the increase in the population of Americans wanting and needing work. And 300,000 a month are needed — continuously, for five years — if we’re to get back to anything like the employment we had before the Great Recession. In other words, today’s employment report should be sending alarm bells all over official Washington. Granted, unusually bad weather may have accounted for some of the reluctance of employers to hire in January. But even considering the weather, the economy is still terribly sick. (Technical note: The official rate of unemployment fell to 9 percent from 9.4 percent, but that’s because more workers have left the labor market, too discouraged to continue looking for work. The official rate reflects how many people are actively looking for work.) We have two economies. The first is in recovery. The second remains in a continuous depression. The first is a professional, college-educated, high-wage economy centered in New York and Washington, that’s living well off of global corporate profits. Corporations continue to make money by selling abroad from their foreign operations while cutting costs (especially labor) here at home. Wall Street is making money by taking the Fed’s free money and speculating with it. The richest 10 percent of Americans, holding 90 percent of all financial assets, are riding the wave. And their upscale spending has given high-end retailers and producers a bounce. The second is most of the rest of America, and it’s still struggling with a mountain of debt, declining home prices, and job losses. In coming months most Americans will also be contending with sharply rising prices of food and fuel. Our representatives in Washington see and hear mostly the first economy. The business press reports mainly on the first economy. Corporate and Wall Street economists are concerned largely with the first economy. But the second economy will determine our politics in 2012 and beyond. And not even the first can be sustained permanently on its own. Corporate profits cannot continue to rise on the basis of foreign sales (which are slowing as Europe adopts austerity and China raises interest rates), the purchases of the richest 10 percent of Americans (which are dependent on a rising stock market), and cost-cutting measures at home (which are necessarily limited). Without a strong and broadly-based middle-class recovery, America’s big money economy will fall in on itself. A major stock market “correction” is a certainty. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Video: PNC’s Hoffman Calls U.S. Jobs Report `Confounding’

February 4, 2011

Feb. 4 (Bloomberg) — Stuart Hoffman, chief economist at PNC Financial Services Group Inc., talks about the January U.S. jobs report. The jobless rate unexpectedly fell in January to 9 percent, the lowest level since April 2009, while payrolls rose by 36,000 workers, less than forecast, the Labor Department said in Washington. Hoffman talks with Lisa Murphy on Bloomberg Television’s “Fast Forward.” (Source: Bloomberg)

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Video: Herrmann Sees `Decent Gains’ in U.S. Jobs by Second Half

February 4, 2011

Feb. 4 (Bloomberg) — John Herrmann, senior fixed-income strategist at State Street Global Markets, talks about today’s U.S. employment report and the outlook for the labor market. The U.S. jobless rate unexpectedly fell in January to the lowest level in 21 months, while payroll growth was depressed by winter storms. Herrmann speaks with Carol Massar and Matt Miller on Bloomberg Television’s “Street Smart.” (Source: Bloomberg)

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Video: Baily Calls U.S. January Jobs Report `Bit Disappointing’

February 4, 2011

Feb. 4 (Bloomberg) — Martin Baily, a senior fellow at the Brookings Institution, discusses the U.S. January jobs report and the outlook for the economy. The U.S. jobless rate unexpectedly fell in January to 9 percent, the lowest level since April 2009, while payrolls rose by 36,000 workers, less than forecast, the Labor Department said today in Washington. Baily speaks from Washington with Margaret Brennan on Bloomberg Television’s “InBusiness.” (Source: Bloomberg)

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Video: U.S. Jobless Rate Falls to 9%; Payrolls Rise 36,000: Video

February 4, 2011

Feb. 4 (Bloomberg) — The U.S. jobless rate unexpectedly fell in January to 9 percent, the lowest level since April 2009, while payrolls rose by 36,000 workers, less than forecast, the Labor Department said today in Washington. Lizzie O’Leary reports on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Jobless Claims Fall After Harsh Winter Weather

February 3, 2011

WASHINGTON — The number of people applying for unemployment benefits plunged last week, reversing a spike from the previous week largely caused by harsh winter weather. Applications for benefits dropped by 42,000 to a seasonally adjusted 415,000 in the week ending Jan. 29, the Labor Department said Thursday. They had surged in the previous week after snow storms in the South disrupted work and led to temporary layoffs. Applications are well below their peak of 651,000, reached in March 2009, when the economy was deep in recession. Fewer than 425,000 people applying for benefits is consistent with modest job growth. But applications will need to fall consistently below 375,000 to signal a likely decline in the unemployment rate. Last week’s decline resumes a downward trend that took shape late last year. The four-week average, a less volatile measure, fell steadily in the last three months of 2010 to a two-year low of 411,250 in the week ending Jan. 1. That raised hopes that employers, operating with lean work forces, would soon step up hiring. “The drop … is definitely a positive,” Dan Greenhaus, chief economic strategist at Miller Tabak, said. While applications are still at an elevated level, “the trend has generally been lower as the bulk of the firings are now behind us.” The average rose in January, mostly because of seasonal factors, such as the harsh weather and the layoff of temporary holiday employees. The average ticked up last week by 1,000 to 430,500. Many economists consider data in January to be less reliable because of seasonal fluctuations. Unemployment applications reflect the level of layoffs, but can also indicate whether companies are willing to hire. Despite the decline in unemployment benefit applications, employers have been slow to add jobs. One factor holding back job gains is that workers are becoming increasingly efficient and productive. That enables companies to produce more without hiring more workers. In a separate report Thursday, the Labor Department said that productivity, the amount of output per hour worked, rose 3.6 percent in 2010, the biggest increase since 2002. Employers will likely create a net total of 2.2 million jobs this year, according to a survey of economists by the AP. That’s double the number that was generated in 2010. Consumers are forecast to spend a little more freely, boosting economic growth to about 3.2 percent in 2011, up from 2.9 percent in 2010. But the economy would need to grow much faster – closer to 5 percent for a year – to substantially reduce unemployment. Analysts project that the unemployment rate will fall to 8.9 percent by the end of this year, according to the AP Economy Survey. The number of people on the unemployment benefit rolls fell by 84,000 to 3.9 million, the Labor Department’s report said. Those figures are one week behind the data on applications. That doesn’t include millions more people who are receiving benefits under emergency federal programs enacted during the recession. About 4.55 million people received aid under the extended benefit programs in the week ending Jan. 15, the latest data available. Those programs provide up to 99 weeks of aid in the states with the highest unemployment rates. Overall, nearly 9.3 million people are receiving unemployment aid. That’s down from about 9.4 million the previous week.

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Jonathan Tasini: Wall Street Pay ‘Vaults to Record Altitude’

February 2, 2011

Sometimes, I wonder whether we all live in a grand farce. But, actually, it’s a real-life story about a robbery of the people that continues every day — and today is no different. The robbers grow richer. From the Wall Street Journal , a story headlined: “On Street, Pay Vaults to Record Altitude”: When it comes to paychecks, Wall Street’s law of gravity is back in full force: What goes down must come back up. In 2010, total compensation and benefits at publicly traded Wall Street banks and securities firms hit a record of $135 billion, according to an analysis by The Wall Street Journal. The total is up 5.7% from $128 billion in combined compensation and benefits by the same companies in 2009 . The increase was fueled by a revenue rebound as the financial crisis recedes in the rearview mirror … “Things are shifting back to where they were before,” said J. Robert Brown, a law professor at the University of Denver who studies compensation and corporate-governance issues.[emphasis added] And: Bank of America Chief Executive Brian Moynihan got a 67% bump in his total compensation for 2010, the company said Monday. Goldman Sachs Group Inc. tripled the salary of Chairman and CEO Lloyd C. Blankfein and increased his stock-based bonus 40% to $12.6 million. In some respects, this is reaffirming news — reaffirming in that, for those of us who have argued that nothing much has changed, this is concrete evidence. Let me make three points here. First, the notion that the “financial crisis” has receded is a perspective that millions of Americans do not share, and do not live. Those people are still coping with joblessness and homelessness and bankruptcy precisely because of the crisis caused by many of the people who are now being rewarded. Rather than jailing a lot of these folks, or at least firing them, the financial “community” rewards them. Second, the escalating pay serves notice that we are back to business as usual. The next bubble is just over the horizon. Third, and maybe most important, any “reforms,” particularly those in the Dodd-Frank bill, are honestly toothless for this reason: we have not truly made an effort to SHRINK the size of Wall Street and its influence on our economy. Remember, in the “good days” of Wall Street, when the Street said “cut your labor costs”, CEOs, always attentive to the level of their share price (which effected the stock options CEOs held), would go ahead and slash thousands of jobs — not because it necessarily helped the company’s overall performance but because the stock price might improve because well, Wall Street would be happy. Much of the financial sector’s money was tied up in leveraged buy-outs and corporate takeovers — this is precisely the kind of behavior, along with foolish so-called “free trade” deals and union busting, that has undercut the middle-class and set us on a course of a declining standard of living. None of that mindset has changed as we embark on that mission to “win the future.” That is the more dangerous message from the pay hikes: NOTHING HAS CHANGED . Seems to me that the next Tahrir Square should be around the Wall Street bull on lower Broadway in Manhattan.

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Ireland Credit Rating Slashed Again

February 2, 2011

DUBLIN — Ratings agency Standard & Poor’s cut its credit grade for Ireland on Wednesday and warned it could fall further because of doubts about the true scale of defaulting loans yet to surface in the country’s largely state-owned banks. S&P joined fellow agencies Moody’s and Fitch in dropping Ireland’s credit score following the nation’s November negotiation of a potential euro67.5 billion ($93 billion) credit line from the European Union and International Monetary Fund. Ireland already has drawn down euro8.4 billion ($11.6 billion) this year from that rescue fund – and plowed much of it straight into the cash-strapped coffers of Dublin banks. Still, S&P’s reduction Wednesday was just one notch to A minus, one step above the multi-grade cuts imposed last month by Moody’s and Fitch. Both dropped Ireland into the higher-risk BBB tier in the immediate wake of the EU-IMF bailout deal. The BBB level is considered the lowest investment-grade rating, whereas BB and lower indicate “junk bond” status. S&P senior analyst Frank Gill warned the agency could also drop Ireland’s rating somewhere into the BBBs in April, once a new Irish government settles in and the impact of the current infusion of EU-IMF cash into Dublin banks can be assessed. The S&P announcement coincided with Wednesday’s formal launch of campaigning for Ireland’s Feb. 25 election. The free-market government of Prime Minister Brian Cowen – who presided over the country’s spectacular collapse from Celtic Tiger success in 2007 to a bank-crippled debtor today – is universally forecast to be ousted from power in favor of a left-leaning coalition. The two parties expected to form the next coalition government, Fine Gael and Labour, are both campaigning on promises to reopen negotiations with the EU and IMF to loosen some of the strings attached to the aid deal. Both question Cowen’s determination to slash euro15 billion ($21 billion) from the economy over the next four years through spending cuts and tax hikes. Troublingly, the two would-be government partners criticize Cowen’s brutal austerity effort from opposite extremes, with Fine Gael favoring more cuts and Labour insisting on more taxes for the rich. Gill warned that Ireland’s economic forecasts presume that the total bank-bailout bill funded by taxpayers won’t top euro50 billion ($70 billion) while the current unemployment rate of 13.4 percent – near a 17-year high – will stabilize in 2011 and decline in 2012. He noted the total debts of the six Irish banks – Allied Irish Banks, Bank of Ireland, Irish Life & Permanent, Anglo Irish Bank, Irish Nationwide and Educational Building Society – actually approach euro275 billion ($375 billion), more than 170 percent of Ireland’s gross domestic product. “Irish domestic banks currently depend almost entirely on the (European Central Bank) to refinance expiring market debt,” Gill said. “Were the labor market to deteriorate further, a rise in the level of delinquencies in the domestic banks’ mortgage books could result in higher new capital requirements than we presently assume,” Gill said. On the flip side, he said Ireland’s prospects would be boosted if European Union leaders agree to change its bailout rules, which currently require donors to tack a profit margin on its loans of approximately 3 percentage points. That means Ireland’s EU-IMF loan package comes with an average interest rate of 5.8 percent rather than the donors’ actual financing costs of 2.8 percent. This premium will add tens of billions to Ireland’s annual deficits, which last year soared to a modern European record of 32 percent of GDP. European leaders are also planning to discuss this week possible bailout-rules reforms that would make it easier for governments to negotiate hefty discounts on repayments to a bank’s foreign creditors. Ireland so far has repaid tens of billions to those banks and hedge funds rather than risk poisoning the country’s credit worthiness with a major default. Ireland’s government and main opposition parties remain publicly committed to a goal of slashing the deficit to just 3 percent of GDP by 2014, the limit that eurozone members are supposed to observe. But that plan presumes Ireland’s economy will grow by at least 2 percent each year, whereas the most recent forecasts from the Irish Central Bank and the Economic and Social Research Institute, Ireland’s main think tank, expect much weaker growth if any in 2011.

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Ian Fletcher: Decline of U.S. Manufacturing: Factory Body Count and Epitaphs

February 2, 2011

The ongoing decline of American manufacturing is not an abstraction. But while most decent folk realize that real people are hurting, I’d like to focus today on a slightly different issue. I’ve found a fascinating database online at the Bureau of Labor Statistics, which enables one to get a blow-by-blow account of how American industry is falling apart. Go to their website here , then click on “QCEW Databases”, then “One Screen Data Search.” You can fiddle the various controls to get a picture of different states and different types of establishment. What does one discover? Over the past decade, the United States has lost 53,224 factories. From 2009 to 2010, we lost 8,000. To be fair, some were quite small, “mom-n-pop” machine shops and the like. But since 2001, we have lost 603 factories employing more than 1,000 workers. That’s a 41 percent drop. Some specific examples, just to give a concrete image to these statistics (source: Manufacturing & Technology News ): Cissell Manufacturing , the Ripon, Wisc.-based manufacturer of commercial laundry machines, closed its plant in Louisville, Ky., laying off 125 workers. Best Manufacturing Group , the country’s largest maker of table linens and nappery for the healthcare industry, company moved most of its production to Cambodia and closed its plants in King of Prussia, Penn., and Mahwah, N.J. Sparta Manufacturing , a foundry with 70 employees based in Sparta, Mich., closed — due to competition from China and India, the company said. Owens-Illinois , the manufacturer of packaging and containers used by hundreds of companies, closed its 300,000-square-foot machine parts plant in Godfrey, Ill. Belden CDT , a St. Louis-based manufacturer of cable, closed manufacturing plants in Tompkinsville, Ky., and Fort Mill, S.C. A majority of production was moved to a new manufacturing plant in Mexico. Davis Furniture shut down its production plant in Houlka, Miss., and moved manufacturing operations to China. 130 employees were laid off. Company owner Lynn Davis told the Associated Press that it was necessary to move production to China in order to stay competitive. Ethan Allen Interiors closed its 280,000-square-foot Spruce Pine, N.C., manufacturing plant and laid off 340 people. The company also closed its manufacturing facility in Oklahoma, with the loss of an additional 125 jobs. General Electric stopped manufacturing at one of its oldest plants. The company stopped making rotary appliance switches and fluorescent lamp holders at its Bridgeport, Conn., manufacturing facility, which had been in operation by GE for more than 80 years. Modine Manufacturing closed its Toledo, Ohio, manufacturing plant. The facility made heating and cooling systems for the automotive industry. M&S Manufacturing Co. , one of the world’s largest privately held makers of high-precision machined parts, closed up shop. The Hudson, Mich.-based company was founded in 1941. Sparton Corp. closed its cable wire harness manufacturing and assembly plant in Deming, N.M. Littelfuse Manufacturing transferred its semiconductor wafer manufacturing capacity from Irving, Texas, to Wuzi, China, and laid off 180 workers. Tecumseh Products Co. closed its engine component manufacturing plant in New Holstein, Wisc.

