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Growth Halted in 4th Quarter on U.S. Cuts

January 30, 2013 by Leave a Comment

Disappointing data released Wednesday underscore how tighter fiscal policy may continue to weigh on growth in the future as government spending, which increased steadily in recent decades and expanded massively during the recession, plays a diminished role in the United States economy.

Significant federal spending cuts are scheduled to take effect March 1, and most Americans are also now paying higher payroll taxes with the expiration of a temporary cut in early January.

The economy contracted at an annual rate of 0.1 percent in the last three months of 2012, the worst quarter since the economy crawled out of the last recession, hampered by the lower military spending, fewer exports and smaller business stockpiles, preliminary government figures indicated on Wednesday. The Fed, in a separate appraisal, said economic activity “paused in recent months.”

Still, economists said the seemingly bleak gross domestic product report was not a sign that another recession was looming. The preliminary data showed relatively strong spending by consumers and businesses, even as military spending posted its sharpest quarterly drop in 40 years.

Forecasters expect that growth this year will rebound to a still-anemic 1.5 percent, a little lower than the pace it has managed over the last three years.

“This is the tip of the iceberg on fiscal austerity from Washington,” said Ethan Harris, co-head of global economics research at Bank of America Merrill Lynch. “It was exaggerated this quarter by the unusually large drop in defense spending, but that and higher taxes will start hurting” in the coming months.

The drop in American exports stemmed in part from a drop in economic growth in Europe, where governments have also been cutting spending in a bid to balance budgets. The parallel contractions are likely to provide fodder for economists who argue that austerity efforts have gone too far in many developed economies.

The surprisingly weak numbers could also force politicians to limit the cuts that are scheduled to take effect if Congress fails to produce a budget bargain in the coming weeks and strengthen the argument that deficit reduction is a lesser concern than job creation.

“Our economy is facing a major headwind, and that’s Republicans in Congress,” said the White House spokesman Jay Carney.

Republicans said the White House was not advancing concrete plans for creating new jobs and stimulating the economy.

“The bad GDP news makes it even more unbelievable that Obama has been ignoring job growth in his 2nd term agenda,” Reince Priebus, chairman of the Republican National Committee, posted on Twitter.

The Fed said Wednesday that it would continue its efforts to revive growth by holding short-term interest rates near zero and increasing its holdings of Treasury securities and mortgage-backed securities by $85 billion a month. Those policies aim to reduce borrowing costs for businesses and consumers.

“The committee expects that, with appropriate policy accommodation, economic growth will proceed at a moderate pace and the unemployment rate will gradually decline,” the Fed said in a statement.

Unemployment has not declined since the Fed started its latest round of purchases in September. The rate was 7.8 percent in December, the same as three months earlier. The government will report the rate for January on Friday.

Although economists expected output to decline substantially from the 3.1 percent annual growth rate recorded in the third quarter, the negative G.D.P. number still caught Wall Street off-guard. It was the weakest economic report since the second quarter of 2009, although revisions in February and March could alter the figure.

“I’m a little surprised,” said Michael Feroli, chief United States economist at JPMorgan.

Like some other observers, Mr. Feroli said there were hints the economy was performing slightly better than the headline number suggested.

Article source: http://www.nytimes.com/2013/01/31/business/economy/us-economy-unexpectedly-contracted-in-fourth-quarter.html?partner=rss&emc=rss

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High & Low Finance: Signs of a Housing Recovery Point to a Stronger Economy

January 24, 2013 by Leave a Comment

A funny thing is happening to the United States housing market. It is getting better at an accelerating rate.

And therein could lie hope for a surprisingly strong economy this year.

It has been a long time, as the economy worked off the excesses of the boom and cleared out the inventory of homes that should never have been built or were “sold” to people who could not hope to afford the payments. But now the inventory of houses for sale — both new and used — is as low as it has been in decades. Home prices are rising in most markets. Sales have picked up, though they are still low by historical standards.

“We had 48 months of depression in the housing industry,” said Karl E. Case, an emeritus professor of economics at Wellesley College and the co-developer of the Standard Poor’s/Case-Shiller house price index. “Housing has brought us out of every recession in the past, and it was not available.”

But now, he said in an interview, “there is no question that we have turned what seemed to be a headwind into a tail wind.”

