January 20, 2020

For the Washington Area, a Second Lightning Strike

For a decade, Washington has been the town that the recession forgot, a bastion of economic confidence, low unemployment, growing wealth and healthy property values. But as the rest of the country has started to recover, Washington and its close-by suburbs in Maryland and Virginia have stalled, hit hard by the $1 trillion in budget cuts known as sequestration, as well as by hundreds of billions of dollars in additional cuts to the military.

If the government has a lapse in spending, or if Congress cannot approve an increase in the government’s borrowing limit in mid-October, the pain would only get worse, economists said.

“There’s been a dramatic slowdown in growth” in recent years, said Stephen Fuller, the director of the Center for Regional Analysis at George Mason University. “A potential shutdown, the debt ceiling — those headwinds would come in combination with sequestration, furloughs, job reductions and contract cutbacks.”

“The economy is just limping along,” he said.

Federal workers, in Washington and elsewhere, would feel the brunt of a shutdown if a spending measure were not approved by Congress on Monday, having already faced furloughs this year because of sequestration.

Greg Nudd, an Environmental Protection Agency employee who works on dust and haze issues, was furloughed for a total of 47 hours this year.

“When it became clear sequestration wasn’t going to be resolved, we stopped putting money in the kids’ college fund and put it in an emergency fund,” Mr. Nudd said, adding that he had started looking for a job outside the government. “We’ve cut back on a number of things. We canceled cable, we got rid of our land line, we cut out luxuries, the housekeeper’s not coming — things like that.”

Federal employees ended up being paid for days they were furloughed during the last shutdown, during the Clinton administration. But Congressional aides without permission to talk on the record said that conservative legislators seeking to shrink the government and the deficit might have trouble justifying paying federal workers for time they did not work.

“After three years of frozen pay, unpaid furloughs, huge increases in retirement costs for new employees and the threat of massive layoffs at the Department of Defense and elsewhere, Congress and the administration need to keep their hands off of federal employees once and for all,” said J. David Cox, the national president of the American Federation of Government Employees, which represents about 650,000 federal employees.

Typical Americans outside the Washington area might barely notice a shutdown. They would not be able to get a visa processed or hike in a national park. But important government transfers, like Social Security payments and Medicare bills, would most likely continue undisrupted.

But Washington is a company town, and federal dollars make up the lifeblood of the local economy, even as the region has diversified in recent years. The federal government accounts for about 30 percent of the jobs in the District of Columbia, 20 percent in Arlington County, Va., and 10 percent in Montgomery County, Md. — more than 350,000 jobs over the whole region.

Here, the effect would be visible. Tens of thousands of federal employees would face furloughs. Major contractors would see their business disrupted, with parts of the government unable to process claims and federal contacts offline.

“Oct. 1 is our New Year’s,” said James C. Dinegar, the president of the Greater Washington Board of Trade. “It’s when contracts are supposed to be signed and money starts flowing for the new fiscal year.”

There would be significant secondary effects, too. Those furloughed federal employees might spend less at lunch spots and on shoe shines. With monuments and other sites closed, tourists might head elsewhere. “It’s an amalgamation of tourism, hospitality, restaurants and so on. If the government shuts down, a tourist isn’t going to visit the Smithsonian and then head to the Old Ebbitt for dinner,” Mr. Dinegar said, referring to a restaurant in downtown Washington.

Article source: http://www.nytimes.com/2013/09/30/us/politics/government-shutdown-would-hurt-economy-of-washington-area.html?partner=rss&emc=rss

Jobless Claims Rise and Housing Starts Fall

Jobless claims rose sharply last week, while housing starts tumbled in April and a gauge of underlying inflation pointed to weak demand.

The data could feed fears over the impact of a government austerity drive that began in January and could also raise pressure on the Federal Reserve to continue to buy bonds to support the economy.