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Dr. Stan Humphries: Underwater Homeowners Unable to Swim to Warmer Waters?

February 2, 2011

Imagine this: You’re a successful professional in a small city, circa 2005. Your job is going well and the housing market is going gangbusters, so you dive in and buy a great starter home. You put down 10 percent (a lot for the times) and take out a 30-year fixed loan with monthly payments you can easily afford. You are responsible. Fast forward a few years, and the Great Recession is underway. Your company is in trouble, and you get laid off. Since you bought near the peak of the market and only put down 10 percent, you owe more on your mortgage than your home is worth. You’re underwater, like more than one in five single-family homeowners with mortgages, according to my real estate research firm Zillow. You’ve got enough in savings to get by for a few months, and you start searching for a job. Your area has been hard-hit by unemployment, so you’re thrilled when you get an offer from across the country. One problem: You’re stuck in your home. Or are you? The idea that negative equity impacts labor mobility is a notion that has likely occurred to anybody who’s thought about the matter for more than a couple minutes. Our acceptance of this notion is aided by a constellation of facts that seems to support it: 1. Long-term unemployment, measured as the percentage of unemployed people who have been out of work for more than 27 weeks, is at its highest level (44.3%) ever seen in the data series stretching back to the late 1940s. An interesting phenomenon considering that while unemployment itself is high (9.4% currently), it has been higher in the past (10.8% in November 1982). 2. Labor mobility is quite low. Only 1.4% of Americans moved between states in the year ending March 2010, the lowest interstate migration rate in the past fifty years. Moreover, interstate migration encountered a sharp decline in 2006, the year in which home values crested and started to fall. 3. The housing recession that began in 2006 and has already led to a decline of more than 26% in the value of homes (assuming they are sold in a non-distressed transaction) has created rates of negative equity that are unprecedented in the post Great Depression era. At the end of the third quarter of 2010, Zillow estimated that 23.2% of single-family homes with a mortgage were in a negative equity position. So, the data appear incontrovertible: high negative equity has led to decreased mobility which, in turn, has led to higher-than-normal long-term unemployment. The icing on the cake? A report in 2008 from the New York Fed confirming this relationship in a direct empirical test. Mobility was almost 50 percent lower for owners with negative equity than owners with positive equity. Slam dunk, right? Revised Data Throws Cold Water on Relocation Theory As with many complex economic problems, jumping to conclusions is not so simple. Late last year, the Minneapolis Fed released a couple papers that threw cold water on the whole argument. First came a paper arguing that migration between states actually didn’t suffer a precipitous decline in 2006. What happened instead is that the Census Bureau, who collects the data to compute the metric, changed their method of accounting for missing data (when respondents can’t or won’t answer a question). Once correcting for the change in methodology, it turns out that interstate migration has been on a slow, steady decline since 1996 and there was no actual blip in 2006. The reasons behind this longer term decline are the focus of active, ongoing research into whether mobility has become less necessary or simply harder and more expensive. Second came the paper taking another look at the New York Fed analysis and showing that the original authors’ treatment of missing data had biased the results. Reproducing the analysis with the change in the treatment of missing data found that homeowners with negative equity are at least as mobile as those with positive equity, and that those with high levels of negative equity are particularly mobile. Theoretically, this latter conclusion makes some sense for an underwater homeowner since the upside of moving (by defaulting and getting into a cheaper housing situation) grows relative to the downside (taking a credit hit because of foreclosure) as the level of negative equity grows. (Interesting side note: a senior economist at the Minneapolis Fed, Sam Schulhofer-Wohl, was author on both papers; Greg Kaplan at the University of Pennsylvania was co-author on the first). In conclusion, negative equity is toxic in a lot of ways. It combines with unemployment to increase the foreclosure rate which, in turn, depresses home values. It also slows the conveyor belt of homeowners selling their current homes and buying up to more expensive ones because they can’t easily sell due to negative equity. But, as markets continue to experience declines in home values towards what Zillow hopes is a bottom later this year, it is at least somewhat comforting that negative equity doesn’t appear to be leading to stasis in our labor market. We’ll take good news wherever we can find it.

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Busy day for the labor sector in Europe

February 1, 2011

Busy day for the labor sector in Europe

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Economic Growth Still Not Good Enough To Dent Jobs Crisis

January 28, 2011

The American economy sped up in the last three months of 2010, but economic growth is still dramatically short of where it needs to be to make a significant dent in the unemployment rate. Gross domestic product — the output of goods and services produced by the American economy — grew at a rate of 3.2 percent annual rate in the last quarter of 2010 according to the Commerce Department’s report . This is good news, but not, as Josh Biven, an economist at the Economic Policy Institute, sees it, good enough. “The headline number — the 3.2 percent growth — if we sustain that rate of growth throughout 2011 that would do very little to push down the unemployment rate,” Biven said. Three percent growth is what you need just to keep the economy stable. To see any kind of real improvement, as Biven calculates, the GDP would need to be improving at a rate of 5 percent, month-over-month for an entire year — and that would only lower the unemployment rate by one percentage point. “The growth is nowhere near fast enough to start pushing down the overall unemployment,” he said. Bart van Ark, chief economist at the Conference Board, likewise does not see much to celebrate. In a widely circulated email, van Ark wrote: Continued woes in the housing market and weakness in the labor market will prevail throughout 2011. We anticipate a post-holiday pullback in consumer spending, a rise in the personal savings rate, further cuts in spending by state and local municipalities, and a deceleration in business investment in inventories in the current and next quarters. Consequently, economic growth will register only a sluggish 2 percent in the first half of 2011. One positive sign inside the Commerce Department’s report was picked up by the Wall Street Journal ‘s Kelly Evans, who tweeted : Wow. Excluding inventories, GDP up 7.1% in Q4 – most since 1984. Now that’s more like a recovery! (Evans was referring to ” real final sales ,” which discounts the effect that increased inventory levels — essentially unsold goods — has on GDP.) But Biven, at least, doesn’t see that 7.1% percent as a very accurate indicator of economic recovery. “The 3.2 percent is the better measure of the trend of the economy,” he said. “I don’t expect inventories are going to take away a bunch of growth again in coming quarters. There are reasons to think the 3.2 percent number is a little closer to what the economy is actually doing right now.” Steve Benen, at Political Animal , summarizes the situation nicely: While better growth is obviously good news, 3.2% is still only modest growth. Under normal circumstances, this would point to a fairly healthy economy, humming right along. But given the severity of the Great Recession, our circumstances are anything but normal — to have a robust recovery and make a real dent in the unemployment rate, we’ll still need to do better than this. Accelerating growth is encouraging, but if you hear policymakers and pundits today use this as an excuse to justify hitting the brakes, please know that they’re completely wrong. We’re slowly getting out of a ditch — pursuing massive budget cuts, taking money out of the economy, and deliberately putting people out of work (i.e., the vision embraced by House Republicans) would very likely push us backwards in a hurry.

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CBO: Unemployment Rate Will Stay Above 9 Percent Through 2011

January 26, 2011

The jobs crisis isn’t going anywhere, according to the latest forecast from the nonpartisan Congressional Budget Office, which puts the national unemployment rate above 9 percent through 2011 and 8 percent through 2012. Unemployment will fall to a more “natural rate” only in 2016, when CBO estimates it will reach 5.3 percent — a projection roughly in line with private-sector figures. “The recovery in employment has been slowed not only by the moderate growth in output in the past year and a half but also by structural changes in the labor market, such as a mismatch between the requirements of available jobs and the skills of job seekers, that have hindered the reemployment of workers who have lost their job,” CBO’s report says. The degree to which the unemployment crisis is structural, as opposed to cyclical, is hotly debated by economists, with progressives like Paul Krugman arguing that structural unemployment is a fake problem “which mainly serves as an excuse for not pursuing real solutions.” Many argue that the even drop in employment across industries shows that lack of overall demand is the problem, with stimulus spending the answer. Others have said pay disparities between workers with different levels of education show the problem is at least partly structural . James Galbraith, an economist who teaches at the University of Texas, says CBO’s structural unemployment claim is an after-the-fact rationalization for previous failed forecasts. (CBO’s 2009 forecast predicted 8 percent unemployment in 2011 and 6.8 percent unemployment in 2012. Galbraith’s been beating up on CBO since before then.) “There never was any reason to believe that employment would bounce back, as CBO had previously forecast, in the wake of the financial meltdown, and no reason now to think that the problem lies with deficient skills for any class of workers,” Galbraith told HuffPost. “[The CBO forecast] is a purely mechanical exercise idea based on the fact that in the past we’ve always rebounded to a natural unemployment rate of 5 percent. What that means is you never take into account that the system broke in any serious way.” The most unusual factor of the jobs crisis is how long some people are going without work. Long-term unemployment has surged since the unprecedented mortgage meltdown that clobbered housing prices and launched the Great Recession in December 2007. Some 6.4 million people — 44.3 percent of the 14.5 million unemployed — have been out of work for six months or longer, and 1.4 million have been out of work for two years or longer . This is the worst long-term unemployment situation in the United States since the Great Depression. CBO’s report says the long-term unemployed lose familiarity with developing technologies as their job-finding social networks deteriorate, but it hints at another reason those folks can’t find jobs: Employers don’t want them because nobody else does. The Congressional Research Service says the 1.4 million “very long-term unemployed” hail from all educational backgrounds. “Workers who are unemployed for long periods may face even greater obstacles in finding a new job,” the CBO report says. “Some employers may assume that long-term unemployment is a signal that a worker is not good at his or her job.” Indeed. Just check out this Craigslist ad for a restaurant manager in Salisbury, Md.: “Must be currently employed or recently unemployed.” As HuffPost has reported, this is a common requirement for many jobs, even if it sometimes goes unstated .

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Max Fraad Wolff: Squeezed

January 24, 2011

As the holiday season slips into memory the public sector squeeze is on. We are into the shorter, colder days of winter. The American public sector is struggling through a long, cold season. Yes, the economy has made up some of the ground lost in 2008 and 2009. Yes, the recession has been declared officially over. The stock market has rallied and corporate profits have rebounded. State, local and federal government finances remain mired in pain. Cuts in services and employment are occurring and proposed across the country. Last year, total state and local employment declined by more than 400,000 jobs. An unusual number of Americans are dependent on state and local services and employees. Many millions are in poverty, seeking food assistance and qualified for emergency state and local aid. Government jobs are essential supports in many area economies. These jobs employ many victims of past labor market discrimination, offer a way up and out. State and local services are one of the few lines of defense that remain in our thoroughly tattered social safety net. The discussion of public sector workers lately focuses on the cost. This is vital and should be open to discussion. However, we tend to forget all that we rely on these millions to do. We have also developed a dangerous inclination to discuss state and local workers as an undifferentiated mass with new specific attributes or history. This is a serious mistake as so much is now at stake and so many services and contracts are on the line. Our 20 million state and local workers provide many vital services. These folks provide education, fire, police, clerical, court/legal and social services. Major coming battles are to be fought over which state and local jobs to cut. Who will be fired? What pensions/benefits will be cut? How many services will be cut? Who will go without? This will likely reach a fever pitch as the federal debt ceiling is reached in March/April and the state and local fiscal year ends in June. Sometimes pictures are worth 1,000 words. This also goes for graphs. Below is a sketch of state and local workers. Few of the recent discussion really ask how many state and local workers there are. What do these people do? What are the pay levels? Who are these people? Conversation is usually dominated by ideologically and politically inflected diatribe. How many state and local workers are out there? Figure 1. State and Local Employment Bureau of Labor Statistics CES Figure 1 makes clear that there are about 20 million state and local workers in America. There were 14.3 million local workers at the start of 2011 and 5.2 million state employees. There has been a steady rise in state and local employment over the last half century. Growth has not been particularly rapid over the last decade. Figure 2 speaks to relatively flat employment levels at the state and local levels in the new millennium. Growth in state and local employment has occurred as population has increased and past social movements have won expanded benefits. The very high cost of medical care and social problems associated with crime, drugs, lack of affordable housing have added to costs. Public education — at all levels — has also grown as a cost to state and local governments. Our massive networks of jails, parole officers, probation officers and prisons have grown rapidly. The relative strength of state and local employee unions in some areas has also contributed to employment growth. Most American communities rely on a host of state and local services as well as employments and incomes that flow directly and indirectly from state employment. In some communities these jobs and services produce and support much of the local middle class. Figure 2. BLS Data State and Local Government Employment 2000-2010 (Thousands) In 2009, the latest available data, the average state employee earned $23.67 per hour, $49,240 per year. The average local government employee earned $21.68 per hour or $45,090 per year. These averages hide large differences in pay by location, age and job type. The national average earning per hour for all employed Americans in December of 2009 was $22.38, $44,760 for a 2,000 hour year. State and local government employees earned about the national average per hour in 2009 and 2010. State and local workers, particularly in the six states with the highest levels of unionization, received better benefits than the average private sector worker in a similar job. Public sector workers are more likely to receive benefits than those in the private sector. Benefits have been negotiated up by these workers as an alternative to higher wages in many localities and cases. The value of benefit packages adjusts with the costs of health care, prescription drugs and returns on pension investments. Benefits in public sector work continue to be in line with historical middle class benefit levels. However, there has been significant erosion in benefits for many private sector workers since the 1980s. Thus, public sector workers often have more generous benefit packages than their private sector counterparts. What services do state and local workers provide? The jobs most commonly performed by state and local employees include education/teaching, law enforcement/public safety, fire protection, transportation, social, legal/court and medical services, clerical services. Figure 3 below lists the most common jobs and salaries for state and local employees according to the BLS Career Guide to Industries, 2010-2011 Edition. State and local government employee earnings were close to the national averages in most occupations. The annual earnings of most state and local workers track and move fairly closely with average earnings in the private sector. There are some exceptions and these usually have resulted from particular local political struggles and circumstances. Figure 3. Most Common State and Local Government Occupations and Mean Hourly Compensation Demographic Features and Context State and local workers are heavily unionized. Cuts in employment, wages and benefits at all levels of government will dramatically decrease the proportion of union employment in the US. As this goes to press 12.3% of Americans are represented by unions, 14.7 million people. This number declined by 612,000 across 2010. The rate of unionization has been falling since 1983, when these numbers began being tracked by the BLS. 2010 marked a new low with 11.9% of workers represented by unions, down from 20% in 1983. 36% of public sector workers were unionized in 2010 and 6.9% of private sector workers were in a union. More than half of all unionized workers are in the public sector. In 2010 7.6 million public sector workers were unionized and 7.1 million private sector workers were unionized. Six states: New York, California, Illinois, Pennsylvania, Ohio, New Jersey contain more than half of all union members. Rates of union membership are lowest in the Southeastern US where many states have less than 5% of their labor force in unions. Given the dramatic overrepresentation of unions in the state and local public sector, any major shift in employment in this sector will immediately and profoundly shift the role and size of unions in America. Figure 4. BLS Data % of Workers Unionized by Employer Type State and local employees have several demographic attributes that are not seen universally in the working public. African Americans have higher rates of government and union employment because of their concentration in regions and occupations covered by state and local unions. African Americans have a higher rate of state and local employment and a higher rate of unionized employment than the population average. Equal Opportunity Employment Committee data from 2007 suggests that 18% of full time state employees are black. At the city level, the same EEOC data suggest that 19% of full time employees are black. Major shifts in employment at the state and local level are likely to disproportionally impact communities of color- particularly African American communities. There is a unique history behind high levels of African American employment in many states and locales. This history emerged out of civil rights struggles and past patterns of severe employment discrimination against African Americans in hiring. Ethnic demographics of state and local employees display this pattern among historically abused ethnicities and women. Veterans are significantly overrepresented in public sector employment, including at the state and local level. In 2009, nearly 13% of all employed veterans worked for state and local government. Public sector employees tend to stay at jobs longer and tend to be older than private sector workers. Public sector workers are statistically more likely to be older, to be veterans, to be from communities of color and to be concentrated in urban areas of the Mid-Atlantic, West Coast or upper Midwest. These groups will be uniquely hurt by significant cuts in employment, pay, benefits to the public sector. I know some of the above information is dry. However, it is essential to have a realistic conversation about who, what and where we are cutting. Needless to say, lower income and special needs populations are likely to suffer most acutely from reductions in state and local services. Restrictions and reductions on hiring and compensation will further erode the middle class and are likely to increase inequalities of wealth and income.

