If you think about thrift as a moral quality, it’s easy to understand why Republicans have gotten things so wrong in terms of macro-economic policy over the last few years. Austerity, after all, has a folksy and intuitive appeal, the idea being that you can’t cure debt with more debt. No household could – and why shouldn’t the government be run like a stable household, never borrowing what it can’t repay quickly and easily? Of course, we know why not: Keynes explained the reason in his General Theory, and pretty much every modern leader who has tried to fight rising debt with austerity since then, from Herbert Hoover to the modern technocrats of Greece and Italy, has failed. The Germans, like many American conservatives, are still enamored of austerity. It appeals their sense of thrift and fairness; but having spent time recently in Germany, I can see that, as in the U.S., this approach has also become a moral issue. The fact that so many European nations are trying to cut public spending all at once is clearly the reason that Europe is now officially in the longest recession since the creation of the Eurozone. But belief in austerity persists because there’s a certain grim moral justice in the idea that debtor nations should pay for their crimes with deep, painful forced cuts. (MORE: The Mystery of the Incredible Shrinking Budget Deficit) Justice aside, austerity is a failed economic concept, a realization that is having major short-term ramifications in Europe (as I’ll be exploring in more detail in an upcoming TIME magazine story). But it may also have a longer-term impact on the 2014 Congressional and 2016 presidential elections in the U.S. For some time now, conservative economic policy has revolved around two tideas: the supposed need to slash government budgets in order to cut the deficit, and the notion that tax cuts will spur growth (a.k.a., trickle down economics). But as we’ve seen in headlines over the last week, the deficit is coming down fast, not because of cuts, but
Tag Archives: Economy & Policy
Unemployment Falls in 40 U.S. States, Rises in 3
(WASHINGTON) — Solid hiring helped lower unemployment rates in 40 U.S. states last month, the most since November. The declines show the job market is improving throughout most of the country. The Labor Department said Friday that unemployment rates increased in only three states: Louisiana, Tennessee and North Dakota. Rates were unchanged in seven states. California, New York and South Carolina all reported the largest unemployment rate declines in April. Each state’s rate fell by 0.4 percentage points. (MORE: U.S. Weekly Jobless Claims Jump to Highest Level in 6 Weeks) The report said 30 states added jobs in April, while 18 reported fewer jobs. Nationwide, employers added 165,000 jobs in April and the unemployment rate fell to a four-year low of 7.5 percent. The economy has added an average of 208,000 jobs a month since November. That’s up from only 138,000 a month in the previous six months. The housing recovery is creating jobs in many states. Texas has created 41,500 construction jobs in the past year. That’s helped the state be the nation’s leader in job growth over the past year and in April. The state added 33,100 jobs last month and 326,100 jobs over the past 12 months. Texas’ unemployment rate stayed at 6.4 percent in April compared with March, but has fallen from 7 percent a year ago. New York gained 25,300 jobs in April — second most among the states — and 111,600 jobs in the past year. The job gains in April helped pushed the state’s unemployment rate down to 7.8 percent from 8.2 percent in March. Some of the decline was also because people stopped looking for work. The government counts people as unemployed only if they are actively seeking jobs. Florida added 17,000 jobs in April and 119,100 in the past year. More than half of April’s job gains were in construction. The state has gained 15,500 construction positions in the past year. Jobs in trade, transportation and utilities have grown by more than 40,000 in the past year. (VIDEO: April Jobs Report:
U.S. Weekly Jobless Claims Jump to Highest Level in 6 Weeks
(WASHINGTON) — The number of Americans seeking unemployment aid rose 32,000 last week to a seasonally adjusted 360,000, the most since late March. The jump comes after applications fell to a five-year low. The Labor Department said Thursday that the less volatile four-week average rose just 1,250 to 339,250, a level consistent with modest hiring. Weekly applications are a proxy for layoffs. The big increase could mean companies are cutting more jobs, possibly because of steep government spending cuts that kicked in March 1. Labor officials said there were no special circumstances that caused the spike. (MORE: US Jobless Aid Applications Fall to 5-year Low) Applications tend to fluctuate sharply from week to week and economists typically focus more on the four-week average. That remains 9 percent lower than it was six months ago. The job market has improved over the past six months. The economy has added an average of 208,000 jobs a month since November. That’s up from only 138,000 a month in the previous six months. Still, much of the job gains have come from fewer layoffs — not increased hiring. Layoffs fell in January to the lowest level on records dating back 12 years and have risen only modestly since then. Overall hiring remains far below pre-recession levels. The unemployment rate has also fallen to a four-year low, although it remains high at 7.5 percent. Companies may not be confident enough in the economic outlook to rapidly boost hiring. Some businesses may be concerned about the impact of the federal spending cuts and tax increases. An increase in Social Security taxes at the beginning of this year could slow consumer spending, which drives nearly two-thirds of economic activity. Still, consumers appear to be shrugging off the tax hikes, helped by cheaper gas and steady job gains. Consumer spending rose from January through March at the fastest rate in more than two years. And Americans boosted their spending at retailers in April, from cars and clothes to electronics and appliances. Some analysts raised their growth forecasts for
