Worries Rise on the Size of U.S. Debt

[maxiep]

Thanks for the food. Really I am only capable of maybe digesting a third of the meal before throwing up.

So here is my simple analysis:

US is in a world of hurt economically. President and his people (including a team of economist) study the problem and come up with a economic strategy to get this country back on track. This stategy involves spending tons of US cash in hopes it will pay off in the future.

Another team of economist look at the plan and say this is a bad plan, it will not do what the first set of economist say it will do . . . in fact it will bankrupt this country.

First set of economist say that isn't true, the plan will work. The second set of economist say you are crazy, it will not work . . . and both sides flash numbers to support their position.

I don't know who is right . . . I sure am hoping it is the team of economists working for the president (since taht plan is the one that matters). I do hope whoever is right will come out before the next election. (My guess is the truth lies somewhere in the middle . . . not going to ruin the country, but it will hurt down the road and not fix everything) So the real question at the end of the day is was it worth it?

The problem with your model is you assume the goal is to fix the economy. What if the goal is to redistribute income? Sure, some people's standard of living increases, but what if the overall standard of living decreases as a result? Was it a fair tradeoff?

I have participated in conference calls, attended seminars, conferences, symposiums and just had coffee klatches with people more highly trained and much smarter than I, and no one can come up with an economic solution that makes sense. The answer to the question of why we've chosen this path is political. And that scares the shit out of me.

 

[maxiep]

And yet, I'll guess that there are some that have a multiplier much much larger than one. I expect that the Interstate highway system and the Internet would fall into that category?

Those are expenses that have to be borne to make commerce possible, not positive NPV investments. In fact, there are private toll roads (e.g. the Dulles Toll Road) that have turned out to be profitable.

Most of government spending (entitlements and defense) you wouldn't really expect to have a good multiplier.

That's right. Government exists to collectively provide the things we can't provide for ourselves. I can't afford an M1A1 tank on my own. Providing for the common defense is right there in the preamble of the Constitution. I'm fine with that. But do we need the government to take our money to give us Social Security when we're old? Do we need government to take our money to provide us with Medicare? Do we need government to take our money to provide ethanol subsidies? Those are a bit more iffy.

But, isn't it burdened by all those horrible taxes? From what I've been hearing, private sector investment isn't worth doing since the tax rates are so high.

barfo

If an investment is a positive NPV project for the government, by definition, it will have a higher NPV if it's done by the private sector. And the best part is when the private sector does it, the government gets tax revenue. If the government does it, it gets none.

 

[The_Lillard_King]

The problem with your model is you assume the goal is to fix the economy. What if the goal is to redistribute income? Sure, some people's standard of living increases, but what if the overall standard of living decreases as a result? Was it a fair tradeoff?

I have participated in conference calls, attended seminars, conferences, symposiums and just had coffee klatches with people more highly trained and much smarter than I, and no one can come up with an economic solution that makes sense. The answer to the question of why we've chosen this path is political. And that scares the shit out of me.

I can appreciate and relate to that kind of rationale.

By the end of Bush's term, I still never said he had it out for the country and was going to ruin it. I felt Bush was about big corporations and rich people, and that his decisions favored a certain cross section of the community.

So when I hear that Obama's economic policies will create a redistribution of wealth, that makes sense to me. I'm not saying I'm buying it, but I could see that as a possiblity (instead of the idea that Obama and his people don't understand basic economics).

This goes back to trusting Obama and that his agenda is not to create socialism and redistribute wealth . . . it is to rebuild the middle class. But there is a lot of grey area thre and deep down inside I'm concerned Obama could have a hidden agenda. And I agree with the idea that if Obama is using the economy to play out a hidden agenda, that is a scary thought.

So on your side, are you willing to conceed . . . the middle east is not an easy answer and no one knows exactly how to handle that part of the world . . . and the answer to the question of why we've chosen to go to war with Iraq was political . .. . Bush had a different agenda then what he was stated to the public.

You don't have to agree with that (like I don't agree with that statement about Obama), but you can at least understand that school of thought, right?

 

[barfo]

Those are expenses that have to be borne to make commerce possible, not positive NPV investments. In fact, there are private toll roads (e.g. the Dulles Toll Road) that have turned out to be profitable.

Sure, in fact I gather that MacQuarie is a cash machine.

I guess I misunderstood your point - if you were saying that the government isn't good at investing in things that return money directly to the government (like buying/selling shares of GM), then I'd agree - but I don't think the government tries to make that sort of investment except in extraordinary circumstances (and not with a profit motive in mind primarily when it does).