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Ian Fletcher: Stop the Korea Free Trade Agreement!

January 23, 2011

You would think America had learned its lesson from NAFTA, which the Labor Department has estimated cost us 525,000 jobs. But no. President Obama and the Republican leadership are united in pressing for ratification of the Korea-U.S. Free Trade Agreement (KORUS-FTA). This is an agreement which the Economic Policy Institute estimates will cost us 159,000 more jobs over the next five years. Yes, you read that correctly. At a time when even the president admits that his number one economic priority is job creation, and has created an entire new commission for that purpose, they’re going ahead with it anyway. It gives the phrase “contradictions of capitalism” a whole new meaning. Make no mistake: we’re in big trouble. The US economy has entirely lost the ability to create jobs in tradable sectors, and the recent downward blip in unemployment was merely the result of more people giving up looking, which causes them to drop out of the statistics. Even the official U.S. International Trade Commission has admitted that KORUS-FTA will cause significant job losses. And not just in low-end industries. The ITC foresees the electronic equipment manufacturing industry, with average wages of $30.38 in 2008, as a major victim. The supposed logic of America swapping junk jobs for high-end jobs simply isn’t the way the economics really works out. Pace free-market mythology, there are actually well-understood reasons for this, if you dig a little into what economists already know. Was this the Obama America voted for in 2008? No. That Obama is at an undisclosed location somewhere. He campaigned against KORUS-FTA during the 2008 campaign. (It was originally negotiated, but not ratified by Congress, by Bush in 2007.) Among other things, that Obama said: I strongly support the inclusion of meaningful, enforceable labor and environmental standards in all trade agreements. As president, I will work to ensure that the U.S. again leads the world in ensuring that consumer products produced across the world are done in a manner that supports workers, not undermines them. Nice words, but none of them are reflected in KORUS-FTA, which contains no serious new provisions on these issues. This agreement is essentially a NAFTA clone. It is, in fact, the biggest trade agreement since NAFTA, and the first since Canada with an industrialized country. This agreement, like NAFTA and the dozen or so other free trade agreements America has signed since NAFTA, is fundamentally an offshoring agreement. It is about making it easier for U.S. companies to move work overseas. The provisions to protect workers and consumers are unenforceable window dressing. Don’t be fooled by the fact that some unions, like the United Auto Workers (UAW), have endorsed the agreement. This is part of a cynical ploy by the White House to split the trade union movement in order to keep the AFL-CIO neutral. The UAW’s out-of-touch leadership is so punch-drunk from the 2008 collapse of the U.S. auto industry that it has lost touch not only with what is good for the American economy as a whole, but with what is good for rank-and-file auto workers. Don’t take my word for it: in the words of Al Benchich, retired president of UAW Local 909: The UAW Administration Caucus is the one-party state that controls the UAW at the International level. Every International officer is a member of the Caucus, and they surround themselves with appointed international reps that unquestioningly do their bidding. No wonder other, more democratic and more intelligent, unions, like Leo Gerard’s United Steelworkers, are criticizing the UAW for its decision to support KORUS-FTA. Interestingly, the UAW’s past record of criticizing KORUS-FTA is more honest than anything they’re doing in a desperate bid to help keep Obama in the White House. For example, here’s what they originally said about this agreement: KORUS-FTA has inadequate protections and enforcement mechanisms to enforce either the spirit or the letter of the law. Precisely . And changes made since then are, as noted, minimal. As an example of how one-sided the treaty is, consider that it now allows — to great rejoicing — America to export 75,000 cars a year to Korea. This translates to a measly 800 jobs. Korea’s exports of cars to the U.S. in 2009, on the other hand? Try 476,833. Furthermore, even if the U.S. does get to sell more cars in Korea, American companies will mostly not be making the steel, tires, and other components that go into them, because the agreement allows cars with 65 percent foreign content to count as “American.” This is just one example of how KORUS-FTA isn’t even as good as the deal the EU just signed with Korea. (The EU got a 55 percent standard on this item.) And remember that the EU and most of its member states, of course, don’t really practice free trade anyway: they practice a covertly managed trade that has kept the EU’s trade balance within pocket change of zero over the last two decades, while America has been running deficits around the $500 billion mark. “Free trade agreement,” in American English, means “free trade agreement.” In other languages, it means “politely codified agreement for managed trade at a low tariff.” The Europeans invented this game — called mercantilism — back when international trade was conducted with sailing ships. South Korea learned it from the Japanese. Uncle Sam (and maybe John Bull and a few others) are the only naïfs who still don’t get it. Despite what the White House and the U.S. Chamber of Commerce are saying, this agreement makes no sense as a strategy to reduce our horrendous trade deficit. America’s trade deficits have a long record of going up , not down, when we sign trade agreements with other nations. Paradoxically, trade agreements even seem to sabotage our own trade with foreign nations: according to an analysis by the group Public Citizen, in recent years our exports to nations we have free-trade agreements with have actually grown at less than half the pace of our exports to nations we don’t have these agreements with. So these agreements don’t hold water as trade-expanding measures. Even leaving aside trade-balance issues, this agreement is a disaster, thanks to something called “investor-state arbitration.” Like NAFTA, it compromises American sovereignty and subjects American democracy to having its own laws overruled by foreign judges as interfering with trade. Under NAFTA to date, over $326 million in damages has been paid out by governments as a result of challenges to natural resource policies, environmental protection, and health and safety measures. There about 80 Korean corporations, with about 270 facilities around the U.S., that would acquire the right to challenge our laws under KORUS-FTA. What kind of problems could this cause? The U.S. was forced in 1996 to weaken Clean Air Act rules on gasoline contaminants in response to a challenge by Venezuela and Brazil. In 1998, we were forced to weaken Endangered Species Act protections for sea turtles thanks to a challenge by India, Malaysia, Pakistan and Thailand concerning the shrimp industry. The EU today endures trade sanctions by the U.S. for not relaxing its ban on hormone-treated beef. In 1996, the WTO ruled against the EU’s Lome Convention, a preferential trading scheme for 71 former European colonies in the Third World. In 2003, the Bush administration sued the EU over its moratorium on genetically modified foods. It gets worse. KORUS-FTA also signs away our right (and Korea’s, too, not that this makes it any better) to a wide range of financial regulations of the kind that might have helped avoid the crisis of 2008. For example, it forfeits our right to limit the size of financial institutions. It forfeits our right to place firewalls between different kinds of financial activities in order to prevent volatility in one market from collapsing another. It prevents us from limiting what financial services financial institutions may offer — Enron Savings & Mortgage, here we come… It bans regulation of derivatives. It ban limits on capital flows designed to tame volatile “hot money.” Why is the U.S. flirting with making such an appalling mistake yet again? Because a) multinational corporations have bought our political system and b) because our government would rather play power politics than keep its own (declining) economic house in order. It is remarkable how stuck we are in the 1950′s, with an invincible economy at home and a Cold War abroad. As a report by the Senate Finance Committee once put it: Throughout most of the postwar era, U.S. trade policy has been the orphan of U.S. foreign policy. Too often the Executive has granted trade concessions to accomplish political objectives. Rather than conducting U.S. international economic relations on sound economic and commercial principles, the executive has set trade and monetary policy in a foreign aid context. An example has been the Executive’s unwillingness to enforce U.S. trade statutes in response to foreign unfair trade practices. Ironically, it may eventually be our own decline that solves our trade problems, by rescuing us from our own arrogance and stupidity. When we finally realize we can’t take our economy for granted, we may finally stop giving away the store in international trade. P.S. There have been huge demonstrations against KORUS-FTA in Seoul, South Korea. If you live in the Bay Area, there’ll be a protest outside Nancy Pelosi’s San Francisco mansion on January 29. Click here for more details.

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Dave Johnson: When You Close The Factory We Can’t Make A Living

January 20, 2011

In a signal of change in elite attitudes, Steven Pearlstein wrote a Washington Post op-ed, Chinese follow same old script (and they get the punch line) , describing the cost-to-us of the business-as-usual game we have been playing with China. Pearlstein has seen the light: China has an industrial policy and it is working for them as a nation. We do not. We have a lassez-faire ideology that enables a few at the top of “Multinational Corp.” to get really rich moving manufacturing infrastructure to China, leaving the rest of us with no way to make a living. Next week President Obama can announce that he is changing that. “Enough!” Pearlstein writes about China’s bullying mercantilism, how it benefits China, the cost to us, and says “Enough!” He makes a startling suggestion to address the problem: do unto them as they are doing unto us . He writes, “The right response to these challenges would be for the president this week to laud China for the success of its economic policies and announce that the administration will begin forthwith to apply each and every one of them to Chinese exports into the United States. Subsidies and directed credit for local companies, buy-American provisions for government agencies and government contractors, currency manipulation, the rules on “conditional market access” and “indigenous innovation” – surely China could hardly complain if we were to pay them the highest compliment by embracing their economic model.” Read that paragraph again. Pearlstein goes on to describe how a national industrial policy brings advantages to China, while our everyone-in-it-for-themselves ideology hampers us, “…China can strike deals that may provide short-term profits to one company and its shareholders but in the long run undermine the competitiveness of [our] economy. What’s good for GE or Honeywell or Rockwell is, in this case, almost certainly not good for America and American workers.” The Establishment This column is significant because Pearlstein is part of what you might call “the establishment,” a DC opinion leader, not part of the labor movement or a social-justice non-profit or, worse yet, an advocate for the unemployed. But here he is joining with us on the “far left” to say that we can’t keep going down this road — that it is time to see ourselves as a country of people who are in this together, with common interests. He actually makes the far-left argument that, “What’s good for GE or Honeywell or Rockwell is, in this case, almost certainly not good for America and American workers.” Will he keep his job? Or will others join him and begin to see that this is all of a piece. Our trade deficit is part and parcel of our budget deficit and our terrible unemployment problem and our bank bailouts and our deteriorating infrastructure and our deregulation and our tax-cuts-for-the-rich and our on-your-own ideology and our corporate-financed elections and our slow economic growth. Evergreen Solar To illustrate the difference a national industrial policy makes Pearlstein uses the instructive example of Evergreen Solar, a solar panel manufacturer that made waves this month announcing it is closing down its US manufacturing and moving it to China. Solar panel prices are plunging because of Chinese-subsidized manufacturing, and “Evergreen can still make money in China because of the lower costs and considerable government subsidies offered by the government there.” But not here. The NY Times covered the Evergreen Solar story last week, in Solar Panel Maker Moves Work to China . These snippets tall the story, … But now the company is closing its main American factory, laying off the 800 workers by the end of March and shifting production to a joint venture with a Chinese company in central China. Evergreen cited the much higher government support available in China. . . . Chinese manufacturers, Mr. El-Hillow said in the statement, have been able to push prices down sharply because they receive considerable help from the Chinese government and state-owned banks, and because manufacturing costs are generally lower in China. . . . In addition to solar energy, China just passed the United States as the world’s largest builder and installer of wind turbines. The article includes a reminder that we are, after all, talking about China, … Evergreen’s joint-venture factory in Wuhan occupies a long, warehouselike concrete building in an industrial park located in an inauspicious neighborhood. A local employee said the municipal police had used the site for mass executions into the 1980s. Business As Usual China cheats. We don’t stop them. They manipulate currency . They restrict imports. They subsidize exports. They subsidize companies. They steal intellectual property. They coerce companies to give up proprietary technology. They do what it takes to win key strategic industries, regardless of treaties and laws. And why should they if we won’t stand up to this cheating and stop them? They watch out for themselves, and we do not. Yesterday, describing China’s currency manipulation as part of an industrial policy, I wrote that China looks at the overall, longer-term picture, seeing themselves as a country of people with a common interest. We do not. They understand that attracting industries to China is good for China and its people in the long term. We do not. We follow a corporate/conservative greed-is-good ideology that says that the interests of individual companies and a few wealthy people are the interests of the country-at-large, and if companies can make larger profits in the short term and a few people can get wealthy closing factories and moving them to China that’s just fine, even if it means a loss of jobs and of the country’s overall ability to make a living in the long term. This just doesn’t work for us as a nation. Or, as Pearlstein put it, “What’s good for GE or Honeywell or Rockwell is, in this case, almost certainly not good for America and American workers.” Obama’s State Of The Union Opportunity Next week the President delivers his State Of The Union speech. This is an opportunity to announce a new direction. He can lead us in a transition back to a nation that sees itself in this together as a people watching out and taking care of each other. He can reject the conservative vision of each of us on our own, following a greed-is-good ideology that enriches a few but just doesn’t work for We, the People. He can announce the formation of a bold national industrial/economic policy where we again lead the world toward greater prosperity. And he can announce that we are going to, as Pearlstein writes, “pay [China] the highest compliment by embracing their economic model” — meaning do unto China as China is doing unto us . Enough! This post originally appeared at Campaign for America’s Future (CAF) at their Blog for OurFuture . I am a Fellow with CAF. Sign up here for the CAF daily summary .