If that is correct, the benefits for the economy will be significant. They will not be just in the direct impact of spending on residential construction — although that is now growing at a faster rate than at any time since 1994 — or on such things as carpet and furniture. They will also show up in state and local government spending, which has until now been one of the largest negatives during the slow recovery. Local government revenue is closely tied to property values through property taxes, and the collapse in home values led to layoffs of teachers and policemen, not to mention others, around the country.

And then there is the wealth effect.

Before the collapse, the very existence of a wealth effect tied to housing was a debating point among some economists. In 2001, Professor Case and two colleagues, John M. Quigley of the University of California, Berkeley and Robert J. Shiller of Yale, analyzed the data from 1982 to 1999 and concluded that rising home prices increased consumer spending, but falling prices did not reduce spending significantly.

The last four years showed that last part was wrong. This week an updated version of the research, carrying it through last summer, was released by the National Bureau of Economic Research. “The extended data now show that declines in house prices stimulate large and significant decreases in household spending,” they reported. (Professor Quigley died before the paper was finished, but he is still credited as a co-author.)

They concluded that the decrease in spending caused by a house price decline was greater than the increase in spending produced by an increase in house prices, but that might not turn out to be the case if we have a prolonged gain in prices. There may be a significant amount of pent-up demand for housing — not from people without it but from people who would like to move and would have done so already had the economy been better. Some of those people, perhaps chained to their old homes because the homes are not worth as much as is owed on the mortgages, might view breaking even on the old house as a sign that it is time to sell.

The National Association of Realtors, which reports each month on sales of existing, or used, homes, tries to calculate how many sales are distressed and how much that distress lowers the prices received. Lately, the proportion of distressed sales has been declining slowly and so has the discount. In December, 12 percent of sales were said to be of foreclosed homes, and an equal number were short sales, in which the home is sold for less than the amount owed on the mortgage.

There is reason to hope that those figures will continue to decline. Moody’s reports that the “shadow inventory” of homes with foreclosures pending and homes already owned by banks but not on the market — is declining. It voices hope that banks “are finally putting behind them the operational and regulatory issues that plagued them in the past and are taking the steps necessary to address their backlogged foreclosure inventory.”

At some point, the declining proportion of distress sales could well mean that house price indexes will begin to rise faster than the underlying market might really justify, as those sales stop holding down the averages.

Floyd Norris comments on finance and the economy at nytimes.com/economix.

Article source: http://www.nytimes.com/2013/01/25/business/signs-of-a-housing-recovery-point-to-a-stronger-economy.html?partner=rss&emc=rss

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As Fiscal Deadline Looms, Path to Deal Remains Unclear

December 27, 2012 by Leave a Comment

Treasury Secretary Timothy F. Geithner, adding to the building tension over how to handle a year-end pileup of threatened tax increases and spending cuts, formally notified Congress on Wednesday that the government would hit its statutory borrowing limit on Monday, raising anew the threat of a federal default as the two parties remained in a standoff.

Mr. Geithner wrote that he would take “extraordinary measures” to keep the government afloat but said that with so much uncertainty over the shape of the tax code and future government spending he did not know how long the Treasury could shuffle accounts before the government could no longer pay its creditors.

For months, President Obama, members of Congress of both parties and top economists have warned that the nation’s fragile economy could be swept back into recession if the two parties did not come to a post-election compromise on January’s combination of tax increases and across-the-board spending cuts.

Yet with days left before the fiscal punch lands, both sides are exhibiting little sense of urgency, and new public statements Wednesday appeared to be designed more to ensure the other side is blamed rather than to foster progress toward a deal.

After a high-level telephone conference call, House Republican leaders called on the Senate to act but opened the door to bringing to the House floor any last-minute legislation the Senate could produce.

“The House will take this action on whatever the Senate can pass, but the Senate first must act,” said the statement issued on behalf of Speaker John A. Boehner and his three top lieutenants.

But Senator Harry Reid, the majority leader, instead called on House Republicans to pass an existing Senate measure that would prevent tax increases on household income up to $250,000. “The Senate has already rejected House Republicans’ Tea Party bills, and no further legislation can move through the Senate until Republicans drop their knee-jerk obstruction,” he said in a statement.

Senators will return to the Capitol on Thursday evening with nothing yet to consider. The series of votes waiting for them are unrelated to the fiscal deadline. The House will be gaveled into session at 2 p.m., but since Mr. Boehner has not called the members back to Washington, it will most likely be gaveled back into recess shortly thereafter.