But do we need the government to take our money to give us Social Security when we're old? Do we need government to take our money to provide us with Medicare? Do we need government to take our money to provide ethanol subsidies? Those are a bit more iffy.

Agreed, those are reasonable questions, and the answer depends on your philosophy of government.

If an investment is a positive NPV project for the government, by definition, it will have a higher NPV if it's done by the private sector.

Can you explain that? It isn't clear to me why that would necessarily be the case.

barfo

 

[maxiep]

I can appreciate and relate to that kind of rationale.

By the end of Bush's term, I still never said he had it out for the country and was going to ruin it. I felt Bush was about big corporations and rich people, and that his decisions favored a certain cross section of the community.

President Bush's economic advisors (and likely President Bush himself) had a classical economic philosophy. Grow the pie and and let the market worry about the distribution. If you look at wealth distribution before and after his presidency, the rich became wealthier, but the poor became better off too. Did he view corporations as not being evil entities? Yep. Did he not hate or resent rich people? Absolutely. I share this benign view of corporate America and wealthy people. They care about profits and are interested in reinvesting the fruits of their labor, either through growing their business or by spending their money on goods and services. As the old saying goes, you're more likely to get a job from a rich person rather than a poor one.

So when I hear that Obama's economic policies will create a redistribution of wealth, that makes sense to me. I'm not saying I'm buying it, but I could see that as a possiblity (instead of the idea that Obama and his people don't understand basic economics).

I never said his economists don't understand the issues. I'm saying their goals aren't necessarily economic. There's a difference.

This goes back to trusting Obama and that his agenda is not to create socialism and redistribute wealth . . . it is to rebuild the middle class. But there is a lot of grey area thre and deep down inside I'm concerned Obama could have a hidden agenda. And I agree with the idea that if Obama is using the economy to play out a hidden agenda, that is a scary thought.

I see the term "rebuild the middle class" and I equate it with the term "redistribute wealth". If you're not growing the economic pie (the economy shrunk by an annualized 6.1% in the first quarter) but making one class richer, then it has to come from somewhere. Wealth was redistributed. Right now, we're stealing the wealth of our children, but when the new taxes come in, we'll be taking it from people who probably consider themselves middle class too. These figures can't be supported only by people making over $200K.

So on your side, are you willing to conceed . . . the middle east is not an easy answer and no one knows exactly how to handle that part of the world . . . and the answer to the question of why we've chosen to go to war with Iraq was political . .. . Bush had a different agenda then what he was stated to the public.

Well, the reason wasn't economic. I believe President Bush went to war in Iraq because he felt he had to take out the Baathists before they supplied Islamic extremists with weapons of mass destruction. These are weapons we knew he had because he used them on his own people. Furthermore, every single major intelligence agency on the planet thought he had WMDs as well. Just because he had bad intelligence doesn't mean he deceived the American people.

You don't have to agree with that (like I don't agree with that statement about Obama), but you can at least understand that school of thought, right?

I understand why people would arrive at that conclusion, but I profoundly disagree with the assumptions required to support such a conclusion.

 

[maxiep]

Sure, in fact I gather that MacQuarie is a cash machine.

I guess I misunderstood your point - if you were saying that the government isn't good at investing in things that return money directly to the government (like buying/selling shares of GM), then I'd agree - but I don't think the government tries to make that sort of investment except in extraordinary circumstances (and not with a profit motive in mind primarily when it does).

It's no longer "extraordinary", is it? It's a normal part of government work in the Obama Administration. Banks want to return the TARP money and the government won't accept it. GM and Chrysler should be in the hands of the bondholders, but the government is insisting those at the front of the line take $0.20 on the dollar and the majority of the firms be given to the UAW. Health care is next. That's 1/6th of our economy. The size and scope of government has dramatically expanded under this administration, and the problem with government growing is that it tends to be a ratcheting effect--it goes one way and not the other.

Can you explain that? It isn't clear to me why that would necessarily be the case.

barfo

It can be explained in two ways. First, government has no profit motive. In fact, the primary goal of most government organizations is to spend their entire budget so they receive at least the same if not an increase the next year. The private sector only makes investments if they're projected to be positive NPV. Without the profit motive, you get the USPS instead of UPS or FedEx.