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Robert Reich: The Real Economic Lesson China Could Teach Us

January 19, 2011

Highlighting today’s summit between Chinese President Hu Jintao and President Obama is China’s agreement to buy $45 billion of American exports. The president says this will create more American jobs. That’s not exactly right. It will create more profits for American companies but relatively few new jobs. Nearly half of the deal is for two hundred Boeing aircraft whose parts come from all over the world. The rest involves agricultural commodities that don’t require much U.S. labor because American agribusiness is highly automated, and chemical and high-tech goods that are even less labor-intensive. General Electric and other companies are signing up for deals with China involving energy and aviation manufacturing. But much of this will be done in China. GE’s joint venture with Aviation Industries of China, to develop new integrated avionics systems (which presumably will find their way into Boeing planes) will be based in Shanghai. Here’s the real story. China has a national economic strategy designed to make it, and its people, the economic powerhouse of the future. They’re intent on learning as much as they can from us and then going beyond us (as they already are in solar and electric-battery technologies). They’re pouring money into basic research and education at all levels. In the last 12 years they’ve built twenty universities, each designed to be the equivalent of MIT. Their goal is to make China Number one in power and prestige, and in high-wage jobs. The United States doesn’t have a national economic strategy. Instead, we have global corporations that happen to be headquartered here. Their goal is to maximize profits, wherever they can make the most money. They’ll make things in America for export to China when that’s most profitable; they’ll make it in China and give the Chinese their know-how when that’s the best way to boost the bottom line. They’ll utilize research and development wherever around the world it will deliver the biggest bang for the dollar. Meanwhile, Republicans and deficit hawks are cutting publicly-supported R&D. And cash-starved states are cutting K-12 education, and slashing the budgets of their great public research universities, such as the one I teach at. No contest. And no hyped-up trade deals are going to change this fundamental imbalance. Some say all we need to do is put our currencies in better balance. But even if the Chinese upped the value of the yuan and the US (courtesy of the Fed) reduced the value of the dollar — so everything they bought from us was cheaper and everything we bought from them, far more expensive — they’d still win. We’d have more jobs than now because our exports would be more attractive in world markets, but those jobs would summon fewer goods from around the world. In other words, we’d be poorer. Let’s get real. We’re losing ground. The U.S. labor force is now smaller than it was before the Great Recession began and most American families are worse off. December’s unemployment rate dropped to 9.4 percent from 9.8 percent but almost half the improvement was due to 260,000 people dropping out of the labor force. Average hourly wages grew by three cents in December; weekly wages, by $1.02. And almost all the gains in income occurred at the top. The major assets of rich Americans are financial – whose values have increased as corporate profits have grown. The major assets of the middle-class asset are their homes, whose values continue to drop. The President now says the answer is to help American business. “We can’t succeed unless American businesses succeed,” he said recently. “And I’m going to do everything I can to promote their ability to grow and prosper.” But the prosperity of America’s big businesses has become disconnected from the prosperity of most Americans. Republicans say the answer is to reduce the size and scope of government. But without a government that’s focused on more and better jobs, we’re left with global corporations that don’t give a damn. China is eating our lunch. Why? It has a national economic strategy designed to create more and better jobs. We have global corporations designed to make money for shareholders. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Fact Check: GOP Health Care Reform Claim Appears Shaky

January 19, 2011

WASHINGTON — Republicans pushing to repeal President Barack Obama’s health care overhaul warn that 650,000 jobs will be lost if the law is allowed to stand. But the widely cited estimate by House GOP leaders is shaky. It’s the latest creative use of statistics in the health care debate, which has seen plenty of examples from both sides. Republicans are calling their thumbs-down legislation the “Repealing the Job-Killing Health Care Law Act.” Postponed after the mass shootings in Tucson, a House vote on the divisive issue is now expected Wednesday, although Democrats promise they’ll block repeal in the Senate. A recent report by House GOP leaders says “independent analyses have determined that the health care law will cause significant job losses for the U.S. economy.” It cites the 650,000 lost jobs as Exhibit A, and the nonpartisan Congressional Budget Office as the source of the original analysis behind that estimate. But the budget office, which referees the costs and consequences of legislation, never produced the number. What follows is a story of how statistics get used and abused in Washington. What CBO actually said is that the impact of the health care law on supply and demand for labor would be small. Most of it would come from people who no longer have to work, or can downshift to less demanding employment, because insurance will be available outside the job. “The legislation, on net, will reduce the amount of labor used in the economy by a small amount _roughly half a percent_ primarily by reducing the amount of labor that workers choose to supply,” budget office number crunchers said in a report from last year. That’s not how it got translated in the new report from Speaker John Boehner, R-Ohio, and other top Republicans. CBO “has determined that the law will reduce the ‘amount of labor used in the economy by.roughly half a percent.,’ an estimate that adds up to roughly 650,000 jobs lost,” the GOP version said. Gone was the caveat that the impact would be small, mainly due to people working less. Added was the estimate of 650,000 jobs lost. The Republican translation doesn’t track, said economist Paul Fronstin of the nonpartisan Employee Benefit Research Institute. “CBO isn’t saying that there is job loss as much as they are saying that fewer people will be working,” explained Fronstin. “There is a difference. People voluntarily working less isn’t the same as employers cutting jobs.” For example, the budget office said some people might decide to retire earlier because it would be easier to get health care, instead of waiting until they become eligible for Medicare at age 65. The law “reduces the amount of labor supplied, but it’s not reducing the ability of people to find jobs, which is what the job-killing slogan is intended to convey,” said economist Paul Van de Water of the Center on Budget and Policy Priorities. The center advocates for low-income people, and supports the health care law. In theory, any legislation that increases costs for employers can lead to job loss. But with the health care law, companies can also decide to pass on added costs to their workers, as some have already done this year. To put things in perspective, there are currently about 131 million jobs in the economy. CBO projects that unemployment will be significantly lower in 2014, when the law’s major coverage expansion starts. A spokeswoman for House Ways and Means Committee Republicans pointed out that CBO’s report did flag that some employers would cut hiring. “The CBO analysis does not claim that the entire response is people exiting the labor market,” said Michelle Dimarob. The law’s penalties on employers who don’t provide health insurance might cause some companies to hire fewer low-wage workers, or to hire more part-timers instead of full-time employees, the budget office said. But the main consequence would still be from more people choosing not to work. That still doesn’t answer the question of how Republicans came up with the estimate of 650,000 lost jobs. Dimarob said staffers took the 131 million jobs in the economy and multiplied that by half a percent, the number from the CBO analysis. The result: 650,000 jobs feared to be in jeopardy. “For ordinary Americans who could fall into that half a percent, that is a vitally important stat, and it is reasonable to suggest they would not characterize the effect as small,” she said. But Fronstin said that approach is also questionable, since the budget office and the GOP staffers used different yardsticks to measure overall jobs and hours worked. The differences would have to be adjusted first in order to produce an accurate estimate. Said Van de Water, “The number doesn’t mean what they say it means.”

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A New US Week Focusing on Housing, Industries and Labor

January 16, 2011

A New US Week Focusing on Housing, Industries and Labor

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60% Of New Jobs Were In Low-Paying Areas

January 13, 2011

Following last week’s disappointing job report , investment research group TrimTabs brings us an even sharper picture of an economy not on the verge of an economic recovery. (Hat tip to Zero Hedge .) TrimTabs drills into the Labor Bureau’s data for new jobs added in last year, to reveal some unsetting details: “Of the 1.1 million private jobs gained in the last year, 650,000 or 60% are jobs that have absolutely no real wealth creation capacity, nor do they provide any real benefits.” 60% of new jobs went to Temporary Help, Leisure & Hospitality and Retail trade. Leisure and hospitality pays an average hourly wage of $13.14, while a retail salesperson brings in an average of $11.84 an hour, according to the BLS’ database. Temporary help services can be slightly more lucrative at the higher end (Registered Nurses earn $32.77 an hour), but packers and packagers only earn an average of $8.62 per hour. As TrimTabs puts it :

 These jobs are certainly better than no jobs. But for the economy to grow sustainably — without the crutches of $1+ trillion per year in federal deficit spending, zero percent dictated interest rates, and tens of billions per month in central bank debt monetization — American companies need to start generating more higher-paying jobs at home. Last December, the New York Times reviewed a grim reality for Americans returning to the workforce after a layoff. All too often, new job means a lower standard of living and less satisfying work. The effects are emotional as well as economic: “In many cases, these people are not very happy,” said Cliff Zukin, professor of public policy and political science at Rutgers University and one of the authors of the study. “They’re the winners who got new jobs, but they’re not really what they want, and not where they want to be.” Check out Zero Hedge for more information .

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Video: Semmens Says `Key Problem’ Is Labor Force Departures

January 8, 2011

Jan. 7 (Bloomberg) — David Semmens, U.S. economist at Standard Chartered Bank, talks about the U.S. labor market. Employers in the U.S. added fewer jobs than forecast in December, confirming Federal Reserve Chairman Ben S. Bernanke’s view that it will take years for the labor market to heal. Semmens speaks with Pimm Fox on Bloomberg Television’s “Taking Stock.” (Source: Bloomberg)

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Andrew Sum: Ringing Out the Lost Economic Decade of 2000-2010: Part Two

January 7, 2011

The long lasting economic troubles experienced by the Japanese economy in the 1990s have frequently been referred to by economists as the Lost Decade. In our previous blog, we argued that the past decade (2000-2010) was in many respects a “lost decade” for our nation’s economy. The performance of the U.S. economy in producing additional real output (GDP), new payroll employment opportunities, or any employment for workers (16+) over the past decade was the worst in the past 70 years. Total payroll employment in 2010 was below its level in 2000 for the first time since the Great Depression. These declining labor market opportunities for the vast majority of workers also were accompanied by very weak performance in raising the real weekly earnings of most employed workers, increasing real household income, or reducing poverty problems. There was, however, one area in which the U.S. economy performed well over the past decade. That area was the sharp gain in labor productivity in the nonfarm business sector of the economy. Between 2000 and 2010 (through the 3rd quarter), real output per hour of work in the nonfarm business sector increased by slightly more than 29%, its best record since the decade of the 1960s. Normally, this sharp gain in labor productivity would have been expected to substantially improve the real weekly earnings of many American workers. Unfortunately, this was not the case. A combination of very slack conditions in labor markets, especially at the beginning and end of the decade, increased international competition, and a declining union bargaining presence kept the increases in hourly and weekly earnings well below the strong gain in labor productivity. The median real weekly earnings of the nation’s full-time wage and salary workers rose by only slightly more than 2% over the decade. Among males, the increase in median real weekly earnings was only a little more than 1% while women’s weekly earnings rose more strongly by 7% over the decade. The youngest workers (those under 25 years of age) fared the worst, experiencing a three per cent decline in their median weekly earnings while 25-34 year olds’ and 45-54 year olds’ weekly earnings remained flat, and older workers (55+) gained 11%. The mean weekly earnings of the nation’s nearly 90 million private sector, production and non-supervisory workers increased by only 4% over the decade. In contrast, corporate profits (before tax) increased in real terms (in constant 1999 dollars) by $470 billion or 58%. The growth in the level of these pre-tax corporate profits was about five times higher than the total growth in the annual pre-tax earnings of the nation’s nearly 90 million production and non-supervisory workers. The declines in payroll employment, the steep rise in unemployment and underemployment, and limited wage gains for those in the bottom and middle of the weekly wage distribution helped push down the real annual incomes of nearly all U.S. households. The median real annual income of U.S. households declined over the decade by $2,600 or 5%. This was the first time since the end of World War II that median household income failed to grow over an entire decade. Real annual incomes of U.S. households fell all along the distribution from top to bottom; however, the relative sizes of these income losses were largest at the bottom and middle of the distribution. The real income of those at the 10th percentile fell by close to 10 per cent, those in the middle of the distribution by 5 per cent, and those at the near top of the distribution (90th and 95th percentiles) by only one per cent. These divergent trends in annual income losses generated an increase in the degree of inequality in the household income distribution of the nation. The share of aggregate household income captured by the top quintile increased over the decade, rising above 50% by 2001 and hitting 50.4% by the end of the decade (in 2009). Every other group’s share of the income pie declined over the decade. In 2009, the most affluent one-fifth of households received more income than the bottom 80 per cent of households combined. In his 1937 Inaugural Address to the nation, then President Franklin Roosevelt exclaimed that, “The test of our progress is not whether we add more to the abundance of those who have too much; it is whether we provide enough for those who have too little.” The economic results for the past decade clearly indicate that we have failed this test. The combination of declining real household incomes and a worsening degree of inequality combined to push up the incidence of official poverty problems by the end of the decade. In 2009, the overall poverty rate of the nation had increased to 14.3%, the highest person poverty rate since 1994. All of the increase in poverty problems took place among the nation’s non-elderly population under age 65, with the youngest members faring the worst. More than 1 of every 5 children under age 18 were living in poverty, with more than 38% of children in the nation’s youngest families (head under 30) being poor in that year. Among the nation’s 18-64 year olds, 13% were poor, the highest such poverty rate among this age group since the early years of the 1960s. The War on Poverty was being lost in the Lost Decade. One can only hope that this outcome will not be repeated in the new decade. But as Jose Saramago noted in The Double (2007), “It is a well known fact that no human being can live solely on hope”. Andrew Sum and Joseph McLaughlin, Center for Labor Market Studies, Northeastern University.

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Obama Sets Mission For New Team: Accelerate Economic Growth

January 7, 2011

WASHINGTON — His presidency tied to the fate of the economy, Barack Obama is revamping his economic policy team and signaling cooperation to ascendant Republicans and the business community at a pivotal moment in the nation’s recovery and Washington politics. The president is surrounding himself with veterans of the Clinton administration. Chief of staff William Daley, economic overseer Gene Sperling and recently confirmed budget director Jacob Lew form an inner circle with a history of bipartisanship and experience in the art of the deal. “Our mission has to be to accelerate hiring and accelerate growth,” the president declared Friday at a window manufacturing plant in suburban Maryland. It’s a mission facing political and economic crosscurrents, underscored Friday by a mixed bag of an unemployment report and a relatively upbeat but cautionary assessment of the economy from Federal Reserve Chairman Ben Bernanke. The Labor Department said unemployment dropped to 9.4 percent from 9.8 percent and private employers added a net total of 113,000 jobs last month. But the drop in unemployment was due partly to people who stopped looking for work. Bernanke told the Senate Budget Committee that there’s rising evidence that a self-sustaining recovery is taking hold. “Overall, the pace of economic recovery seems likely to be moderately stronger in 2011 than it was in 2010,” he said. Continued high unemployment and slow growth into 2012 would certainly haunt Obama’s reelection campaign. But the ability to shape an economic policy is complicated by a divided Congress where Republicans are demanding deficit reductions while many Democrats seek more spending to spur the economy. Obama has moved to have it both ways, and to appeal to Republicans and business leaders who find value in international trade deals. To that end, he is wielding an economic message centered on competitiveness that spends on education initiatives to retool the workforce, embraces trade and provides tax breaks to businesses. At the same time, with a new chief of staff and a new director of the National Economic Council in place at the White House, Obama also is turning his focus toward tackling the deficit and debt. “Everybody knows that the long-run fiscal situation facing the country is one that we’ve got to address, and the president’s not afraid of that,” White House economist Austan Goolsbee said. “You will see when the president releases his budget in the coming weeks that he’s got a tough-minded approach.” With Daley, Sperling and Lew, Obama enters the second two years of his presidency counseled by Clinton era officials who have worked across party lines to cut economic deals. They recall a happier time, when unemployment was low, budgets were balanced and the economy was humming. Sperling was a key player in the bipartisan negotiations in December that extended Bush era tax rates for all taxpayers, including the wealthy – a Republican priority – but also included Obama priorities such as an extension of a refundable earned income tax credit and a 2 percent, year-long payroll tax cut. As director of the White House National Economic Council, Sperling will have a hand in shaping the course of nearly all of the administration’s economic policies, including looming battles with Republican lawmakers on spending cuts and raising the debt ceiling. “He’s a public servant who has devoted his life to making this economy work – and making it work, specifically, for middle-class families,” Obama said. Daley, a member of the Chicago political family dynasty, brings his record as a banker and political insider to the White House. As Clinton’s Commerce Secretary, he was a champion of the North American Free Trade Agreement – a pact that left a legacy of bitterness among some sectors of the Democratic Party. Before joining the White House Daley has advocated a moderate path for Obama and is a board member of the centrist group Third Way. On Friday, Obama also nominated Katharine G. Abraham to his Council of Economic Advisers and Heather Higginbottom as deputy director of the Office of Management and Budget. Those two posts require Senate confirmation. Obama also elevated economic adviser Jason Furman to assistant to the president for economic policy. The changes set the stage for Obama’s State of the Union speech later this month. Expected to emphasize economic themes, it will be a blueprint not only for governing but an initial marker of his reelection campaign. But first, the president is engaging in some high-profile outreach to the business community. On Tuesday, he will go to Schenectady, N.Y., to tour a future GE battery manufacturing plant with GE CEO Jeffrey Immelt. In four weeks, he will cross Lafayette Park in front of the White House to address the U.S. Chamber of Commerce, a trade group that has battled his top policy initiatives on health care and financial regulation. But the Chamber can also be a potential partner for Obama, supporting greater spending on infrastructure and helping push trade deals in Congress. The president also has been prodding businesses to shake loose untapped corporate cash and create more jobs. At the Thompson Creek Window Company in Landover, Md., on Friday, Obama took note of the recent tax deal that allows businesses to expense 100 percent of their investments in 2011. The president made a direct appeal to other companies, telling them now is the time to capitalize on that opportunity. “If you are planning or thinking about making investments sometime in the future, make those investments now, and you’re going to make money,” Obama said. —– Associated Press writers Julie Pace and Darlene Superville contributed to this report.