The shift to the Senate has focused new attention on Senator Mitch McConnell of Kentucky, the Republican leader and a deal-making veteran. Democrats say they need assurances from Mr. McConnell that he will not use procedural tactics to delay any potential bill for an interim solution to avert the fiscal crisis.

But Don Stewart, a spokesman for Mr. McConnell, said no one from the White House or from Mr. Reid’s office has reached out to begin negotiations. Democrats say that Mr. McConnell knows full well what they are proposing: the same Senate bill that passed in July extending all the expiring Bush-era income tax cuts on incomes below $250,000, setting the tax rate on dividends and capital gains at 20 percent, and stopping the alternative minimum tax from rising to hit more middle class taxpayers. Onto that, Democrats would like to add an extension of expiring unemployment benefits and a delay in across-the-board spending cuts while negotiations on a broader deficit reduction plan slips into next year.

Democrats now suggest that Republicans are content to wait until after the January deadline. On Jan. 3, Mr. Boehner is likely to be re-elected speaker for the 113th Congress. After that roll call, he may feel less pressure from his right flank against a deal.

For its part, the Senate may simply be out of time. Without unanimous agreement, Mr. Reid would have to take procedural steps to begin considering a bill. He could then be forced to press for another vote to cut off debate before final passage. If forced to jump through those hoops, the 112th Congress could expire before final votes could be cast.

“I think there’s some chance that we get a deal done in the early weeks of January, which technically means you’re going over the cliff,” Representative Jim Himes, Democrat of Connecticut, said on CNBC on Wednesday.

Lawmakers from both parties say Mr. McConnell could be the key to a resolution. He has played the role of adjudicator for Congressional Republicans before, during last year’s fight over a payroll tax extension and the battle between Democrats and Republicans over how, or if, to pay for an emergency disaster financing bill.

With days to spare, Mr. McConnell must decide whether to allow on the Senate floor the Democrats’ bill to extend expiring tax cuts. If passed without a filibuster, that legislation could force the House speaker’s hand and quiet his raucous Republican conference. Or Mr. McConnell, who is up for re-election in 2014 and would like to avoid a primary fight, could stand back quietly and hope that Mr. Boehner and Mr. Obama somehow manage to put together a deal that saves him the trouble.

If Mr. McConnell cannot come to the rescue, there is another hope: Starbucks. Howard Schultz, the company’s chief executive officer, asked baristas who work in Washington-area Starbucks to scrawl “Come Together” on coffee cups for the rest of the week to generate enthusiasm for a compromise.

Article source: http://www.nytimes.com/2012/12/27/us/politics/little-sense-of-fiscal-urgency-as-senators-prepare-to-return.html?partner=rss&emc=rss

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Jobless Claims Drop as Storm’s Effects Fade

December 9, 2012 by Leave a Comment

The Labor Department said Thursday that applications for unemployment benefits dropped 25,000 last week to a seasonally adjusted 370,000.

New unemployment claims surged a month ago after the storm forced businesses to close in the Northeast. Applications jumped to 451,000 in the week that ended Nov. 10. People can claim unemployment benefits if their workplaces are forced to close and they are not paid.

Some analysts were encouraged by how quickly new jobless claims returned to pre-storm levels. Pierre Ellis, an economist at Decision Economics, said the rapid drop suggested that companies were quickly rehiring workers displaced by the storm. Rebuilding and repair efforts could also be creating jobs, he said.

The early impact of Hurricane Sandy could still be seen in the four-week average of new unemployment applications. It rose to 408,000 last week.

Before the storm hit on Oct. 29, new jobless claims had fluctuated this year from 360,000 to 390,000. They were above 400,000 for most of last year. That has coincided with only modest declines in the unemployment rate.

The impact of Hurricane Sandy is also likely to depress November’s employment figures, which the government will report on Friday. And fears over looming tax increases and government spending cuts also may have dragged on job gains last month.

Economists were forecasting on average that employers added 110,000 jobs in November, according to FactSet. And they predicted that the unemployment rate would remain at 7.9 percent. But some analysts expected much lower job gains, roughly 25,000 to 50,000, because of the storm and anxiety over the fiscal crisis.