Second, to collect the money to be able to make these investments, the government has to tax its citizens. There is an entire attached bureaucracy to collect these funds. That creates what is known as a "dead weight loss". It's explained as simply as I've seen it here: http://www.rhsmith.umd.edu/faculty/jbailey/ents630/dloss.html

In the private sector, the cost to issue securities or obtain corporate debt is substantially less than collecting taxes. In fact, it's been shown in study after study.

What bureaucracies do well is distribute resources equally. What the private sector does well is distribute resources efficiently. If one firm isn't efficient enough, it's replaced by another firm that does it better, and so on and so forth. And because all profits in the long run approach zero, the ultimate beneficiary is the consumer.

If your goal is to provide a good or a service equally (e.g., law enforcement), your best bet is a government entity. If your goal is to provide a good or service at the lowest cost to the consumer (i.e., most efficiently), then let the market do it.

 

[The_Lillard_King]

President Bush's economic advisors (and likely President Bush himself) had a classical economic philosophy. Grow the pie and and let the market worry about the distribution. If you look at wealth distribution before and after his presidency, the rich became wealthier, but the poor became better off too. Did he view corporations as not being evil entities? Yep. Did he not hate or resent rich people? Absolutely. I share this benign view of corporate America and wealthy people. They care about profits and are interested in reinvesting the fruits of their labor, either through growing their business or by spending their money on goods and services. As the old saying goes, you're more likely to get a job from a rich person rather than a poor one.



I never said his economists don't understand the issues. I'm saying their goals aren't necessarily economic. There's a difference.



I see the term "rebuild the middle class" and I equate it with the term "redistribute wealth". If you're not growing the economic pie (the economy shrunk by an annualized 6.1% in the first quarter) but making one class richer, then it has to come from somewhere. Wealth was redistributed. Right now, we're stealing the wealth of our children, but when the new taxes come in, we'll be taking it from people who probably consider themselves middle class too. These figures can't be supported only by people making over $200K.



Well, the reason wasn't economic. I believe President Bush went to war in Iraq because he felt he had to take out the Baathists before they supplied Islamic extremists with weapons of mass destruction. These are weapons we knew he had because he used them on his own people. Furthermore, every single major intelligence agency on the planet thought he had WMDs as well. Just because he had bad intelligence doesn't mean he deceived the American people.



I understand why people would arrive at that conclusion, but I profoundly disagree with the assumptions required to support such a conclusion.

If you didn't understand my post, I was genrally agreeing that it is possible that Obama's economic plan is a hidden redistribution of wealth (as opposed to not understanding economics).

I see you have a strong opinion about why we went to war with the middle east. Funny, because we can now analyze the theories years after the war started. You think this is about WMD, yet none were found. You justify in your head with . . . assumptions(President Bush wanted to take out the Baathists . . .. ). Proof is in the pudding on this one maxiep . . . oil companies had record gains quarter after quarter, Haliburton made billons off the war . . . no WMDs.

I tell you what though. If Obama's economic plan turns into a redistribution of wealth, I won't be justifying his plan on bad intelligence or his economic advisors or that world economists agreed with the plan or they were good intentions gone awry. . . I'll hold him to it.

 

[maxiep]

If you didn't understand my post, I was genrally agreeing that it is possible that Obama's economic plan is a hidden redistribution of wealth (as opposed to not understanding economics).

I see you have a strong opinion about why we went to war with the middle east. Funny, because we can now analyze the theories years after the war started. You think this is about WMD, yet none were found. You justify in your head with . . . assumptions(President Bush wanted to take out the Baathists). Proof is in the pudding on this one maxiep . . . oil companies had record gains quarter after quarter, Haliburton made billons off the war . . . no WMDs.

I tell you what though. If Obama's economic plan turns into a redistribution of wealth, I won't be justifying his plan on bad intelligence or his economic advisors or that world economists agreed with the plan or they were good intentions gone awry. . . I'll hold him to it.

Am I correct in saying that your position is that the primary reason the Bush Administration took us to war in Iraq was to provide profits for the oil companies and Halliburton? I'm not being combative, I'm just trying to understand your position.

 

[The_Lillard_King]

Am I correct in saying that your position is that the primary reason the Bush Administration took us to war in Iraq was to provide profits for the oil companies and Halliburton? I'm not being combative, I'm just trying to understand your position.

I think Bush had an agenda. I think he makes his decisions based on what will benefit big corporations and rich people.

I would hope Bush wouldn't send our country to war for money, but after eights years of Bush and watching his decision making and what he tells the public . . . I don't turst Bush and do not believe a word that comes out of his mouth. And believe it or not, it pains me to say that about a president of the United States (and I have never felt this way about a president.)