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Video: Naroff Says Jobless Rate Could Rise in Next Few Months

January 7, 2011

Jan. 7 (Bloomberg) — Joel Naroff, president of Naroff Economic Advisors Inc., talks about the December U.S. jobs report. Employers in the U.S. added fewer jobs than forecast in December, confirming Federal Reserve Chairman Ben S. Bernanke’s view that it will take years for the labor market to heal. Naroff speaks with Mark Crumpton on Bloomberg Television’s “Bottom Line.” (Source: Bloomberg)

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Video: Swonk Says Recovery Not Fast Enough for Labor Market

January 7, 2011

Jan. 7 (Bloomberg) — Diane Swonk, chief economist at Mesirow Financial Inc., and Richard Berner, co-head of global economics at Morgan Stanley, talk about the December U.S. employment report, the labor market, the federal budget deficit and the outlook for economic growth. Employers in the U.S. added fewer jobs than forecast in December, confirming Federal Reserve Chairman Ben S. Bernanke’s view that it will take years for the labor market to heal. Swonk and Berner speak with Tom Keene on Bloomberg Television’s “Surveillance Midday.” (Source: Bloomberg)

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Dylan Ratigan: Free Market Fraud

January 7, 2011

At first glance, the December jobs report seems to be a step in the right direction. An unemployment rate of 9.4 percent, the lowest level in 19 months. And a president, happy to boast about another 103,000 jobs being created last month. However, renowned economist Peter Morici points out two important caveats. For one, 260,000 Americans simply dropped out of the labor force in December. They are out of work, yet no longer counted as unemployed by the government. And secondly, 103,000 jobs is nowhere near the number of jobs we need to be adding each month. To bring unemployment down to 6 percent by 2013, businesses need to hire an average of 350,000 new workers each month. Even Federal Reserve Chairman Ben Bernanke, who continues to defend his Quantitative Easing (aka money-printing) program, couldn’t ignore the writing on the wall during a Senate hearing Friday morning. “If we continue at this pace”, said Bernanke, “we are not going to see sustained declines to the unemployment rate.” This “pace” that we’re operating at is working out just fine for the incumbent power structure, but it is strangling the rest of America. And it’s not the first time a group of outdated industries has controlled our government for their own benefit, and at the detriment of everyone else. It took a courageous — and at the time crazy — leader by the name of Teddy Roosevelt to step up and change that. He took on the biggest financial giant there was, JP Morgan, and he won. Roosevelt’s underlying premise — if you’re too powerful and you’re profiting at the expense of the American people — then you are an enemy of freedom and the government must break you up. It was that simple. Here we find ourselves today in a similar situation, where six industries have a stranglehold over Washington. And the draining of our current and future wealth will only continue as both the media and the political class not only tolerates but spreads the phrase “free market” when the reality doesn’t match the rhetoric. Our politicians continue to take money from massive corporations to subsidize them in a rigged marketplace that only cares about protecting the incumbent structure. At the same time, the American people are drowning in a red sea of debt caused by perpetuating banking, health care, energy and defense systems that are expensive, ineffective and protected from competition. So I have a challenge for those so-called free market Republicans who rode a wave of voter discontent into Washington. I challenge you to end massive corporate subsidies. To end tax loopholes. And to end rigged trade with China and release the true power of free markets. This can no longer be simply a talking point to win votes. Because this broken system is not only costing American jobs… it’s costing us the very prosperity and freedoms that this country was founded on. WATCH: “The Bears Talk China’s Manipulation” ….

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Divided States of America: Black America Suffers Depression-Like Joblessness

January 7, 2011

The latest snapshot of the American job market, released by the Labor Department on Friday, confirms what most ordinary people already knew without need of a government report: Little is improving quickly or broadly enough to dislodge the anxiety that has taken up long-term residence in many communities. The unemployment rate fell to 9.4 percent in December, from 9.8 percent the month prior. But that had little to do with people actually finding work, and much to do with the jobless simply giving up and halting their searches, dropping out of the statistical pool known as the labor force. A deeper dive past the headline numbers reveals a reality that ought to trigger national alarm but hasn’t for the simple reason that it is already embedded in the country we have unfortunately become: the Divided States of America. Among white people, the unemployment rate dropped in December to 8.5 percent — hardly acceptable, but manageable were the government spending more to expand a fraying social safety net and generate jobs. For black Americans, the unemployment rate was 15.8 percent. Professional economists will not pause for an instant at those figures. It is a truism that the black unemployment rate generally runs double the white one, and yet when did that become acceptable? How can there be so little discussion about a full-blown epidemic of joblessness in the African-American community, as if the commonplace incidence of despair — and, more recently, reversed progress — somehow amounts to old news? “Can you imagine any other group at that level of unemployment and the media dismissing it as not important?” the Rev. Jesse Jackson asked during an interview this week. He described deteriorating inner-city, predominantly-black communities in Chicago and Detroit. In New York, a recent study found that more than one-third of African-American men aged 16 to 24 were unemployed between early 2009 and the middle of last year. “These are the same areas that were targeted for foreclosure by the banks, through reverse redlining,” Jackson said, referring to the way subprime lending operations preyed with particular dispatch on minority communities. “These are the same areas that have less access to transportation, which makes it nearly impossible to get to where the jobs are. You are structurally locked out of economic participation and growth.” The picture becomes more vivid still using a broader Labor Department measure known as underemployment, which counts jobless people along with those who are working part-time for lack of full-time work, or who have given up looking for work but are eager for jobs. Among African-Americans, the underemployment rate was running just under 25 percent late last year, according to an analysis of government data by the Economic Policy Institute in Washington. That compared to a rate of about 15 percent for white Americans. Nearly 15 years have passed since the publication of “When Work Disappears,” a masterful book by sociologist William Julius Wilson describing in compelling detail the impact on working class African-American neighborhoods suffering large job losses: in a word, disintegration. Little has changed since then except for an acceleration of the slide. There is no magic bullet for urban strife in poor communities, but if you had to pick one thing that can fix a great deal in one shot, a paycheck is as good as it gets, as Wilson’s book makes clear. A job is a source of pride, a reason to get out of bed, an imperative to take care of one’s health, and — if the economy is functioning properly — a justification to keep going and strive for better. A job is reason to steer clear of drugs and alcohol, and an alternative to the risk of earning money through crime. A job allows households to function, keeping families together, and proving children with the support they need. When jobs disappear so, too, do these sources of social cohesion, these motives to avoid trouble, these reasons for navigating the commonplace difficulties of any human day. Anger builds, which can lead to violence. Economic necessity motivates people to look for creative ways to earn money, sometimes taking them outside the law. Wilson convincingly argues that morally loaded, often-racist depictions of inner-city black poverty have tended to distract many Americans from the single greatest factor behind the troubles that have claimed once-vigorous communities — the steady bleeding of decent paychecks. When Wilson’s book was published back in 1996, the black unemployment rate sat at just above 10 percent. By 2000, with the American economy in the midst of a historic boom, it had dropped to 7 percent. But by early last year — following eight years of lean job creation and then two years of the worst recession in a half-century — the black unemployment rate exceeded 16 percent, or 1 in 6. Drill deeper into the Labor Department data, and the numbers get more disturbing still. Among black men between the ages of 25 and 29, the unemployment rate was just under 21 percent in December. And that actually constituted an improvement from the 25.7 percent it reached in the spring of 2009, during the worst of the Great Recession. In short, over the last decade, most of black America has been effectively ensnared in an endless recession that became flat-out catastrophic when the rest of the county officially sunk into the downturn in the fall of 2007. Even among black college graduates, the unemployment rate sat at just under 8 percent in December — four times the rate in late 2006, back when the economy was still producing jobs. By contrast, the unemployment rate for white college graduates sat at 4.3 percent in December, roughly double the rate at the beginning of the recession. It is difficult to absorb these numbers without coming to a simple conclusion: In black America, a veritable depression is still unfolding, tearing at communities that had previously seen substantial progress, turning first-time homeowners into foreclosure victims and transforming proud college graduates into bewildered jobless people, unclear why their hard work and education have failed to translate into the step up they were supposed to in the movie trailer version of the American dream. And yet, the political system is busy with other things, such as how to blame union labor for local budget disasters — caused by financial services companies that pay their executives seven- and eight-figure sums — or how to cut the federal budget deficit by depriving people of health care. In Washington, the leadership of both parties seems stuck in the mode of trying to manufacture the illusion of a recovery — via photo ops at factories and pontificating about spending cuts — while doing little or nothing to bring a real recovery about. Meanwhile, whole swaths of the economy are falling away, going uncounted in the monthly Labor Department surveys and little-regarded by politicians. In the calculus of American power, just as in the reports used by our economic experts to set policy, it’s as if much of black America has simply ceased to exist.

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Video: Solis Says U.S. on `Slow, Steady Path’ for Jobs Growth

January 7, 2011

Jan. 7 (Bloomberg) — U.S. Labor Secretary Hilda Solis talks about today’s December U.S. jobs report and the prospects for the labor market. Payrolls increased 103,000 in December and employment in the previous two months increased more than previously estimated. Solis speaks with Betty Liu on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Video: Kroszner Says Jobs Data Proves QE2 Is `Right Policy’

January 7, 2011

Jan. 7 (Bloomberg) — Former Federal Reserve Governor Randall Kroszner discusses the December employment report, the outlook for the U.S. unemployment rate and Fed policy. Payrolls increased 103,000, compared with the median forecast of 150,000 in a Bloomberg News survey, Labor Department figures showed today in Washington. Kroszner speaks with Betty Liu and Michael McKee on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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EUR/USD Decouples Further From Risk Trends, Will a Strong US Labor Report Increase Divergence?

January 6, 2011

EUR/USD Decouples Further From Risk Trends, Will a Strong US Labor Report Increase Divergence?

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BLOCKED: Despite Investment, Goldman’s Employees Can’t Get On Facebook At Work

January 3, 2011

According to the New York Times , Goldman Sachs and Russian investor Digital Sky Technologies are investing $500 million in Facebook . But Goldman employees could be blocked from viewing the fruits of their labor during office hours. “Even as Goldman takes a stake in Facebook,” writes the Times , “its employees may struggle to view what they invested in. Like those at most major Wall Street firms, Goldman’s computers automatically block access to social networking sites, including Facebook.” Indeed, the majority of U.S. companies block, limit or discourage employees from accessing social media networks at work, according to a survey conducted in 2009 by consulting firm Robert Half Technology . But Facebook use has been banned at Goldman Sachs since before blocked access became the norm for businesses. In 2007, TechCrunch reported that a Goldman trader in the UK was admonished for allegedly spending spending several hours a day on Facebook. Some may debate the benefits of blocking sites like Facebook and Twitter at the office, but it’s unlikely that Goldman will relax its policy, given the security risks associated with social networks. Recently, researchers with computer security software and services leader McAfee, Inc. predicted that social networks will be some of the biggest targets for cybercriminals in 2011. In the company’s 2011 Threat Predictions report , McAfee Labs senior VP Vincent Weafer issued the following warning: We’ve seen significant advancements in device and social network adoption, placing a bulls-eye on the platforms and services users are embracing the most These platforms and services have become very popular in a short amount of time, and we’re already seeing a significant increase in vulnerabilities, attacks and data loss. Facebook, one of the world’s top social platforms, is also one of the most vulnerable, according to the McAfee report.

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Video: Brown Says Take Jobless Claims Data With `Grain of Salt’

December 30, 2010

Dec. 30 (Bloomberg) — Scott Brown, chief economist at Raymond James & Associates Inc., talks about data showing initial U.S. jobless claims fell last week to the lowest level since July 2008. First-time filings for unemployment insurance decreased by 34,000 to 388,000 in the week ended Dec. 25, compared with the median forecast of 415,000 in a Bloomberg News survey, Labor Department figures showed today in Washington. Brown speaks with Carol Massar and Jon Erlichman on Bloomberg Television’s “In the Loop.” (Source: Bloomberg)

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Max Fraad Wolff: Sell Local?