Article source: http://www.nytimes.com/2012/12/07/business/economy/jobless-claims-fall-as-storms-effects-fade.html?partner=rss&emc=rss

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Wall Street Climbs on News of Budget Talks

November 17, 2012 by Leave a Comment

Wall Street fell early, but began to climb before midday, as leading senators and representatives spoke at the White House after a closed-door session with the president. The House speaker, John A. Boehner, and Mitch McConnell, the Senate minority leader, both said that they offered higher tax revenue as part of a deal. Mr. Boehner said he outlined a framework consistent with Mr. Obama’s call for a “balanced” approach of both higher revenue and spending cuts.

“It’s a good start,” said Ben Schwartz, the chief market strategist at Lightspeed Financial, a brokerage firm in New York.

The Dow Jones industrial average closed up 45.93 points, or 0.4 percent, at 12,588.31, after falling as much as 71 points at midmorning. The Standard Poor’s 500-stock index rose 6.55 points, or 0.5 percent, to 1,359.88, and the Nasdaq rose 16.19 points, or 0.6 percent, to 2,853.13.

Stocks have been slipping since Election Day, as investors worried that leaders in Washington would not come to an agreement on fiscal measures. Stocks fell on Wednesday after Mr. Obama insisted that higher taxes on wealthy Americans would have to be part of any deal and that he would not cave to Republicans who have pressed for tax cuts first passed by President George W. Bush to be extended for all income earners.

The Dow was down 5 percent since Nov. 6. If an agreement is not reached, automatic government spending cuts and tax increases are set to kick in at the beginning of next year. The measures total about $700 billion for 2013 and could send the country back into recession.

Mitch Stapley, chief investment officer at Fifth Third Asset Management, said that investors and traders were likely to be in for a rough ride until the politicians broker a deal. “It’s going to be a very choppy period coming up,” said Mr. Stapley, who is based in Grand Rapids, Mich.

The Dow still ended lower for the week, logging a fourth straight weekly decline. That slump has pared the index’s gains for the year to 3 percent. The S. P. 500 also ended the week lower, and has fallen in three of the last four weeks.

Mixed earnings reports also weighed on stocks.

Shares of Dell fell 70 cents, or 7.3 percent, to $8.86. The company is struggling as PC users switch to tablets and smartphones. Dell said that its revenue might fall as much as 13 percent in the fourth quarter.

Sears stock fell $10.99, or 19 percent, to $47.49, after the retailer said that sales at both its Kmart and Sears stores continued to tumble.

The Treasury’s benchmark 10-year note rose 3/32, to 100 12/32, and the yield edged down to 1.58 percent, from 1.59 percent late Thursday.

Article source: http://www.nytimes.com/2012/11/17/business/daily-stock-market-activity.html?partner=rss&emc=rss

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Little Movement in Stocks

November 16, 2012 by Leave a Comment

Stocks on Wall Street were trading lower Friday morning after a media report that White House officials were in discussions that could lead to increased flexibility to negotiate on coming government spending cuts. The White House had no comment on the report.

The Standard Poor’s 500-stock index was down 0.4 percent, the Dow Jones industrial average was 0.4 percent lower, and the Nasdaq composite index lost 0.5 percent.

Investors have been concerned that if no deal was reached on the large, automatic budget cuts and tax increases set to begin next year, the economy could slip into recession. The S.P. 500 is down 4.3 percent over the past two weeks.

“I have to believe the government will come to some kind of resolution, but every day that passes without any progress is another day where the path of least resistance will be down,” said Robert Pavlik, chief market strategist at Banyan Partners in New York.

Democrats and Republicans appeared to dig in their heels into opposing positions, echoing last year’s political impasse over raising the debt ceiling.

Jay Carney, President Obama’s press officer, told reporters the president wouldn’t sign, “under any circumstances, an extension of tax cuts for the top 2 percent of American earners,” while Mitch McConnell, the Senate Republican leader, said Republicans won’t raise tax rates. President Obama and Congressional leaders were to meet for budget and tax talks Friday morning.

Concerns over the budget have pressured stocks ever since the Nov. 6 presidential election, and the S.P. 500 was on track to notch a second straight week of losses of more than 1 percent.

Going into Thursday, the S.P. was down 1.9 percent for the week, while the Dow was off 2.1 percent and the Nasdaq down 2.3 percent.