I don't know what the hell that war was about, but I don't believe it was about 9/11 or WMD. I believe Bush used terrorism for his own agenda.

But i'm not dwelling on it. I'm just glad he is out of office and I welcome Obama with a breath of fresh, wanting to believe in the President of the United States again.

So to answer your question, I don't know what Iraq was about . .. but with all due respect, I don't think you or anyone else on this board knows why we went to war in Iraq (it was a political motivated decision).

So tell me, if Obama's economic plan doesn't work . . . will you let him hide behind bad intelligence?

 

[barfo]

It can be explained in two ways. First, government has no profit motive. In fact, the primary goal of most government organizations is to spend their entire budget so they receive at least the same if not an increase the next year. The private sector only makes investments if they're projected to be positive NPV. Without the profit motive, you get the USPS instead of UPS or FedEx.

Agreed on that, although I suppose in theory the government could form an agency whose mission is to invest for profit.

Second, to collect the money to be able to make these investments, the government has to tax its citizens. There is an entire attached bureaucracy to collect these funds. That creates what is known as a "dead weight loss". It's explained as simply as I've seen it here: http://www.rhsmith.umd.edu/faculty/jbailey/ents630/dloss.html

In the private sector, the cost to issue securities or obtain corporate debt is substantially less than collecting taxes. In fact, it's been shown in study after study.

That makes sense to me (and thanks for the link).

What bureaucracies do well is distribute resources equally. What the private sector does well is distribute resources efficiently. If one firm isn't efficient enough, it's replaced by another firm that does it better, and so on and so forth. And because all profits in the long run approach zero, the ultimate beneficiary is the consumer.

That sounds like an idealization - certainly oil company profits haven't trended to zero (and that's a very old industry now, as industries go). We could come up with lots of other examples where barriers to entry prevent perfect competition.

If your goal is to provide a good or a service equally (e.g., law enforcement), your best bet is a government entity. If your goal is to provide a good or service at the lowest cost to the consumer (i.e., most efficiently), then let the market do it.

So, why should we provide law enforcement equally? Why not, like health care, let those who can afford it buy it from the private sector? What's the fundamental difference between health care and law enforcement?

barfo

 

[maxiep]

So, why should we provide law enforcement equally? Why not, like health care, let those who can afford it buy it from the private sector? What's the fundamental difference between health care and law enforcement?

barfo

The difference is that we're provided equal protection under the law as outlined by the 14th Amendment. We're not provided equal access to health care, although in practice this is the case.

Also, there are those who do purchase extra security, just as there are those who purchase extra health insurance.

 

[maxiep]

I think Bush had an agenda. I think he makes his decisions based on what will benefit big corporations and rich people.

I would hope Bush wouldn't send our country to war for money, but after eights years of Bush and watching his decision making and what he tells the public . . . I don't turst Bush and do not believe a word that comes out of his mouth. And believe it or not, it pains me to say that about a president of the United States (and I have never felt this way about a president.)

I don't know what the hell that war was about, but I don't believe it was about 9/11 or WMD. I believe Bush used terrorism for his own agenda.

But i'm not dwelling on it. I'm just glad he is out of office and I welcome Obama with a breath of fresh, wanting to believe in the President of the United States again.

So to answer your question, I don't know what Iraq was about . .. but with all due respect, I don't think you or anyone else on this board knows why we went to war in Iraq (it was a political motivated decision).

So tell me, if Obama's economic plan doesn't work . . . will you let him hide behind bad intelligence?

Okay, it's clear we have a fundamental disagreement on what President Bush is capable of doing, so we'll agree to disagree.

And when President Obama's plan doesn't work, I won't blame bad intelligence. They know exactly what they're doing. They're not acting on bad intelligence. There is no economic data out there that demonstrates what they're proposing will work.

 

[maxiep]

That sounds like an idealization - certainly oil company profits haven't trended to zero (and that's a very old industry now, as industries go). We could come up with lots of other examples where barriers to entry prevent perfect competition.

barfo

I said in the long run profits approach zero, they're not zero. When profits become zero, there's no point in making a product or providing a service.

As for perfect competition, the very best example I can think of is the stretch of Indian restaurants along First Avenue in Manhattan.

 

[barfo]

I said in the long run profits approach zero, they're not zero. When profits become zero, there's no point in making a product or providing a service.

And I was saying, in the oil bidness, profits are not approaching zero. In fact they seem to be going the opposite direction.