The number of Americans filing new claims for unemployment benefits climbed last week at the fastest pace in six months, the Labor Department said on Thursday. Initial claims for state unemployment benefits jumped by 32,000 to 360,000. That was the biggest jump since November and confounded analysts’ expectations for a more modest increase.

“I think there’s plenty of slack in the labor market,” said Tanweer Akram, an economist with ING U.S. Investment Management in Atlanta.

Futures indexes for United States stocks turned lower after the data’s publication, and so did yields on government debt. The dollar weakened against the euro and the yen.

A Labor Department analyst said no states had estimated their data, and there were no signs that furloughs for government employees had played a significant role in last week’s increase in claims.

The economy has shown signs that growth slowed late in the first quarter and in April as Washington’s push to trim the budget deficit weighed on consumers and businesses. The federal government raised taxes in January, and sweeping budget cuts were initiated in March.

Many analysts have noted that a reluctance by employers to lay off workers has made an outsize contribution to recent improvements in employment levels. Last month, employers added 165,000 new jobs while the unemployment rate dropped to a four-year low at 7.5 percent.

Housing has also been an economic bright spot, but a separate report showed groundbreaking for new homes fell more than expected in April. The Commerce Department said starts at building sites for homes fell 16.5 percent last month. Still, permits to build new homes increased, a reassuring indication that the housing sector could still contribute to the economic recovery.

In a third report, a sharp drop in gasoline costs led consumer prices to tumble in April by the most in over four years, while a gauge of underlying inflation was also weak.

The Labor Department said its Consumer Price Index slipped 0.4 percent, the biggest decline since December 2008 when America was suffering some of the worst days of its financial crisis. Analysts had expected a more modest 0.2 percent decline in last month’s prices.

In the 12 months through April, consumer prices rose 1.1 percent. That is well below the Fed’s 2 percent inflation goal. Much of April’s decline in prices was because of an 8.1 percent dive in gasoline costs, the biggest since December 2008.

Article source: http://www.nytimes.com/2013/05/17/business/jobless-claims-rise-and-housing-starts-fall.html?partner=rss&emc=rss

Economix Blog: Sequestration and the Jobs Report

The March jobs report came in much weaker than expected, with employers adding just 88,000 workers over the course of the month. Did sequestration – the $85 billion in mandatory budget cuts that Congress never managed to unwind, despite promises to the contrary – take a bite?

The short answer is no. At least according to the preliminary data, sequestration does not seem to be particularly at fault.

Government employment actually climbed during March, if you exclude the Postal Service, which shed nearly 12,000 workers. Economists expect the government ranks to take a hit as agencies and offices carry out their budget cuts before the end of the fiscal year in September.

But not yet. The budget cuts formally came into effect on March 1, and many agencies waited to see if Congress might undo them later in the month. Furloughs, layoffs, contract changes and other disruptions have started accumulating, but remain very small at this point. Economists expect the jobs hit from sequestration to be significant, but backloaded toward the end of the year.

But another change emanating from Washington seems as if it might be having a serious effect on jobs: the expiration of the payroll tax cut. In January, Congress effectively increased payroll taxes by declining to extend a temporary tax holiday. That wiped out a full year’s worth of wage gains for millions of Americans, and economists expected it to depress consumer sentiment and consumer spending.

Lo and behold, the retail sector showed significant weakness in this report, perhaps evidence of families’ having less spending money and cutting back at the mall. Employment dropped by 24,000 positions, with significant declines in clothing stores, garden supply stores and electronic stores.

Granted, that could just be statistical noise, and next month’s revisions could erase the drop. In other government reports, the retail sector has looked just fine. Commerce data showed consumer spending surging, and separate private reports have showed consumer confidence climbing. But it could be that families are spending a little less, thinning retailers’ profits and forcing them to cut back on staffing.

Article source: http://economix.blogs.nytimes.com/2013/04/05/sequestration-and-the-jobs-report/?partner=rss&emc=rss