The Mystery of the Incredible Shrinking Budget Deficit
The Obama Administration is having pretty much the worst week ever, but somewhere amidst the fog of scandal lies some pretty good news about the budget deficit, namely that the Congressional Budget Office (CBO) is predicting it will be much smaller in 2013 than was projected just a few months ago. That’s right, the federal budget deficit, which topped $1.4 trillion in 2009, or 10.1% of GDP, and dominated the political discourse over the past several years, is shrinking rapidly. The CBO is now saying that the deficit will be less than half that amount in 2013: $642 billion, or 4% of GDP. That’s $200 billion less than the CBO predicted just a few months ago. What gives? (MORE: This Housing Upturn Looks Like the Real Thing) Basically, the change can be explained by a combination of a recovering housing market — which has improved the finances of government-owned Fannie Mae and Freddie Mac — combined with a better-than-expected economy overall, which is boosting corporate and personal income tax revenues. This economic improvement is happening despite higher taxes and budget cuts enacted as part of the fiscal cliff deal reached in December, and the sequestration-related budget cuts that went into effect recently. This change is yet another vindication of economists and commentators who argued that large budget deficits are the natural outgrowth of effective economic policy in the wake of a severe recession. Economic recession reduces employment and corporate profits, lowering tax revenues. At the same time, safety net programs like unemployment insurance and food stamps must spend more to accommodate the larger number of people who need them. Congress and President Obama did take measures to permanently increase taxes and government spending through the healthcare overhaul, but it’s clear now that the historically large budget deficits we saw immediately following the financial crisis were mostly a result of the recession rather than new government programs. In addition, the CBO notes that the growth in healthcare spending has slowed in recent years. For instance, spending on Medicare and Medicaid in 2012 was 5% below
US Wholesale Prices Fall 0.7 Pct., Most in 3 Years
WASHINGTON — Sharp drops in fuel and food costs reduced a measure of U.S. wholesale prices in April by the most in three years. Outside those volatile categories, inflation stayed low. The producer price index, which measures price changes before they reach the consumer, fell a seasonally adjusted 0.7 percent in April from March, the Labor Department said Wednesday. It was the second straight monthly decline and the steepest since February 2010. The index declined largely because gas prices dropped 6 percent and the price of home heating oil fell by the most in almost four years. Food prices also declined 0.8 percent, the most since May 2011. Half of the decline was because of lower vegetable prices, a highly volatile category. Meat prices dropped 2.3 percent. Excluding the volatile food and energy categories, core prices ticked up 0.1 percent in April from March. Pharmaceutical costs rose 0.1 percent. Metal furniture prices jumped 1.7 percent. Prices for cars and pickup trucks, men’s clothes, tires and computers all declined. Overall wholesale prices have increased just 0.6 percent over the past 12 months. That’s the smallest yearly gain since July. And core prices have risen only 1.7 percent in the past 12 months. (MORE: This Housing Upturn Looks Like the Real Thing) Aside from sharp swings in gas prices, consumer and wholesale inflation has increased slowly in the past year. The combination of modest economic growth and high unemployment has kept wages from rising quickly. That’s made it harder for retailers and other firms to raise prices. Mild inflation gives the Federal Reserve more latitude to continue with its aggressive policies to spur greater economic growth. The Fed has said plans to keep the short-term interest rate it controls at a record low near zero until the unemployment rate falls below 6.5 percent, provided inflation remains in check. Unemployment in April dropped to a four-year low of 7.5 percent. The Fed is also purchasing $85 billion a month in bonds to keep longer-term interest rates down. That’s intended to encourage more borrowing
US Homebuilder Confidence Rises in May from April
Confidence among U.S. homebuilders rebounded this month, reflecting improved sales trends during the spring home-selling season and the strongest outlook for sales over the next six months in more than six years. The National Association of Home Builders/Wells Fargo builder sentiment index climbed to 44 this month from 41 in April. It was the first increase since December. Measures of customer traffic and current sales conditions also improved from April’s reading. Readings below 50 suggest negative sentiment about the housing market. The last time the index was at 50 or higher was in April 2006. (MORE: This Housing Upturn Looks Like the Real Thing) Concerns over rising costs for land, building materials and labor have dimmed builders’ confidence in recent months. Regardless, steady job creation, near record-low mortgage rates and rising home values have spurred sales this year.