As for perfect competition, the very best example I can think of is the stretch of Indian restaurants along First Avenue in Manhattan.

That is a fine and tasty example.

barfo

 

[Denny Crane]

Which of these shovel ready projects are anything close to the value of the national highway system?

Oddly, the left called Ike stupid and Democrats wouldn't get behind building the highways. They had to be built on the guise that they were for military/defense purposes, which only makes a little sense.

Now I will consider things from an economics perspective... The larger an organization, the less rational it becomes.

In the private sector, decisions aren't made for profit motive, but for other reasons like turf or personal benefit. Or a Walmart will irrationally push for cheaper goods at the expense of slave labor in China and the american worker; while it is those workers who ultimately should be Walmart's biggest customers.

In the public sector, appointments are made based upon the size of campaign donations and political favors. Instead of profit motive, the motive is reelection; on the surface reelection might mean the official has done a good job, but in reality it's a horribly corrupt diversion of funds from things we collectively deem important (like education) into things like a private airport for John Murtha or empty govt. office buildings in W Va.

There are really two economic theories that are at play here, and they are at odds with one another. One side believes the govt. can ultimately get it right, no matter the evidence to the contrary. The other side sees govt. as the problem and not the solution (thanks, Reagan). All but the actually street smart few Democrats in that party seem to favor the former. The republicans used to favor the latter but somehow got sucked in to the big spending and grow govt. mode.

I want govt. to accomplish the big things that the private sector can't. We'd never have gone to the moon or built the highway system without it. On the other hand, I see we are constantly looking back at the bulk of its doings which are miserable failures and saying "govt. could have succeeded if only they did X instead of Y." The reality is that it's too big to be rational and do X instead of Y, and repeatedly does Y instead of X.

The reality is that SS is going broke and doesn't provide a dignified lifestyle for people who pay in 15% for 45 years; it's a ponzi scheme (X) that relied on a demographic of a fixed point in time (X) when it could have been an actual annuity (Y) that the govt. couldn't have raided to pay for who knows what (Y).

Take a realistic look at the economy now. Regulation after regulation and agency after agency (X) empowered to control the private sector and none of it ever worked. Crisis after crisis since the 1930s and all we did was legislate to fix a crisis once it had passed (X), but never prevented the next crisis. If only we had killed GM's profits years earlier with CAFE standards and the like (Y), they'd be strong now. Yeah right. It's closing the barn door after the horse has bolted, and nothing more.

To use another metaphor, it's like the rat in the cage who repeatedly chooses the cocaine over food at the expense of an electric shock each dose. Or it reminds me of a line from the three stooges (Curley): "If at first you don't succeed, keep on sucking until you do succeed."

The other philosophy is to let the private sector sort it out, and that seems to be the utlimate answer. We have boom and bust cycles anyway, so if people are left to their own devices, they'll figure out how to deal with the bust times or else. The "or else" means consequences and brings the element of rationality back into the decision process.

 

[MrJayremmie]

This line of thinking is wrong. I'll give you an example. In WWII the Nazis had technology far superior to our own. The Tiger tank was so far ahead of the Sherman, it wasn't even fair. Even their fighters, the ME109, and eventually their jet fighters, were far more advanced than anything we had prior to or during the war. We didn't start to catch up until we released the P51.

With that said, we utilized quantity over quality. The Sherman was inferior to the Tiger, but we could produce 10x as many Shermans, so we just overwhelmed Germany. The F22 is the best fighter in the world, but the Chinese already have the worlds largest airforce. How many fighters does it take to down an F22?

I disagree. I don't think WW2 is an example because of how drastically different things are today. And in WW2, the Nazi's didn't really produce any jet fighters, or upgraded subs and allowed their technology to go stale because they didn't think that the war would be longer than a couple years max. Also, if we will use one example from WW2, it would be Germany vs the Soviets. And Germany would have won that if they didn't have to concentrate on anything else (another front opened up by the allies).

And the Chinese do not have the largest air force in the world. They don't even have any air craft carriers and they only have 19,000 jets while we have over 2,600. The only thing they beat us at is population size which accounts for them having much more ground troops than us (which isn't a problem if you have air superiority, imo).

 

[maxiep]

I disagree. I don't think WW2 is an example because of how drastically different things are today. And in WW2, the Nazi's didn't really produce any jet fighters, or upgraded subs and allowed their technology to go stale because they didn't think that the war would be longer than a couple years max. Also, if we will use one example from WW2, it would be Germany vs the Soviets. And Germany would have won that if they didn't have to concentrate on anything else (another front opened up by the allies).