December 28, 2010

Local and state finances receive very little national attention. Across the most recent economic crisis local government finances have taken an epic battering. The situation in California has received some attention, less than it deserves. The terrible toll of past policy and present economic weakness has not been drawn out into the light of debate. This short article seeks to start the conversation for three reasons. First, the financial condition in our 50 states, 3000 counties and 36,000 municipalities is severe. Second, state and local governments employ almost 10% of the US population and have been firing folks at a brisk clip. Thirdly, contraction in state and local government hiring, spending and service provision threatens to lower economic growth, reduce quality of life and increase inequality of income and opportunity. We are early into a decentralized, local austerity program similar to events in the Euro Zone. How bad is it? Bad. The states are in serious difficulty. As the recession began in late 2007 states were already spending at a fairly high clip and taxing at relatively low rate levels. As recession took hold demands for state services — direct and through aid to localities — increased sharply. States rely heavily on income and sales taxes. Consumption fell, employment fell and wages were stagnant to down. This reduced all the major sources of revenue. US states continue to face record demands for services, pension costs and health care costs. States have unfunded health and pension liability claims that run many hundreds of billions of dollars. Revenues are significantly down from 2007 levels. From 2003-2007 states were beneficiaries of revenues from booming construction, housing markets and retail spending. Housing has been in the worst recession in living memory and the average house price is off more than 25% since 2006. Declining personal income tax receipts, falling corporate income tax receipts and declines in sales tax have created one of the largest declines in income to US states in modern history. 2010 is shaping up to be a better revenue year than 2009. However, there will be widespread and long term deficits in most states. States face over $110 billion in budget shortfall in 2011. Many states have been getting by through a combination of federal assistance and issuing federally subsidized bonds — Build America Bonds. These two short term measures will be trailing off across 2011. Localities relay on state assistance for nearly $1 in every $3 that they spend. Localities depend heavily on property taxes for the balance of their income — in some cases sales taxes. The massive decline in property values in the US over the last few years will begin to put pressure on already stretched local and municipal budgets. It takes several years for falling property prices to show up in declining revenue to localities. Property is reassessed only every few years. State aid will be in decline as federal stimulus to states will trail off this year and states are in dire financial health. Local areas spend more than half their budgets on education and social services. These budgets are under significant and growing pressures. Like states, most municipalities have a fiscal year that ends in June and begins in July. Look for battles over wages, benefits and employment levels to heat up this spring. Massive pressure to lower costs and employment at the state and local level are here and are likely to grow more intense soon. According to research from the Congressional Budget Office (CBO) local governments have cut their spending by 2% and reduced their workforces by 241,000 since the start of this recession. Bureau of Labor Statistics (BLS) data shows that states have reduced their payrolls by 166,000 between November of 2009 and November 2010. There is every indication that these trends, state and local, will continue and are likely to become more dramatic. As payrolls are cut we should expect less service provision despite the continued high demand for services. This is a recipe for stresses for public educational institutions, law enforcement, colleges, universities, infrastructure and many other services. The reductions in spending and employment at the state and local levels will reduce economic growth. Reduced growth is likely to acutely affect lower income populations. Cuts in progressive and graduate federal income tax, estate taxes and capital gains taxes reduce the tax burden on the most affluent. Rising local property taxes, rising sales taxes and declining services at the state and local level are regressive. Taxes that land hard on lower and middle income households will rise and services to these households will fall. Headwinds The most recent tax bill reduces the income tax levels on more affluent Americans. This is likely to hurt localities. How? Municipal bond markets are how localities and local authorities — schools, utilities, water facilities — raise money for projects. They sell bonds — called municipal securities — to raise money. The income from these bonds is usually tax exempt. The higher the investor’s tax rate, the more appealing municipal bonds usually are. Cutting the tax rate on higher income earners lowers the appeal of municipal bonds. Additionally, there is growing worry that we are likely to see rising defaults or attempts to renegotiating debts from municipalities over the next 6 to 12 months. Thus, our recent tax cut will further complicate the present difficulties in the municipal bond market. A federal program — part of the stimulus — has been subsidizing the interest cost of local bond issuers. This is set to expire after 2011. There is every reason to believe that states and localities will continue to reduce spending and employment. This will mean fewer and more stressed budgets and personnel dealing with historically high levels of need. Education and basic social services are likely to suffer the lion’s share of pain. This bodes very poorly for equality of opportunity. At risk communities are already suffering from weak labor markets, low wages and the end of unemployment benefits. To this we will add a shrinking pool of opportunity for secure jobs with high benefits in state and local employment. We are likely to see public sector unions weakened. There is a great coming fight about public sector pension benefits. Beginning in February and March there will be several rounds of contentious and dramatic suggestions of social spending cuts as Congress is required to debate and vote on raising the national debt ceiling. We now run the risk that 2010 closes with tax cuts heavily beneficial to the most affluent Americans and 2011 begins with service, education and employment cuts that will fall hard on the least affluent.

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Economy Recovering Slowly, As Jobs And Housing Fail To Add Much To Growth

December 23, 2010

A growing sense that the economy is finally mounting a genuine recovery was reinforced this week as the government released several encouraging pieces of data. But the progress appeared modest and still tenuous, suggesting that even palpable improvement to the nation’s fortunes may not yield vigorous economic expansion anytime soon. As millions of people still struggle to find work, and as many continue to lose their grip on their homes–adding to a still anxiety-provoking glut of foreclosed real estate– many experts anticipate that a significant period of pain may yet lie ahead. Consumer spending, which comprises roughly 70 percent of the nation’s activity, increased in November–the most encouraging sign of all–and new and existing homes traded hands more briskly than in the previous month, even as those levels were down from a year earlier. But economists emphasized that substantial pressures continue to weigh on American consumers, raising questions about the intensity and sustainability of any recovery on the heels of the Great Recession. Ordinary consumers are still absorbing the reality of weak household finances, lost wealth, large credit card debts, and gnawing worries about the job market. Until the economy can again be fueled by spending based on solid and sustainable paychecks–a still faraway moment in the midst of 9.8 percent unemployment–growth is unlikely to be powerful enough to become self-perpetuating, economists said. Ordinary people must first see their finances improve, enabling consumer demand and corporate hiring to start reinforcing each other. “It’s a mixed bag,” said Chris Christopher, senior principal economist for IHS Global Insight. “Certain things are looking good, and certain things, well, you have to wait and see.” Even things that are looking better are far from looking great. Last month, consumer spending picked up slightly, and home sales quickened their pace, according to data released Wednesday and Thursday. As the holiday season began, consumers increased their spending by a relatively brisk 0.4 percent in November compared to October, according to the Bureau of Economic Analysis . Meanwhile, income grew 0.3 percent in November. But economists emphasized that these improvements were relatively modest. Spending and income gains were lower in November than in October. They did look much better, though, than a bleak September, when income didn’t grow at all. Housing sales were similarly lackluster, even as they improved. Sales of previously owned homes increased 5.6 percent in November, while sales of new homes climbed 5.5 percent in the month, according to new releases from, respectively, the National Association of Realtors and the U.S. Commerce Department. But when the yardstick is the same month last year, November’s sales of existing homes were down 27.9 percent from last year, and sales of new homes were down 21.2 percent. Real estate prices, meanwhile, continue to fall, making homeowners more vulnerable to default and foreclosure, and leaving banks still uncertain about the extent of the losses they may yet have to absorb. That tends to make banks more conservative, hanging on to their dollars as opposed to lending them out. Tighter bank credit puts the clamps on businesses that might otherwise expand and hire. Indeed, as economists this week tried to assemble a coherent picture from a flood of contrasting data points, many concluded that modest improvements were unlikely to prove sufficient to lead to robust consumer spending. With the labor market still weak and housing continuing as a drain on the wealth of many Americans, consumers appeared unlikely to spend the dollars necessary to promote a strong recovery. Once the holiday season is over–and with it, the usual seasonal boost to shopping– consumer spending is expected to diminish before it grows again. “That pace of growth is not going to stick around,” said Anika Khan, an economist at Wells Fargo. “Consumers are still fixing their balance sheets.” After many spent above their means in the years leading up to the financial crisis, Americans are now struggling to pay down their debt. That process isn’t easy. During the third quarter, banks wrote off $16.8 billion of debt, accepting losses for loans that wouldn’t be paid back, a recent study shows. On net, consumers increased their debt during that period by $6.5 billion. Still, even as consumers remain generally cautious–and for good reason–the data released on Wednesday and Thursday amplified hopes of a broader economic improvement. Gross Domestic Product, which measures the total output of the U.S. economy, grew 2.6 percent in the third quarter, according to the BEA . Other factors are promoting growth. If consumers aren’t driving, they’re at least riding. “The consumer is able to keep pace with the overall economy,” said Robert Dye, a senior economist with PNC Financial Services Group. “They’re not driving the economy forward, but they are keeping pace.” Consumers face myriad woes. Even as income grew last month, 9.8 percent of the workforce remains unemployed. Companies, apparently waiting for demand to pick up before they resume expansion, are generally sitting on cash rather than using it to hire workers: Relative to their short-term liabilities, corporations are more flush now than they have been in more than 50 years. Indeed, corporations are sitting pretty. Since last year, corporate profits have grown a massive 26.4 percent, the BEA data show. But this boon for bosses isn’t all bad for their would-be employees. Even if corporate cash-hoarding is directly hurting consumers, corporate profits are indirectly helping them. Moreover, the rosy corporate situation seems to be a leading cause of the increase in consumer spending. Stock portfolios are in relatively strong shape. Even as home prices fell in the third quarter, and homeowners saw the stake they can claim in their most valuable asset erode by 2 percentage points, the net worth of households increased 2.2 percent, according to recent data from the Federal Reserve . As the S&P 500 increased 9.6 percent during the third quarter, the gain in household wealth came almost entirely from the stock market. Americans’ stock portfolios have made them relatively optimistic, even as home values slide, said Christopher, the IHS Global Insight economist. Consumer sentiment increased this month to reach its highest level since June, according to a Thursday release from Reuters and the University of Michigan. If home price declines seem obscure to some consumers, stock market gains are relatively easy to perceive. “You know almost on a daily basis what your stock market holdings are,” Christopher said. “With housing, you don’t know how to respond to it exactly.” Further, stock gains are helping to offset losses of income and home value, said Bernard Baumohl, chief global economist for the Economic Outlook Group. “Americans are in a much better position to spend again,” Baumohl said, adding that as consumers take on more debt, they are doing so responsibly, in keeping with their income. “Households have certainly been taught a lesson,” he said. Other economists cautioned that a strong recovery is still far off. Christopher called the unemployment crisis an “extreme drag.” Kahn said the housing market is “dead in the water.” Aaron Smith, an economist at Moody’s Analytics, said the recovery has yet to achieve “escape velocity.”

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Bonnie Kavoussi: Unemployment Crisis Taking Enormous Toll On Low-Income Teens

December 23, 2010

Nyeka Alston-Orisakwe, 18, of Boston, dressed as a nurse at her family’s Halloween party, but without a job, she has not been able to stanch the financial bleeding at home. Her single, unemployed mother, Dominique Alston, 36, postponed paying the cell phone bill to pay for the Halloween party instead. Alston receives only $1,700 in unemployment benefits and child support per month to take care of four children–far below the federal poverty level. Alston’s unemployment benefits are scheduled to expire in January, though she plans to apply for a 17-week extension: her last chance before bumping against the 99-week maximum. Alston-Orisakwe’s experience typifies the job searches of millions of teenagers. It’s been the worst year for teenagers to find employment since the government started keeping track in 1948, according to the Center for Labor Market Studies at Northeastern University. In the down economy skilled adults are applying for the same entry-level positions that students typically fill. As a result, it’s next to impossible for many low-income teenagers to find work. Federal stimulus money for teen jobs expired at the end of June and the prospect of new federal funding for teen jobs is unlikely. That has left a group of idle low-income teens, often with unemployed parents, unable to develop professional skills and step in to support their families. “If it comes between my children being happy or the choice being late on the bill, I’ll make my children happy,” said Alston, who has been unemployed ever since her temporary administrative job at Children’s Hospital Boston ended in June. “I wish I could just snap my fingers, and she gets a job.” Nyeka Alston-Orisakwe has applied to more than 15 retailers around Boston, ranging from Dunkin’ Donuts to Old Navy and movie theaters, without a single interview for a long-term job. (Pictured: Nyeka Alston-Orisakwe, 18, of Boston, in her room.) The only store that called her back: an Aeropostale looking for temporary work during Black Friday weekend. A line of about ten people stood behind her as she was interviewed at the cash register. Aeropostale did not call her again. There were 12.5 million U.S. teens without a job on an average month this year, up from 10.4 million in 2005 and 8.7 million in 2000, according to Northeastern’s Center for Labor Market Studies. The average percentage of teenagers with jobs nationwide has been nearly cut in half since 1999 to 26 percent. There were 28 applications for every hiring in the retail sector–jobs that teens typically go after — between January and November of 2010, according to the Kronos Retail Labor Index. “Nationally, it’s devastating,” said Neil Sullivan, executive director of the Boston Private Industry Council. “A whole generation is going through their teenage years without any paid work experience.” Low-income minorities are at a particular disadvantage when searching for jobs because they live in neighborhoods with fewer jobs and have fewer connections and less access to transportation, according to Northeastern’s Andrew Sum. 
Nationwide, he said, only 13 percent of low-income African-American teenagers and 17 percent of low-income Hispanic teenagers are employed. By contrast, 35 to 37 percent of upper-middle-class white teenagers are employed. “Kids who really need help the most and could raise their family incomes the most are getting the work the least,” he said. Year-round jobs are more beneficial than summer jobs, Sum added, because the opportunities are more varied, and there is enough time for teenagers to interact meaningfully with mentors in the workplace. But Boston’s city government has devoted the vast majority of those resources to summer jobs. The city government’s Boston Youth Fund funded 3,200 youth jobs this past summer, while the Boston Youth Fund is funding only 500 part-time teen jobs during the school year. “To come up with money to pay young people all year-round–that is hugely expensive,” said Conny Doty, director of the Mayor’s Office of Jobs and Community Services, who described summer and year-round jobs as equally valuable. “It’s just not realistic.” During an interview at her home in Dorchester, Boston’s largest neighborhood, Alston-Orisakwe said she became more responsible and self-confident when she worked at Boston’s Franklin Park Zoo. She earned $8 per hour there for the past three summers through the city’s Boston Youth Fund and through the zoo’s Teen Ambassadors program during the previous school year. She used to cry when other teenagers made fun of her, and temporarily dropped out of high school during her freshman year because other students mocked her about her clothes and short hair. Then, after learning to answer zoo visitors’ questions about animals, she started to speak with poise and self-confidence. “Back then, you say one bad thing to me, I’d cry,” she said. “Before, I never liked talking to people… The zoo helped me talk to people. Now I’m not afraid to answer you if you had a question. If you had a question now, I’d be proud to answer.” Then her job ended in August. “I need a job,” she said. “It’s my senior year, and I need to save money for school and a car and to help my mom out.” But she’s had no luck so far. When she asked a local Halloween costume store whether she might get a call back after she had applied, a cashier said it depends on her availability. Then she knew she was not going to get a call. “They have to realize people are in school, so not everyone is available from 9 in the morning to 9 at night,” she said, sitting on a chair in her family’s living room, her arms crossed against her pink jacket. “They don’t want to even at least call you to try for an interview. They don’t even want to do that, which is stupid.” Now, Alston-Orisakwe spends much of her time at home, watching television, hanging out with friends, sleeping, or lying on her bed listening to music, gazing at posters of Marilyn Monroe in her room. Inspired by the TV show “Project Runway,” she dreams of someday moving to California and becoming a fashion stylist. If she is accepted and can pay for tuition, she hopes to study fashion and retail management next year at the New England Institute of Art. But glamor is out of reach for now, as she shops only occasionally now. Outside, she can hear neighbors arguing, cursing loudly, and sometimes having fist fights. Alston-Orisakwe said she is not going to bide her time waiting for employers to call her back. “I’m going to start calling up places and start harassing them,” she said. “That’s what you got to do now. I’m just going to keep applying until I get a job.” Her mother, Dominique Alston, said that employers are opting for older workers with more experience, but if teenagers never get hired then they will remain at a disadvantage. “If somebody doesn’t give them that chance, they never get it,” she said.