Eurozone Recession Extends into 6th Quarter
PARIS (AP) — The recession across the economy of the 17 European Union countries that use the euro extended into its sixth quarter — longer than the calamitous slump that hit the region in the financial crisis of 2008-9. Eurostat, the EU’s statistics office, said Wednesday that nine of the 17 eurozone countries are in recession, with France a notable addition to the list. Overall, the euro region’s economy contracted 0.2 percent in the January-March period from the previous three months. Though that’s an improvement on the previous quarter’s 0.6 percent decline, it’s another unwelcome landmark for the single currency bloc as it grapples with a debt crisis which has forced governments to slash spending and raise taxes. These austerity measures have inflicted severe economic pain and social unrest. Unemployment across the eurozone is currently at a record high of 12.1 percent — in some countries, such as Greece, it’s as high as 27.2 percent. Though this recession is not nearly as deep as the one in 2008-9, it is the longest in the history of the euro, which was launched in 1999. A recession is officially defined as two straight quarters of negative growth. “The eurozone is facing a double blow from necessary restructuring of its domestic economy and somewhat disappointing growth in world trade, in particular demand from emerging markets,” said Marie Diron, senior economic adviser to Ernst & Young. There was also bad news for the wider 27-country EU, which includes non-euro members such as Britain and Poland. It too is now officially in recession after shrinking by a quarterly rate of 0.1 percent in the first quarter, following a 0.5 percent drop in the previous period. With a population of more than half a billion people, the EU is the world’s largest export market. If it remains stuck in reverse, order books for companies in the U.S. and Asia will be hit. Last month, U.S.-based Ford Motor Co. lost $462 million in Europe and called the outlook there “uncertain.” (MORE: EU Predicts Eurozone Recession to Continue
This Housing Upturn Looks Like the Real Thing
Ever since the recovery began in 2009, a weak housing market has held back the U.S. economy. The first rebound in home prices was lackluster and after only a year was followed by another dip. But the recent upturn in home prices looks like the real thing. One clear sign of a turning point: In March, homeownership hit a 17-year low, while the 12-month gain in home prices was the biggest in seven years. Those two extremes suggest that the market has hit bottom. The people who are least well financed have been squeezed out, while demand is growing among people who can afford to pay higher home prices. If that trend continues – and there are good reasons to believe it will – a substantial burden will be lifted from the U.S. economy. The great surprise since the recession ended has been the weakness of the economic rebound, which has been particularly clear in the housing market. After falling 31% from 2006 to 2009, home prices rose almost 5% over the following year. But that recovery faltered, and during the next 20 months prices fell to a new low. Then the current recovery began, and barring another recession, all the evidence indicates that it will be sustainable: In the first quarter, home prices were higher (compared with a year earlier) in 133 of 150 metropolitan areas, according to the National Association of Realtors. On a national basis, the median home price gained 11.3%, the biggest yearly gain since 2005. (MORE: The Housing Mirage) The glut of homes for sale has diminished, down almost 17% compared with the previous year. In addition, the number of foreclosures in April (including bank repossessions and scheduled auctions) was 23% lower than a year earlier. Mortgage applications were up 7% in the most recent week, helped by low mortgage rates. Refinancings, which typically improve homeowners’ finances, have been generally rising in recent months and reached their highest level since December. And a Fannie Mae survey of consumer expectations for housing found that a majority of those surveyed in