And the Chinese do not have the largest air force in the world. They don't even have any air craft carriers and they only have 19,000 jets while we have over 2,600. The only thing they beat us at is population size which accounts for them having much more ground troops than us (which isn't a problem if you have air superiority, imo).

My only response is what you are writing about the Chinese was written about the United States before WWI.

 

[MrJayremmie]

My only response is what you are writing about the Chinese was written about the United States before WWI.

Absolutely true, and you make a great point. I would counter that in saying that the world is soo different now, though. And in order for the US to get dominance as the only superpower in the world at the moment, a lot of other countries really had to collapse (Soviets, Germans and even Imperil Japan and lots of other empires/powers since WW1)...

I don't think we've truly had a power like the US, in relevency to its dominance compared to the other countries of its present time, since Rome probably. Not often you have one super power, or am I off on that? But lots of people say that the US era of dominance is coming to an end, so we will see. If so, China does seem like one of the likely heirs to the throne along with places like India and such.

I mean as of military technology, we are so far ahead of other countries it would probably take years if not decades for others to catch up (assuming we stop advancing our military completely and just roll with what we have). And i'm not saying this because "Oh we rock we are badass we are better than you", but we have a head start already AND we put 10 times the amount of money into defense spending then the next closest country, so you'd think the gap would only get larger. And as for the fact that they have sheer numbers over us, I really think the US military strategy is actually going away from that kind of combat anyway. I think we are looking to make less numbers MORE effective, and use unmanned vehicles in air, sea and land, and arm fewer soldiers much better to cut the number we must have on the front lines and continuing to take soldiers out of harms way. So in that respect, I like our counter to the "overwhelming size" arguement.

 

[barfo]

Which of these shovel ready projects are anything close to the value of the national highway system?

Oddly, the left called Ike stupid and Democrats wouldn't get behind building the highways. They had to be built on the guise that they were for military/defense purposes, which only makes a little sense.

Excellent point. Maybe the right is making the same mistake today that the left did back then.

barfo

 

[Denny Crane]

Government hired 72,000 last month, I don't think they count in these figures. It'd be even higher. 8.9% unemployment matches 1983, and I think it's the worst it's been since the Depression.

http://www.reuters.com/article/domesticNews/idUSTRE5472SK20090508

U.S. sheds fewest jobs in 6 months

Fri May 8, 2009 4:36pm EDT
By Lucia Mutikani

WASHINGTON (Reuters) - U.S. employers cut 539,000 jobs last month, the fewest since October, according to government data on Friday that signaled the economy's steep decline might be easing and gave the stock market a boost.

The unemployment rate, however, soared to 8.9 percent, the highest since September 1983, from 8.5 percent in March, and job losses in March and February were a combined 66,000 steeper than previously estimated, the Labor Department said.

A 72,000 jump in government payrolls tempered the overall job-loss figure. Government employment was bolstered by the hiring of about 60,000 temporary workers in preparation for the 2010 census and U.S. Labor Secretary Hilda Solis said this figure would fluctuate in the months ahead.

Private sector employment fell by 611,000 in April after a 693,000 decline in March, the department said, which curbed some of the optimism over the report.

Still, the data was not as bleak as financial markets had expected and offered the freshest sign that the intensity of the recession, now in its 17th month, was starting to fade.

"The labor report added to the growing list of data points that imply that the steepest part of the economic contraction is now past," said Brian Fabbri, chief North America economist at BNP Paribas in New York.

The payrolls reading, which beat market forecasts for a 590,000 drop, and results of the government's tests on the health of the 19 biggest domestic banks buoyed U.S. stocks.

The Dow Jones industrial average ended up 1.96 percent at 8,574.65. Government bond prices ended higher as unemployment was seen still rising well into 2010.

President Barack Obama, whose government has rolled out a record $787 billion rescue package of spending and tax cuts, said April's payrolls number was somewhat encouraging, but that the job losses were still a sobering toll.

"It underscores the point we're still in the midst of a recession that was years in the making and that is going to be months or even years in the unmaking. We should expect further job losses in the months to come," Obama said.

Since the start of the recession in December 2007, the U.S. economy has lost 5.7 million jobs, the Labor Department said.

In neighboring Canada, a surprise 35,900 jobs were added to payrolls in April, confounding analysts who had expected the economy to extend its pattern of heavy job losses.