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Video: U.S. Capital Goods Orders, Consumer Spending Increase

December 23, 2010

Dec. 23 (Bloomberg) — Bloomberg’s Michael McKee reports on U.S. economic data released today. Orders for U.S. capital equipment like computers and communications gear climbed 2.6 percent in November after a 3.6 percent decline in October that was smaller than previously estimated, figures from the Commerce Department showed today. Consumer spending increased 0.4 percent last month after a 0.7 percent increase the previous month. Initial filings for unemployment insurance declined by 3,000 to 420,000 for the week ended Dec. 18, matching the median forecast in a Bloomberg News survey, Labor Department figures showed. (Source: Bloomberg)

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Moody’s Warns It Could Downgrade Spain Banks

December 20, 2010

MADRID — Moody’s rating agency warned Monday that it could downgrade the debt rating of Spanish banks that might need help from the government to help them weather Europe’s debt crisis and the nation’s shaky economy. Moody’s Investor Service issued the warning a week after it put Spanish government debt on review for a possible downgrade amid unemployment of nearly 20 percent and grim growth forecasts following rounds of government austerity cutbacks. Spain’s large international banks have been posting profits, but many smaller banks called “cajas” have been hit hard by a building boom that went bust and left them with billions of euros in bad loans. Some are currently undergoing a government-mandated merger process. The government has vowed to help prop up Spain’s banking system, and Moody’s said its review of the banks “will assess to what extent a potentially lower-rated government will be able to support its banking system in case of need.” The agency gave a gloomy outlook for Spanish banks, saying their “capitalization, profitability and access to market funding will remain weak, driven by the country’s difficult economic conditions, continued asset-quality deterioration and the Spanish government’s fiscal austerity plans.” The Spanish government recently approved new austerity measures and a limited economic stimulus package to ease investor fears about its debt – and insists it is taking strong steps to right its ailing economy. The moves include plans to sell off a 30 percent stake in the government-owned national lottery, the partial privatization of airports, cutbacks to a key jobless benefit, tax cuts for small businesses and an increase in the tobacco tax. Government officials have brushed off investor fears that Spain could need a bailout like those accepted by Greece and Ireland. Spain has the eurozone’s fourth-largest economy and many economists warn that a bailout of the nation could lead to the breakup of the zone itself. Ahead of the announcement by Moody’s, the Organisation for Economic Cooperation and Development said Spain should make tougher pension and labor reforms to revive economic growth and ease the debt load that is putting it at the heart of Europe’s debt crisis. The government says that next month it will approve a highly contested plan to raise the retirement age gradually from 65 to 67, part of a drive to shore up public finances. But the OECD said in a report that Spain should consider raising the retirement age even further by indexing the age to life expectancy increases. The government is considering extending the period of a person’s working life used to calculate retirement pensions – it is now the last 15 years. The OECD says people’s entire working life should be used in the calculation, a move that would reduce the average monthly pension. The OECD, which represents the world’s developed countries, also urged further labor market reforms. It said Spain needs to encourage firms to hire and stimulate an economy struggling to recover from nearly two years of recession triggered by a 2008 property bubble burst. Measures passed in recent months make it easier and cheaper for companies to lay off workers, doing away with a system that provided some of the most generous severance payments in Europe. The Paris-based OECD said that if these do not manage to boost hiring, the government should consider broader measures to make the labor market more flexible. The government said Monday that regional administrations – whose finances are a worry as Spain struggles to reduce its deficit from 11.2 percent of GDP last year to the EU limit of 3 percent in 2013 – are set to meet their targeted cuts this year. Through the third quarter, their combined deficit was 1.24 percent of Spain’s GDP while the forecast for the full year 2010 is 2.4 percent of GDP, Finance Minister Elena Salgado said. The OECD said that if Spain’s deficit-reduction measures fail to meet targets the government should consider raising VAT taxes on some goods and services. ___ Daniel Woolls contributed from Madrid.

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Stocks Are Surging Since Announcement Of Fed’s Plan

December 17, 2010

Is the Fed’s latest gamble working? The stock market’s 17% rise since Federal Reserve chairman Ben Bernanke announced his plans for a second round of quantitative easing in late August has sparked further speculation that the economy may be on its way to recovery. Bernanke’s push to reinvigorate the economy through a massive, $600 billion series of government debt purchases has been met with mixed responses. Though the move (dubbed QE2, for quantitative easing) is meant to boost employment and lower interest rates, others fear the possibility that it will instead fuel inflation. As its doubled its pre-crisis balance sheet to more than $2.3 trillion , the Fed’s low interest rates and debt-buying programs have done much to enrich corporate coffers. But the program’s effect on the larger economy is less clear. Still, the stock market has surged. This week, the S&P rose to its highest level since September 2008, hitting 1,242.87, which has prompted optimism in some analysts. “The market has positive momentum and it really has been a momentum story since late August,” said Katie Stockton, the chief market technician at MKM Partners , an institutional equity research, sales and trading firm. Stockton noted that her estimate for the S&P’s next high was 1315, if momentum continued. However, the rise in interest rates since QE2 was unveiled has others less convinced. It’s not clear, for one, whether or not the stock market’s rise is due to merely to sentiment — or an economy that’s actually on the mend. “It provides some support to growth,” said Dean Baker, the co-director of the Center for Economic and Policy Research , of quantitative easing. “The recent runup has been slightly more positive news.” But Baker did not take the recent stock market climb to be a major positive indicator for the economy. “There’s always a fair degree of indeterminacy of where the market should be,” he said. “The market is relatively low level in the scheme of things.” Holiday spending, however, is up, a sign that consumers may be ready to spend again. A spokesperson for the National Retail Federation predicted that there will be a 3.3% growth in retail sector this November and December. Further, a survey of leading economic indicators by the Conference Board , a private industry group, rose by 1.1 percent, its highest rate in eight months. “The U.S. economy is showing some sparks of life in late 2010,” said Ken Goldstein, an economist at The Conference Board. Yet despite positive trends in the stock market and spending, unemployment numbers remain high. The nationwide unemployment rate rose to 9.8 percent from 9.6 percent in November, according to the Department of Labor .

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Stocks Are Surging Since Announcement Of Fed’s Plan

December 17, 2010

Is the Fed’s latest gamble working? The stock market’s 17% rise since Federal Reserve chairman Ben Bernanke announced his plans for a second round of quantitative easing in late August has sparked further speculation that the economy may be on its way to recovery. Bernanke’s push to reinvigorate the economy through a massive, $600 billion series of government debt purchases has been met with mixed responses. Though the move (dubbed QE2, for quantitative easing) is meant to boost employment and lower interest rates, others fear the possibility that it will instead fuel inflation. As its doubled its pre-crisis balance sheet to more than $2.3 trillion , the Fed’s low interest rates and debt-buying programs have done much to enrich corporate coffers. But the program’s effect on the larger economy is less clear. Still, the stock market has surged. This week, the S&P rose to its highest level since September 2008, hitting 1,242.87, which has prompted optimism in some analysts. “The market has positive momentum and it really has been a momentum story since late August,” said Katie Stockton, the chief market technician at MKM Partners , an institutional equity research, sales and trading firm. Stockton noted that her estimate for the S&P’s next high was 1315, if momentum continued. However, the rise in interest rates since QE2 was unveiled has others less convinced. It’s not clear, for one, whether or not the stock market’s rise is due to merely to sentiment — or an economy that’s actually on the mend. “It provides some support to growth,” said Dean Baker, the co-director of the Center for Economic and Policy Research , of quantitative easing. “The recent runup has been slightly more positive news.” But Baker did not take the recent stock market climb to be a major positive indicator for the economy. “There’s always a fair degree of indeterminacy of where the market should be,” he said. “The market is relatively low level in the scheme of things.” Holiday spending, however, is up, a sign that consumers may be ready to spend again. A spokesperson for the National Retail Federation predicted that there will be a 3.3% growth in retail sector this November and December. Further, a survey of leading economic indicators by the Conference Board , a private industry group, rose by 1.1 percent, its highest rate in eight months. “The U.S. economy is showing some sparks of life in late 2010,” said Ken Goldstein, an economist at The Conference Board. Yet despite positive trends in the stock market and spending, unemployment numbers remain high. The nationwide unemployment rate rose to 9.8 percent from 9.6 percent in November, according to the Department of Labor .

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Art Levine: After Obama-GOP Tax Deal, AFL-CIO’s Trumka Seeks to Rally Liberals to Save Medicare, Social Security

December 17, 2010

With Congress sending to the White House a tax deal larded with tax breaks for the rich, progressives and labor supporters now find themselves facing a challenge starting in January of beating back Republican-led efforts to cut back Social Security, Medicare and other safety-net programs in a GOP-run House of Representatives. As Howard Fineman observes, the Tea Party is already running the show in the Senate , still nominally controlled by Democrats, with the result that the omnibus spending bill needed to run the government was blocked. On Thursday, AFL-CIO President Richard Trumka, who had earlier condemned the new $850 million deficit-raiding tax package because ” the gains for the middle class and jobless workers in the deal come at too high a price,” sent out an email alert worth reading. An open question is whether labor and progressive groups will have the financial and organizational power to fight an ascendant GOP and outside pro-business conservative groups such as Crossroads GPS that have virtually unlimited money to spend on TV ads and organizing, abetted by an enraged Tea Party movement. This week, the Karl Rove-linked group announced its first post-election ad buy targeting vulnerable Democrats. What will progressives be able to offer to counter that on issue after issue over the next year? One hopeful sign for liberals is the announced formation of American Bridge , organized by David Brock of Media Matters, for a counterweight to business interest groups, looking towards the 2012 elections. Yet the potentially well-funded group, chaired by Former Maryland Lt. Gov. Kathleen Kennedy Townsend also aims to help Democrats “compete dollar to dollar” with Republicans over the next two years, she told ABC New s. It could serve as a communications bulwark to promote a progressive agenda alongside labor’s efforts. Here’s Trumka’s latest appeal: BREAKING NEWS: Congress has passed a deal that extends emergency unemployment for more than a year. And the role you played in shining a light on the struggles of jobless Americans helped make it happen. This is a huge relief for the more than 1.4 million long-term job seekers who already have lost their emergency unemployment benefits. But this deal comes at a terrible price: It rewards obstructionists with huge tax breaks for millionaires and billionaires. To get their way, Senate Republicans terrorized millions of jobless workers–making them live in fear for months as cold weather and the holidays approached. Some of our jobless brothers and sisters lost the ability to warm their homes or put food on the table and gas in the car. Some working families even lost their homes to the Big Banks that caused our economic meltdown–all so Senate Republicans could get tax breaks for the rich. These tax cuts throw away precious resources needed for investments in jobs and will do very little to propel economic growth. Senate Republicans have shown themselves to be morally bankrupt hypocrites. They capitalized on the hardships of our country’s most vulnerable people to extract tax cuts for their rich friends, like the top executives of Goldman Sachs. Just yesterday, they reported they’d be splitting $111 million in bonuses this January. They’ll save millions on their taxes–money that should go toward fixing the mess they helped create. A nd we know this is not the end. Soon, the same lawmakers who fought to get tax cuts for millionaires and billionaires will be coming after your Social Security and Medicare. Count on it. They’ll say we need to have “shared sacrifice”–but they won’t ask Wall Street and moneyed interests to share in the sacrifice required to clean up the mess they created. Instead, they’ll come after working people. If it wasn’t clear already, it’s clear now: We’re going to have quite a fight on our hands between now and 2012. We’ll need your help to preserve vital middle-class programs–and to beat back these deficit hypocrites at every turn. Here’s what I’m asking you to do. Sign up for the front lines by pulling out your mobile phone right now. Send a text message with the word DEAL to 225568–we’ll send urgent alerts to your mobile phone when deficit hypocrites try to defraud the middle class by launching attacks on our Social Security, Medicare and more in 2011. We must vigorously oppose solving our country’s long-term financial problems on the backs of working people. If the America we all love is going to survive this century–or even this decade–we’ve got to find a way to restore balance in our politics and our economy. How do we use our power to escape caving in to Wall Street and moneyed interests? And how do we create the millions of jobs we need now and move toward a future of broadly shared prosperity? I don’t have all the answers today. But I do know we can’t keep doing what we’re doing now. I know we have to fight harder and louder and more creatively–and I know we can only win together. Please pull out your mobile phone and text the word DEAL to 225568. We’ll keep you updated on our fight to stop deficit hypocrites from stealing our hard-earned Social Security and Medicare benefits. Two years ago, working Americans had high hopes we would ultimately emerge from the deep, punishing financial debacle with a sharp focus on a fundamentally stronger, fairer and more balanced economy. We can’t throw in the towel and give up now. Too much is at stake. We’ve got to redouble our efforts and fight harder than ever to move forward for working people. And we need you standing with us. In solidarity, Richard L. Trumka President, AFL-CIO **************************************************************************************** For more on labor and reform issues, read the Working in These Times blog.

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FREE FALLIN’: Home Prices Are Plunging — And The Recovery Is At Risk

December 10, 2010

Plunging home prices hammered household finances in the third quarter, eroding homeowners’ wealth and making them more vulnerable to foreclosure. As prices are expected to continue falling, the economic recovery could face a major stall. Millions of homeowners saw their most valuable asset decay between July and September, according to recently released data from the Federal Reserve, as they lost a portion of the stake they can claim in their homes. A series of new reports reflects home prices are continuing to decline, increasing the pressure on America’s tepid housing market. Until the market finds a bottom, the foreclosure epidemic will feed upon itself, analysts say, as foreclosed properties drive home values down. With the unemployment rate hovering near 10 percent, and with companies showing historic reluctance to hire, the housing drag poses a significant impediment to an economic recovery. By the end of this year home prices will have dropped $1.7 trillion, or about 7 percent, according to Zillow.com, a real estate data provider. This decline has accelerated: Since August, home prices have fallen 7.9 percent, data from Clear Capital, a Truckee, Calif.-based real estate research firm, show. It is the steepest decline in home values since the height of the financial crisis in 2008, said Clear Capital senior statistician Alex Villacorta. Worse, home prices are forecast to drop an additional 10 percent next year, according to a recent report from Fitch Ratings, a major credit ratings agency. Americans’ grasp on their homes is weakening. Homeowners’ equity, or the stake they can claim in their homes, dropped two percentage points to 38.8 percent in the third quarter, according to the new Fed data. The drop ended five quarters of steady growth since the figure hit its all-time low of 36.3 percent in the first quarter of 2009. “There continues, of course, to be a backlog of foreclosed properties, or properties on their way to foreclosure,” said Dean Baker, co-director of the Center for Economic and Policy Research, a Washington research group. “We’re not about to see the end of foreclosures anytime soon.” The major problem, at this point, is the glut (and future glut) of distressed houses that haven’t yet hit the market. When lenders repossess properties and put them up for sale, the influx of inventory on the market tends to drive prices down further, which in turn makes other properties more vulnerable to foreclosure. With repossessed or soon-to-be repossessed properties waiting in the wings, this “shadow inventory” will continue to depress the recovery, economists and housing experts say. As home prices continue to fall, more homeowners will see the value of their home drop below the value of their mortgage, plunging them “underwater.” Making matters worse, the Federal government’s response to this crisis is widely considered to be a failure. The Obama administration’s program, designed to help struggling homeowners, has, in some cases, done the exact opposite. After 1.5 million homeowners were invited to try the program last year, 40 percent were later kicked out. Complicated rules requiring a homeowner to be in default before getting a mortgage modification can actually cause a property to enter foreclosure . “There’s just this dogmatic resistance to think seriously about it, on the part of the government,” Baker said of the foreclosure prevention program. “It’s crazy. Is the point to give money to banks, or are you trying to help homeowners?” The pain isn’t spread evenly. Some areas of the nation, such as California and Florida, have been hit especially hard. “Probably four or five states will account for more than half of the decline,” said Stuart Hoffman, chief economist at PNC Financial Services Group. “A lot of that pain or loss will be concentrated in the same states where we’ve seen the decline up till now.” Leading economists, including former Federal Reserve Chairman Alan Greenspan, say a so-called “double-dip” recession — a situation in which the economy shrinks again before resuming growth — is possible if home prices significantly slide. As the nation grapples with an unemployment rate of 9.8 percent, some homeowners simply don’t have the means to pay down their debt. Even among Americans with good credit scores going into the financial crisis, one in seven reported that they weren’t able to pay their bills, often because of a job loss. “It takes two things to cause a foreclosure or a default,” said Celia Chen, an economist at Moody’s Analytics. “It’s both the loss of a job, or not enough income, and being underwater.” The bleak jobs situation isn’t helped by cash-hoarding companies. The Federal Reserve reported that corporations increased their cash holdings 7.3 percent last quarter compared to the previous three-month period, setting a new record with $1.9 trillion in liquid assets. Their caution, experts say, is reflected in the lack of hiring: Businesses hired 50,000 workers last month, the slowest pace since June, according to Labor Department data. “They realize things could go bad relatively quickly, so they feel they have to protect themselves,” said Gregory Daco, U.S. senior economist at IHS Global Insight, an economics forecasting firm. “That’s in pair with not hiring.” Relative to their short-term liabilities, U.S. corporations haven’t been this flush since 1956. By that same measure, their balance sheets are twice as strong as they were just nine years ago. While families struggle nationwide, corporations and large banks appear to be in full-fledged recovery. Last quarter, corporate profits reached an all-time high of $1.66 trillion on an annual basis, according to the Commerce Department. Low bond yields, fat profits and flush corporate balance sheets have helped drive up the stock market, making household balance sheets appear to be on the mend. Despite the tanking housing market, household net worth rose 2.2 percent last quarter thanks to the rising value of stock portfolios. The Dow Jones Industrial Average increased 9.3 percent during that time. The Dow “is right around where it was just before the big crash in September of ’08,” said Edward Friedman, an economist at Moody’s Analytics. “Housing prices haven’t really done anything, and those are the two major contributors to household wealth.” This improvement has made Daco, of IHS, optimistic about the state of the economy. Although he acknowledged that “the housing sector is still in a relatively dire situation,” he said “the stock market gains are reflecting a general improvement in the U.S. economy.” Daco predicted a sustainable, but uneven, recovery. Corporations will likely continue to hoard cash and home prices will continue to slide, but not enough to induce another recession, he said. “I don’t think we can talk of a major risk of back-to-back recessions,” he said. “I don’t see that coming any time soon, given the sort of momentum we’ve been building up.”