While the S.P. 500 remained up 7.6 percent for the year, what had looked like a stellar 2012 for stocks has turned into merely an average year. Though some investors have become more inclined to protect their gains as 2012 draws to a close, others view the decline as a buying opportunity.

“I think we’re closer to the end of this decline than to the beginning, and valuations are becoming extremely attractive,” Mr. Pavlik said. “If you’re not putting a buying list together, you’re doing yourself a disservice.”

A flare-up in violence in the Middle East added to market unease as Israeli warplanes bombed targets in and around Gaza city for a second day, while two rockets fired from the Gaza Strip targeted Tel Aviv.

In Europe, stocks were generally down, with British stocks off about 0.7 percent and German shares lower by about 0.5 percent.

Article source: http://www.nytimes.com/2012/11/17/business/daily-stock-market-activity.html?partner=rss&emc=rss

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DealBook: Martin Marietta Materials Unveils $4.6 Billion Hostile Bid for Vulcan

December 12, 2011 by Leave a Comment

Martin Marietta Materials on Monday began a hostile bid for Vulcan Materials, beginning an exchange offer worth more than $4.6 billion for its rival in an effort to combine the two biggest producers of crushed stone and gravel in the United States.

Under the terms of its bid, Martin Marietta is offering half a share of its own stock for each Vulcan share. As of Friday’s closing price, that bid was worth $36.69 a share, 9 percent above Vulcan’s stock price that day.

Martin Marietta also intends to name five nominees to Vulcan’s board and has begun a lawsuit in Delaware’s Court of Chancery to increase the pressure on Vulcan.

The hostile move came after more than a year and a half of fruitless private discussions between the two companies, Martin Marietta said.

“Martin Marietta’s board of directors is, and I personally am, disappointed that despite these substantial benefits, Vulcan has been unwilling to move ahead towards a definitive agreement,” Ward Nye, Martin Marietta’s chief executive, wrote in a public letter to Vulcan’s chairman and chief executive, Donald M. James.

Underpinning the company’s interest in Vulcan, according to Mr. Nye’s letter, are the uncertain prospects for economic recovery and for government spending on infrastructure. Combining the two would allow for at least $200 million in annual cost savings and shore up Vulcan’s financial health with a stronger balance sheet and greater scale.

Vulcan said in a statement that it would review the offer and make a recommendation to its shareholders in 10 business days.

Both companies have been under pressure in recent years, harmed by lower construction spending. But Vulcan has been hurt more, in part because of an aggressive expansion strategy that included taking on $3.1 billion in debt to buy Florida Rock in 2007.

Martin Marietta Materials, by contrast, has taken on less debt and remained focused on the Northeast and Mid-Atlantic, according to an October research note by Moody’s Investors Service.

A deal for Vulcan would be the biggest for the company since it was spun off from Martin Marietta in 1994.

Martin Marietta Materials is being advised by Deutsche Bank, JPMorgan Chase and the law firm Skadden, Arps, Slate, Meagher Flom.

Vulcan is being advised by Goldman Sachs and the law firm of Wachtell, Lipton, Rosen Katz.

Article source: http://feeds.nytimes.com/click.phdo?i=e244a5cf2813b778c9ac9ae1386686e4

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Economix Blog: Casey B. Mulligan: How Unemployment Benefits Became Twice as Generous

November 2, 2011 by Leave a Comment

12:48 p.m. | Updated to revise reference to standard benefit period.

DESCRIPTION

Casey B. Mulligan is an economics professor at the University of Chicago.

Government spending on unemployment insurance has soared, and it’s hard to imagine the program ever shrinking back to its prerecession size.

Today’s Economist

Perspectives from expert contributors.

Unemployment insurance is jointly administered and financed by the federal and state governments, offering money to people who have lost their jobs and have as yet been unable to find and start a new job. On average they receive about $300 a week until they start working again, they stop looking for work or their benefits are exhausted.

Between 2006 and 2010, inflation-adjusted spending on unemployment compensation by state and local governments more than tripled.

The program has been around for decades, but the most recent recession and continued economic weakness has created an especially large group of laid-off workers who, despite an extensive search, cannot find another job. More unemployed people equals more spending for the unemployment insurance program, so we expect the program to be spending a lot during a recession.

However, the unemployment program has also become more generous in recent years. Before the recession, an unemployed person in a state without high unemployment would often exhaust benefits after 26 weeks; that is, the program would stop paying after the 26th weekly benefit, even if the beneficiary was still without work.