GLIMMERS OF HOPE

In a hopeful glimmer for the U.S. economy, the rise in the unemployment rate reflected a surge in people joining the labor force, as opposed to a collapse in employment. The report showed job losses across almost all sectors, although at a less steep pace than in previous months.

Manufacturing lost 149,000 jobs in April after shedding 167,000 in March. Economists were heartened by a slight increase in hours worked in manufacturing, where the average work week inched up to 39.6 hours from 39.4 in March.

"The very good news is that the hours in the manufacturing sector were up, which implies that we are going to have some production increases soon, if not in April for industrial production, perhaps in June at the latest," said Kurt Karl, chief U.S. economist at Swiss Re in New York.

Government data last week showed a record $103.7 billion drawdown in inventories in the first quarter. Analysts reckon this created a platform for a recovery in manufacturing.

Construction, among sectors hit hardest by the housing-led recession, shed 110,000 jobs in April, the Labor Department said, after losing 135,000 the previous month.

The service-providing industry slashed 269,000 positions after cutting 381,000 in March, while in education and health services they rose 15,000 after increasing 10,000 in March.

Despite the slowdown in the pace of job losses, the unemployment rate will continue to rise until at least the first quarter of 2010, peaking anywhere between 9.5 and 10.5 percent, according to economists.

"It does look as if we are falling more slowly and we are likely to hit bottom reasonably soon, at least when it comes to economic growth," said Joel Naroff, chief economist at Naroff Economic Advisors in Holland, Pennsylvania, but added:

"We are looking at rising unemployment rates for quite some time even as job losses moderate."

The length of the average work week was unchanged at 33.2 hours in April. Average hourly earnings edged up to $18.51 from $18.50 in March, which analysts said was a reminder that incomes remained under pressure.

"The figures gave a cautionary warning about consumer incomes," said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts.

"(The modest rise in) hourly earnings, which combined with the heavy loss of jobs signals a continuing decline in overall wage and salary incomes, is bad news for purchasing power."

A separate report from the Commerce Department showed wholesale inventories dropped 1.6 percent to $411.7 billion, the lowest since November 2007, after falling a record 1.7 percent in February.

(Additional reporting by Lisa Lambert and Doug Palmer; Editing by James Dalgleish)

 

[barfo]

Government hired 66,000 last month, I don't think they count in these figures. It'd be even higher. 8.9% unemployment matches 1983, and I think it's the worst it's been since the Depression.



WASHINGTON (Reuters) - U.S. employers cut 539,000 jobs last month, the fewest since October, according to government data on Friday that signaled the economy's steep decline might be easing and gave the stock market a boost.

The unemployment rate, however, soared to 8.9 percent, the highest since September 1983, from 8.5 percent in March, and job losses in March and February were a combined 66,000 steeper than previously estimated, the Labor Department said.

A 72,000 jump in government payrolls tempered the overall job-loss figure. Government employment was bolstered by the hiring of about 60,000 temporary workers in preparation for the 2010 census and U.S. Labor Secretary Hilda Solis said this figure would fluctuate in the months ahead.

barfo

 

[Denny Crane]

http://www.mcclatchydc.com/251/story/67789.html

Posted on Sat, May. 09, 2009
Job losses slow, but is it from government hiring?

Kevin G. Hall | McClatchy Newspapers

last updated: May 08, 2009 03:35:24 PM

WASHINGTON — Friday's better-than-expected employment report from the Labor Department gave another sign that the U.S. economy may be bottoming out, but the jump in the unemployment rate is a reminder for millions of Americans that the outlook for jobs will remain bleak for some time.

The pace of job losses eased in April, with employers shedding 539,000 jobs, bringing the total jobs lost since the recession began in December 2007 to more than 5.7 million. April's employment numbers were better than expected by most mainstream economic forecasters, who'd projected upward of 620,000 lost jobs.

Even as those numbers were seen as trending positive, they were offset by the uptick of the unemployment rate to 8.9 percent, the highest level since 1983, from 8.5 percent in March.

"The job market is bad, but as bad as expected, and headed in the right direction. Monthly job losses averaged 700,000 in the first quarter and appear on track to lose (an average of) 500,000 in the second quarter," said Mark Zandi, the chief economist for forecaster Moody's Economy.com. "There will be another 2.5 million in job losses and unemployment will peak at 10 percent by this time next year."

April's net job loss total actually was somewhat misleading: Private-sector employment actually fell by 611,000 jobs, but government hiring, which added 66,000 jobs, mostly for the upcoming census, offset some of them.