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Art Levine: GOP to Miners: ‘Drop Dead,’ While MSHA Cracks Down On Black Lung, Scofflaws

December 10, 2010

In an earlier political era, a major mine disaster like the explosion at Massey Energy’s Upper Big Branch Mine that killed 29 miners might have spurred Congress to take action. Not in today’s Washington: Republicans blocked passage of a new bill Wednesday that would have enabled the Mine Safety and Health Administration (MSHA) to more effectively hold repeat offender mine owners accountable and to better protect miners’ lives.

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Tom Silva: The Great American Payout

December 7, 2010

America is a nation of optimists. Just two years after declaring this the worst financial crisis since the age of Busby Berkeley and speakeasies, it now appears that we are starting to ante up again by releasing our cash. Maybe spending is part of what makes us American–our founding fathers, who were products of the Enlightenment, taught us to reject the old-world notions of asceticism and praying for a better day in favor of enjoying the spoils of our labor and securing our rewards in this life. And now, here we are. Usually depressions are followed by extended periods of hoarding cash and sinking money into only safe investments but recent events seem to suggest we’re moving in another direction. Take the banking industry which declared aggregate profits in the third quarter totaling $14.5 billion, more than seven times greater than last year during the same period, according to the FDIC’s Quarterly Banking Profile (QBP) for the third quarter of 2010. Part of the reason for these buoyant numbers is that banks released their rainy day provisions into earnings causing FDIC chief Sheila Bair to warn bankers that they may be reducing their loan loss reserves too early. Provisions for loan losses dropped to their lowest level in three years–reserves against future slid to 63.9% of noncurrent loans from 65% in the second quarter–even as “troubled loans remain near historic high levels,” Bair said. This is the first time that loan-loss reserves have fallen since late 2006. To be sure, most of Bair’s comments are aimed primarily at mid-sized and smaller banks that have yet to show consistent credit quality improvement unlike the bigger banks. And, no doubt, we need liquidity in the economy and the banks need to provide it but it behooves the industry to be careful to cover the bets at a time when the number of troubled banks is at 860, the most since 1993. In the real estate industry, some of the largest companies, including Simon Property Group Inc., Kimco Realty Corp. and Nationwide Health Properties Inc., raised their quarterly dividends in November and more companies are expected to follow suit in the months ahead. The higher payouts reflect the higher rents and better occupancy levels, which are boosting the income pool for dividends. This a serious about face from the past 36 months, when REITs, along with other public companies, were slashing or suspending dividends to preserve cash. In 2010, 37 REITs have raised dividends; seven have cut them. To compare, 61 companies either cut or cancelled dividends in 2009. REITs aren’t alone in raising dividends. Many large-cap and cash-flushed companies are expected to do the same. A recent report by Markit, a financial information services firm, expects a 50% jump in dividend increases for S&P 500 companies in the fourth quarter from last year. Currently, there is an estimated $2.0 trillion in net cash sitting in non-financial corporate treasuries. The payout enthusiasm has affected even some of the holdouts: Cisco Systems announced plans to pay a stock dividend for the first time in its more than quarter of a century in business. Apple is sticking to its guns by sitting on its nearly $46 billion. One reason for paying dividends, outside of magnanimity, could be the tax rates. Under current federal individual income tax law, both capital gains and corporate dividends are taxed at a reduced 15% rate. However, those reduced rates are scheduled to expire at the end of 2010, raising the hit on dividends to increase to as much as 39.6%. And finally, there’s us, the consumer. Our national savings rate was 5.7 percent in October — still strong when you consider that it was at 0% in 2004. An article in the Christian Science Monitor in 2004 summed it up this way: “Americans have stopped saving for a rainy day. Instead, they are living paycheck to paycheck, depending on credit cards to get them through emergencies, and hoping that the rising value of their homes will give them a retirement nest egg.” However, that 5.7% looks meager when you consider that Europeans hover around a 14% savings rate in the Eurozone. The 5.7% also is a contrast with some of the other recessionary periods, for example the the early 1980s when American savings levels were in the 9% to 10% range. It’s worth noting that this comes at a time when, the government reports, consumer spending rose 2.6% in the third quarter, the fastest pace since the fourth quarter of 2006. Clearly, we’re feeling the same optimism as our corporate and financial counterparts. “One today is worth two tomorrows,” Benjamin Franklin once said. What could be more American?

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Dean, Ex-Obama Advisers Lament President’s Tax-Cut Deal

December 7, 2010

WASHINGTON — Obama’s decision to craft a deal with Republicans on the Bush tax cuts may have been, as administration officials insist, the product of economic and political necessities. But it has created deep reservoirs of distrust with the president’s ability to handle high-stakes negotiations and has compelled even former staffers to level blunt criticisms about the White House’s politics. “I think the president made a huge mistake in supporting any extension of tax cuts,” said Steve Hildebrand, the deputy national director of Obama’s presidential campaign and a strategist who has long grown sour on Washington. “We can’t afford it as a country, and we should recognize that. We need his leadership and bipartisan congressional leadership on it. And the whole idea of negotiating with Republicans who won’t negotiate in good faith, it is not the direction the president should be taking.” Hildebrand — while hesitant to discuss politics over policy — was reacting to the deal reached Monday evening that would extend the Bush tax rates for two more years in exchange for a 13-month extension of unemployment benefits and other tax cuts provisions the president has long favored. He wasn’t the only former Obama hand to speak critically about such an exchange, but the first since the administration announced the deal. That none of the measures would be paid for was a major problem, Hildebrand and other Democrats stressed. Writing hundreds of billions in tax cuts was simply incompatible with supporting long-standing safety net programs, let alone protecting the country’s long-term fiscal security. “We clearly have to deal with the deficit; it is probably the biggest problem facing the country,” said former DNC header Howard Dean. “But you can’t deal with the deficit from a political point of view if you say to Democrats, we are going to cut Social Security and Medicare and, by the way, give tax cuts to those who make a million dollars a year.” Antipathy, however, was saved as much for the process of securing the final tax cut package as for the substance of the package itself. Suggesting that the deal could die in the House, Dean echoed a question other Democrats offered in the hours after Obama’s announcement: Was enough secured in return? “I’m not so sure you can get the House to agree to this in conference committee,” he said. “And what about the president’s other priorities: Don’t Ask Don’t Tell, START, DREAM Act? I mean, do we not get anything for the $700 billion?” Certainly, Democrats got something, perhaps even more than expected. Discussing the arrangement with the Huffington Post, senior administration officials stressed that even the labor federation “AFL-CIO did not think…we could keep” the 13 months of unemployment insurance. The actual cost of the provisions that the White House secured, meanwhile, was pricier than the cost of extending the Bush tax cuts for the rich — $215 billion (including UI) versus $95 billion, all over two years. And so it wasn’t entirely surprising that some more progressive-minded columnists and economists opined favorably (albeit with caveats) about the final package. As Ezra Klein noted , “the end result is between $200 and $300 billion more in tax breaks, tax credits and unemployment insurance” that is, effectively, a stimulus. And yet, for skeptical lawmakers, it was hard to ignore how bungled the entire process seemed to be. What could the president have gotten had he stood a bit firmer in negotiations? “I don’t like this at all,” Rep. Jerrold Nadler (D-N.Y.) said. “The president has not put up much of a fight.” Moreover, why should the caucus trust the White House to re-litigate this same battle when the tax rates expire two years from now? “My view is that if you’ve got a problem, deal with it now and you don’t kick it down the road for later,” Rep. Peter Welch (D-Vt.), who is whipping members to oppose the deal, told the Huffington Post. “Two years from now, we are going to have the reality of a Republican majority in the House, and we know their point of view on this. They will be for more tax cuts and higher deficit…this was our best chance.”

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Dan Dorfman: Jobs Shocker: Fact or Fiction?

December 5, 2010

It was big news over the weekend, front-page coverage everywhere — the unemployment shocker. That was Friday’s dismal November jobs report of a spurt in the month’s unemployment rate to 9.8% from 9.6%, an obvious sign of more economic distress. But how real were those numbers that came from the Bureau of Labor Statistics, which reported the creation of just 39,000 jobs, versus a widely expected addition to the employment rolls in some quarters of about 150,000 workers? Could the BLS report, like the illusion of a pool of water in the steaming desert, have been a mirage? The answer is an emphatic YES from TrimTabs Research, a West Coast liquidity tracker partially owned by Goldman Sachs whose TrimTabs clients include many of the country’s top hedge funds. The way TrimTabs figures it, the economy actually produced 117,000 new jobs in November, 78,000 more than what the BLS reported. Why such a disparity? As, Madeline Schnapp, TrimTabs economics skipper explains it, it’s a reflection of the radically different methodologies used by the two to determine the actual employment numbers. For example, the BLS derives its numbers through a survey of just 60,000 households, whereas TrimTabs’ figures are based on the taxes paid by all employees whose wages and salaries are subject to with-holding. Noting that the BLS is afflicted with the dilemma of having to make seasonal adjustments when it comes to issuing jobs numbers — which is especially difficult at this time of the year because of the heavy temporary retail hiring — she views its November report as a seasonally-adjusted fluke. “It’s like trying to hit a needle with a sledge hammer,” she says. “It ain’t easy.” Schnapp further believes the BLS numbers may also be fouled up because the agency failed to recognize that retailers hired their year-end workforce earlier this year than last year it did last year because of this year’s earlier launching of holiday sales. “We suspect,” she says, that October employment growth (a higher than expected 151,000 jobs) borrowed from November.” The BLS, which tells me it’s sticking by its November figures, is notorious for revising its monthly jobs numbers both up and down in ensuing months. And that’s precisely what Schnapp predicts will occur again with regard to the November report. In this case, she sees a sharp upward revision closer to the Trimtabs numbers. Interestingly, last Thursday Automatic Data Processing reported its closely watched monthly employment figures, which for November were closer to TrimTabs numbers than those of the BLS. ADP reported 93,000 new jobs, driven by growth in small business hiring. Schnapp rates the November employment showing (her estimated 117,000 job creations) as “okay, but not great,” noting a considerably higher number of new jobs (150,000 to 200,000 a month) are needed to keep pace with new entries into the work force. In recent weeks, a fair number of economists, given perkier retail numbers, including lively auto sales, and somewhat more positive consumer sentiment, have upgraded their GDP growth forecasts for 2011 to between 3% and 4%. The thought of a double-dip recession seems to have largely gone the way of the rotary telephone. Schnapp doesn’t share this ebullience. Her outlook: GDP growth next year will muddle along at about 2.5%, largely due to the drag from housing, the financial woes of local and state governments and a consumer population that is deleveraging. “We’re not on the road to a robust recovery, no way and not on your life, but stuck in a low growth mode for at least another year,” she says. “And don’t ignore the potential shockers, such as a spike in the price of oil, Iran going nuclear or North Korea attacking South Korea. As for the stock market, Schnapp sees a ho-hum 2011, with the S&P 500 (currently around 1,225) trading sideways in a narrow range of say 1,050 on the downside and 1,225 on the upside. In other words, a go-nowhere stock market; so don’t be hot to trot. What do you think? E-mail me at Dandordan@aol.com

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Dan Dorfman: Obama Could Join the Jobless

December 4, 2010

“Sooner or later,” Robert Louis Stevenson wrote in the mid 1800s, “everyone sits down to a banquet of consequences.” Peter Morici, an outspoken economics professor at the University of Maryland, suggests to me that President Obama is a prime candidate, following the highly disappointing November jobs report issued Friday by the Bureau of Labor Statistics. The general expectation was that we’d see about 150,000 new job creations for the month following the addition of 151,000 in October, and that the jobless rate would remain at 9.6%. The experts fouled up again as only a sparse 39,000 jobs were added to the work force and the unemployment rate ran up to 9.8%. Actually, if you back out health care, social services and temp services, the economy actually shed jobs — 24,000 to be precise. That hardly supports Wall Street’s growing pound-the-table argument that it’s time to barrel into stocks because a meaningful economic recovery is clearly under way. Morici, who describes the November jobs report as “terrible, sees “grave consequences” for President Obama, telling me this latest gory jobs chapter could lead to some primary opposition and cost him a second term. Although he didn’t say it in so many words, Morici, in effect, is suggesting that Obama — barring a significant directional change to a more positive economic climate — could join the ranks of the 15.1 million unemployed. Many in the White House, of course, would challenge that, but Morici considers his view as highly logical, given his belief that Obama is unqualified to be president and that his economic policy is officially a failure. Noting that Obama has spent trillions of dollars in an effort to revitalize the economy, the good professor gives the president a dunce cap on his economic activities, observing that “the only people better off from all this spending are the foot soldiers in Detroit and his friends on Wall Street.” Morici figures that as long as Obama is president, 10% unemployment will be the new norm. With the economy 17 months in a recovery, he notes, one would expect the unemployment rate to be far less than 9.6%. (A more normal rate in such a recovery phase, I’m told, would be about 5%). If you’re hoping that Obama will pull an economic rabbit out of the hat, Morici’s advice is don’t hold your breath. The economy, he points out, must add 13 million private sector jobs by the end of 2013 to bring unemployment down to 6%. But Obama’s policies, he argues, are not creating conditions for businesses to hire those 350,000 workers each month, net of layoffs. Since there are at least five applicants for every available job, the implied message from Morici is don’t be shocked in a few years if one of your rivals for an opening happens to be a former president. What do you think? E-mail me at Dandordan@aol.com.

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