Saturday, March 7, 2009
Economic Woes Continue, Omnibus Appropriations, MN Drags On, Cabinet Picks Stalled
Economic Woes Continue -- But Potential Hope on the Horizon
It was published today that the official unemployment rate hit a 25-year high in February at 8.1%. This is worse than the peak of the '90-'91 recession (7.8%) and far worse than the very minor mini-recession at the start of the century (6.3% in 2003.) This coincides with my declaration that the severity of the recession has surpassed either of those downturns and is now tracking towards the double-dip recession of the early 80s, when unemployment peaked at 10.8%. It appears likely that unemployment will surpass this rate before it gets better.
Unemployment has risen since March 2007, when the rate was 4.4%, but much of the loss has happened in recent months. Since May of 2008, the rate has increased by an average of 0.3% per month, with the last 3 increases in December, January and February being 0.4%, 0.4% and 0.5% respectively.
There is cause for hope, as I mentioned in my last blog, and we saw more evidence of this this week, although it was mostly drowned out by the employment data. Consumer borrowing unexpectedly rose in February -- indicating that the credit markets are starting to stabilize. Retail sales were down far less in February than was expected.
All of this plays into my theory, driven by the Council on Economic Indicators LEI index, that we appear poised for the economy to resume positive economic growth approximately August of this year. Again, this does not mean things will immediately get better. In 1991, economic growth resumed in the 2nd quarter of the year, but unemployment didn't peak until the 2nd quarter of 1992, fully 12 months later and did not drop to pre-recession levels until 2 years after that.
So, what we will likely see, is a continued rise in unemployment at a rapid rate for the next 6 months, followed by a stagnation in the labor market for another 12 months. It may be late 2010 before we see unemployment drop and near the end of President Obama's term before unemployment returns to normal.
Based on the rate of decline in employment, it appears that before my predicted August economic growth, it appears unemployment will peak in the summer at 10-11%, rivaling the economic conditions of the early 1980s.
Keep in mind that the unemployment rate only includes people actively searching for jobs that are unemployed. It does NOT include people who have stopped looking or underemployed people (people working part-time who are attempting to work fulltime), including these people would add approximately 6.5% to the already-high rate.
So, things are very bad right now, but there is some light at the end of the tunnel. I'm going to put my neck out here and say we will see:
(1) A choppy stock market for the next 3 months, followed by a partial recovery (although to nowhere near the highs)
(2) Mixed economic news and steadily rising unemployment for the next 6 months, followed by modest recover
(3) Unemployment peaking at 10-11% and staying there for 6-12 months before starting to decline and slowly declining to more normal levels by 2012
We'll see if my prediction skills are as good as the so called experts.
Congress is in the process of passing what is known as an "Omnibus Appropriations" bill to finish the fiscal year. The government's fiscal year runs from October. In theory, the congress is supposed to pass and the President is supposed to sign appropriations bills for each cabinet department prior to October. Of course, this often doesn't happen and this year, rather than reach an organized agreement on the budget, former President Bush and the Democratic Congress agreed only to a series of extensions of government services, not a real budget.
So, the "omnibus" bill covers all departments and funds them through October. This is work that should have been done before President Obama got to office, but here we are. It is a $400 billion bill and Republicans have been making hay about the approximately $4 billion in earmarks that have be stuck in the bill. Surely they are right, the earmarks are largely irresponsible spending, but the President has made it clear that he doesn't intend to get into a fight over a budget that is for a year that is almost over.
It appears that the Omnibus bill will push through with little Republican support (the bill passed the House on February 25th with only 16 Republicans supporting and is now being debated in the Senate, with strong Republican opposition) and will be signed by the President.
The more interesting question is whether President Obama will take on congressional Democrats in the upcoming appropriations bills for the fiscal year beginning in October. This debate should start in April. I hope the President takes a stand but fear he will not want to spend political capital fighting with congressional Democrats he needs to pass legisliation.
Minnesota Senate Race Drags On
I sound like a broken record, but months after the new Senate took office, we still have no winner for the Minnesota Senate seat in the race between Al Franken (D) and Sen. Norm Coleman (R). Six weeks into the election contest trial, Coleman's lawyers have asked the court to set aside the results of the election and order a new election. I contend Al Franken will eventually take office, but we may not have seen the end of this.
The bottom line is that our current system is incapable of accurately determing a winner when the margin is as small as in the Franken/Coleman race.
If this can happen in our electoral systems, isn't this a glaring sign that we need serious reform? Can you imagine if this happened in the Presidential race? We might have to take on a partisan Supreme Court Decision...oh wait...
Continued Slow Treading for the President's Cabinet
President Obama is 47 days into office now, 3.2% of his Presidential term and he still does not have an approved Commerce Secretary (former Washington Gov. Gary Locke is pending), Health and Human Services Secretary (Kansas Gov. Kathleen Sebelius is pending) or a number of key undersecretary positions at Treasury filled (he had two undersecretaries withdraw this week.)
I cannot recall in my lifetime another President that had so much trouble filling his cabinet. Part of the President's problem is that the Obama Administration's vetting process is so extensive that it a. scares off some potential nominees and b. slows down the process. The other piece of this though, is that Senate Republicans have used an unprecedented number of stall tactics against appointees. In 2001, Bush had all but 1 of his cabinet heads (John Ashcroft) approved on the day he took office.
President Obama must clean this up if he is going to get things done -- he needs a capable staff under him. The lull that you now see in administration actions is largely a result of the administration runnig out of capacity -- there is simply only so much that the President can do himself.
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