Although April's job numbers reflect a welcome slowing of the downturn, a deeper look suggests that it will be a long, hard climb back to full employment. The number of long-term unemployed — those out of work for 27 weeks or longer — continues to rise alarmingly.

Some 498,000 more Americans moved into the ranks of the long-term unemployed in April, the Bureau of Labor Statistics reported, bringing the total to 3.7 million. Of that large pool, some 2.4 million joined those ranks since the recession began in December 2007.

"It really points to the nation's economic challenge, this big idled work force and most people have been out of work for a very long time," said Andrew Stettner, the deputy director of the National Employment Law Project, an advocacy group that promotes expanded unemployment benefits. "It means they really haven't been able to find anything. For many people it's a mismatch between skills and (available) jobs. It's going to take a really major approach to get these workers back to work."

The long-term jobless now are more than 27 percent of all the unemployed, the highest ever since records began in 1948, Stettner said.

In response, President Barack Obama announced a plan Friday to help the unemployed enter college for retraining without losing unemployment benefits, which usually happens when they enter school. This plan will depend on state participation. Obama said he also wants colleges to consider using their federal Pell Grants to help unemployed workers retool for the new economy.

"The idea here is to fundamentally change our approach to unemployment in this country, so that it's no longer just a time to look for a new job, but to prepare yourself for a better job," Obama said, adding that a new Web site, www.opportunity.gov, would be a resource for the unemployed to find out what options are available to them.

Obama tapped the vice president's wife, Jill Biden, a longtime community college teacher who has a doctorate in education, to lead a national publicity campaign about community colleges. The president also said he was asking every American to commit to at least one year of higher education or job training. "Every American will need to get more than a high-school diploma," he said.

Obama said that those without college degrees are now more than twice as likely as degree-holders to be unemployed, and that "so many of the Americans who have lost their jobs can't find new ones because they simply don't have the skills and training they need for the jobs they want."

Unstated but implied in the Obama initiative is the fact that the U.S. economy will look much different once it emerges from this recession. There will be fewer construction jobs and far fewer financial sector jobs, and numerous other shifts. The economy is always in a state of transition to something new, and more so after a deep downturn such as the one gripping the nation now.

On another economic front, the Commerce Department reported Friday that wholesalers reduced inventories by another 1.6 percent in March, the seventh straight month that they've done so. That's a drag on growth but carries a silver lining: The more inventories are reduced, the closer the nation comes to a rebound in production as retailers and manufacturers restock to meet new consumer demand.

"At some point once we clear out excess inventory and sales pick up, and employment will have to pick up," said Kim Whelan, an economic analyst for Wachovia. "It will hopefully start adding to GDP slowly going forward," she said.

In addition to government, health care was another rare sector that added jobs, up 17,000.
Employment in manufacturing fell by 149,000 jobs in April, while construction companies shed another 110,000 jobs. The professional and services industry saw employment fall by 122,000 last month, and retailers cut 47,000 positions. Transportation and warehousing fell by 38,000.

"The hiring of census workers is obscuring a continued steep decline in private-sector jobs. I think we have to start facing up to the fact we're headed for an unemployment rate above 10 percent that will stay high for quite a while," said Lawrence Mishel, the president of the liberal Economic Policy Institute.

Some Wall Street analysts agreed.

"Taking into account the downward revisions to the prior months and the sharp increase in government employment . . . this is a weaker-than-expected report," wrote John Ryding and Conrad DeQuadros, partners in the research firm RDQ Economics, in a research note. "The employment data do not yet corroborate the extent of the diminishment of the intensity of the recession suggested by other economic indicators."

The Bureau of Labor Statistics also revised job losses reported in February downward by 30,000, while losses in March were revised upward by 36,000.

Still, taken together with rising consumer confidence, manufacturing indexes getting close to levels seen during economic expansion and even a slight rise in construction, Friday's jobs report gives support to analysts who see the glass as half full.

"Large pools of 'pent up demand' are forming and will soon begin to be transformed into actual spending. First quarter (growth) estimates indicate that consumer spending is coming back," William Dunkelberg, the chief economist for the National Federation of Independent Business, said in a survey of small businesses released Friday. "Growth could be positive in the third quarter and 4 percent higher in the fourth (compared with the third quarter). It would appear that the reduction in employment . . . has gone too far, raising the possibility of a faster-than-expected recovery in employment later this year."

(Margaret Talev contributed to this article.)