The federal law in place before the recession included some local labor market “extended benefit” triggers that, based on the statewide unemployment rate, would automatically lengthen the maximum benefit period. These automatic triggers began to extend benefits around the nation in the middle of 2008.

About the same time, new “emergency unemployment compensation” legislation extended maximum benefit periods for the entire nation. The American Recovery and Reinvestment Act of February 2009 further extended these “emergency” periods to up to 99 weeks, and legislation later in 2009 and in 2010 permitted the 99-week maximum to continue. (Among other unemployment insurance expansions, the act also increased monthly benefit amounts and excluded from federal personal income taxation the first $2,400 of benefits received in 2009.)

The chart below shows the size of the “emergency” and extended-benefit expansions, by quarter, measured as a fraction of the entire unemployment insurance program. Essentially, no “emergency” and extended-benefit benefits were paid in 2007 or in the first half of 2008. “Emergency” and extended-benefit benefits immediately became about a quarter of all unemployment insurance benefits and beneficiaries and were a majority of all unemployment insurance benefits by the end of 2009 (the two measures are slightly different because they come from different data sources).

Because “emergency” and extended-benefit benefits are paid to people only when they have exhausted the normal benefits, the fraction shown in the chart is a measure of how much unemployment benefits are paid pursuant to unemployment insurance rule changes, as opposed to payments that occur merely because more people were losing their jobs.

If we assume, merely for simplicity, that the expansions had no effect on the number of people unemployed or on the length of time they were employed, then setting “emergency” and extended-benefit payments to zero as they were in 2007 would have cut total unemployment insurance benefit payments by the fraction shown in the chart. In this case, it appears that the unemployment insurance program is at least twice as generous as it was in 2007, thanks to the federal changes in benefit rules.

The unemployment insurance program is a good example of how federal government spending has grown and how tough it will be to bring it back to pre-recession levels. People are now used to having well more than one year’s unemployment benefits available to them, and politicians will have a lot of trouble asking them to make do with just 26 weeks.

This post has been revised to reflect the following correction:

Correction: November 2, 2011

An earlier version of this post misstated the typical benefit period. Before the recession, 26 weeks, not 13, had become the typical maximum for states to pay unemployment benefits.

Article source: http://feeds.nytimes.com/click.phdo?i=9fd2fdb63d91150eee7c2681bd0e7ebd

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In Speech, Bernanke Offers No New Fed Aid for Economy

September 9, 2011 by Leave a Comment

Mr. Bernanke, speaking at a luncheon in Minneapolis, offered the standard explanations, including the absence of home construction and the deep and lingering pain inflicted by financial crises. He warned again that reductions in government spending amount to reductions in short-term growth.

Then he said something new: Consumers are depressed beyond reason or expectation.

Oh, sure, there are reasons to be depressed, and the Fed chairman rattled them off: “The persistently high level of unemployment, slow gains in wages for those who remain employed, falling house prices, and debt burdens that remain high.”

However, Mr. Bernanke continued, “Even taking into account the many financial pressures that they face, households seem exceptionally cautious.”

Consumers, in other words, are behaving as if the economy is even worse than it actually is.

Economic models based on historic patterns of unemployment, wages, debt and housing prices suggest that people should be spending more money. Instead, just as corporations are sitting on their money, households are holding back, too.

Why? Well, one possibility is that Americans collectively are suffering from what amounts to an economic version of post-traumatic stress disorder.

“People are on edge waiting for the other shoe to drop,” John Williams, the president of the Federal Reserve Bank of San Francisco, told the Seattle Rotary Club on Wednesday. “In fact, the latest consumer sentiment readings are near the all-time lows recorded in late 2008 during the most terrifying moments of the financial crisis.”

Moreover, the national mood is souring. Although the economy has grown this year — albeit slowly — surveys of consumer confidence keep finding increasing pessimism about the future.

Mr. Williams noted a recent survey finding that 62 percent of households expected their income to stay the same or decline over the next year, the bleakest outlook in the last three decades.

“It’s hard to have a robust recovery,” he said, “when Americans are so dispirited.”

There is a longstanding debate among economists about the importance of confidence. Research has found that consumers are not very good at predicting the future. Optimism often fails to correlate with growth; pessimism doesn’t necessarily foreshadow a recession.

Still, it seems intuitive that a lack of confidence can drag on the economy. As pessimistic people pull back — deciding that there is no point in looking for work; that this is not the year to go on vacation; that it may make sense to stop eating in restaurants — the economy shrinks.

There is a natural instinct to address this problem by trying to cheer people up. Mr. Bernanke in recent speeches has been careful to note that he continues to think that the American economy has a bright future.

There is also the possibility, however, that the national mood is a more accurate reflection of the economic reality than any of the other, sunnier statistics.

“Confidence is mostly reflective of fundamentals,” said Eric Sims, a professor of economics at the University of Notre Dame. As a result, he said, the only way to cheer people up is to improve the condition of the economy. “You’ve got to give people a reason to have confidence.”

Article source: http://feeds.nytimes.com/click.phdo?i=3f856022a19f027b914e76751208740e

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Cuts in Health Care May Undermine Role in Labor Market

August 18, 2011 by Leave a Comment

For example, hospitals, nursing homes and the like added about 430,000 jobs during the recession, as the country shed 7.5 million jobs. With the latest government reports showing a meager overall gain of 117,000 jobs in July, health care remained a significant contributor with an additional 31,000 jobs for the month, a tad higher than an average monthly addition of 25,000 health jobs in the last year. Hospitals, which had a slight decline in June, added 14,000 jobs in July.

While few experts can predict how the stock market’s gyrations and government cutbacks this month will affect the health industry, several health industry analysts warn that the sector is showing signs of economic sluggishness that has long kept other business sectors beleaguered.

The situation has led many in the health industry to caution that it cannot be relied upon to keep hiring workers. “It’s not realistic to believe that we’re going to continue to generate job growth when you’re speaking about Medicare and Medicaid reductions in the hundreds of billions of dollars over the next few years,” said Daniel Sisto, president of the Healthcare Association of New York, which represents the state’s hospitals and health systems.

Companies that rely on government spending have been bracing for deeper reductions, and President Obama recently alluded to another round of belt-tightening from one of the industry’s bedrock payers — Medicare.

Signs of a gloomier outlook have been surfacing in various spots, from a slowing in new construction plans to falling share prices of nursing home companies to announced layoffs among hospital support staff.“Nobody is sure what will happen,” said Alan M. Garber, a physician and health policy expert at Stanford. The cuts in government programs like Medicare and Medicaid, and pressure to reduce costs, are thwarting health care employers in trying to meet the rising demand for their services.

“The health care industry is facing greater uncertainty than in any time in memory,” Dr. Garber said.

Yet even though economists and other experts still predict increasing demand for health care as the population ages, with an accompanying demand for job growth, health care officials and executives cite a daunting cascade of recent events as reasons to reassess any expansions.

They point to Congress’ intent to reduce spending, economically depressed states struggling to deal with a rash of cuts in Medicaid programs and the continued uncertainty of financial costs that will be imposed by the federal health care law, including contradictory lower court decisions about the constitutionality of various provisions.

A survey by the Conference Board, a business research group, found that help-wanted ads for health care providers and technicians fell by 61,200 listings in July.

In Florida, for example, health care led the state in job gains during the recession — it was the only industry that did not lose jobs during that time. But since September of last year, the leisure and hospitality industry has been adding more jobs, according to a state economist.

The Palo Alto Medical Foundation, a large physician group in Northern California that employs 5,500 people, including 1,000 doctors, says it has no plans to add many more people in the near future. “Really our focus these days is to do more with the assets we have,” said Cecilia Montalvo, the vice president for strategic development for the medical group.

Hospitals also appear to be slowing the pace of building, as projects begun before the recession started are now being completed. The volume of tax-exempt debt for hospitals in the first half of the year has fallen by nearly half from a year ago, said David Johnson, a managing director at BMO Capital Markets. “We’re overinvested in hospitals and hospital beds,” he said.

The University of Michigan Health System, for example, is adding some 560 jobs as a result of new children’s and women’s hospitals it plans to open soon and an expansion of its emergency department. But Doug Strong, who heads the system’s hospitals, said his overall goal is to shrink his work force in future years as he tries to make the system more efficient.

Tom Torok contributed reporting.

Article source: http://feeds.nytimes.com/click.phdo?i=afe74dc8a59cd714494e8892487a96db

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