Wonkbook: Cautious optimism abounds

August 10, 2012

Karl Singer is writing Wonkbook while Ezra is on vacation.

Wonkbook dashboard

RCP Obama vs. RomneyObama +4.4%; 7-day change: Obama +1.4%.

RCP Obama approval47.8%; 7-day change: +0.8%.

Top story: Cautious optimism abounds

The economy saw a string of good news this week. "In the past few days, a handful of economic indicators have offered some reasons for cautious -- very cautious -- optimism. The labor market appears to be strengthening somewhat. Exports have surged of late. And the U.S. housing market, which has long hobbled the economic recovery, is showing glimpses of improvement...On Thursday, the Department of Labor reported that the number of people who were newly filing for unemployment dropped to 361,000 last week. This was better than economists expected...All in all, there are a few encouraging signs. But will they be enough to get the U.S. economy out of its rut--especially with the rest of the world still struggling? That’s less clear. Almost right on cue, the spat of good news Thursday morning in the United States was greeted by troubling signs elsewhere in the world." Brad Plumer in The Washington Post.

An increase in exports narrowed the trade deficit. "U.S. exports bucked a world-wide trade slowdown in June, but face serious headwinds from the recession throughout much of Europe and softening growth in Asia. The U.S. trade deficit with other countries narrowed to $42.9 billion in June from $48 billion a month earlier, the Commerce Department said Thursday, as imports fell and exports grew. Exports, which have been a pivotal contributor to the economic recovery, were strong almost everywhere except to Europe, where a recession and a protracted sovereign-debt crisis have sapped demand...In June, the U.S. notched increases in exports of a variety of goods including pharmaceuticals, cars and industrial engines. Exports increased $1.7 billion to $185 billion, the highest monthly tally ever. Imports declined $3.5 billion to $227.9 billion, driven largely by a drop in oil prices that reduced the value of petroleum imports. Total U.S. exports are up 6% in the first six months of 2012 from the same period a year ago." Conor Dougherty and Alex Frangos in The Wall Street Journal.

@grossdm: the u.s. doesn't make anything the world wants -- except the $185 b in stuff we exported in July. That's a record, by the way

@ryanavent: Those hoping for rebalancing should like this trade report. More non-oil exports, less oil imports, smaller deficit: http://1.usa.gov/CftNs

Jobless claims fell unexpectedly. "Fewer Americans filed applications for unemployment benefits last week, a sign the labor market may keep improving after hiring picked up in July. Jobless claims unexpectedly dropped by 6,000 to 361,000 in the week ended Aug. 4, Labor Department figures showed today in Washington. The median forecast of 43 economists surveyed by Bloomberg News called for an increase to 370,000. Other reports showed consumer confidence dropped to a two-month low and home prices climbed by the most since 2006. The decrease in firings indicates the job market continues to mend after payrolls rose last month by the most since February." Michelle Jamrisko and Alex Kowalski in Bloomberg.

@grossdm: Aside from payroll jobs figures, jobs opening survey, and unemployment claims -- all the recent labor market data has been negative

But the economy still faces big risks. "After a spring and summer of weak economic indicators, a flurry of fresh data suggest key sectors of the economy might be gaining traction...Together, the signs point to an improving economy...It is by no means a sure thing that the economy recovers in a sustained way...Analysts say the economy faces big risks. These include the financial crisis in Europe and the chance of a new recession if an automatic series of tax hikes and deep spending cuts takes effect at year’s end. The uncertainty created by the potential has already been a drag on growth. What’s more, millions of people still owe more than their homes are worth." Zachary Goldfarb and Michael Fletcher in The Washington Post.

And the fiscal cliff is weighing on growth. "Dithering in Washington over the 'fiscal cliff' of automatic tax increases and spending cuts set for year-end is already hindering economic growth, according to economists surveyed by The Wall Street Journal. Most observers don't expect Congress to reach an agreement before the November elections...All but four of the economists who answered the question said that without a deal, concerns and preparations about the coming fiscal cliff will drag on growth for the remainder of the year. On average, the economists said that growth in the second half of 2012 will be 0.6 percentage point lower without any agreement." Phil Izzo in The Wall Street Journal.

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Top op-eds

1) BECKER AND HECKMAN: Economic research deserves federal funding. "Recent actions by Congress have threatened to restrict funding for basic research that focuses on economics. We believe such actions are misplaced, and would have long-term adverse effects on the economy and public health. Nonpartisan, peer-reviewed social and behavioral research is crucial in providing factual guidance to both the private and public sectors...Federally funded research has also shown that throwing money at families, as we did in the failed War on Poverty of the 1960s, does not improve social mobility or create economic opportunity. Recall that it was government-sponsored research conducted by Johns Hopkins University's Robert Moffitt and others that helped provide the analysis behind welfare reform in the 1990s. Continued government-sponsored research will no doubt result in similarly effective policies in a broad range of areas." Gary Becker and James Heckman in The Wall Street Journal.

2) BOWLES: Romney's tax plan won't cut the deficit. "As a businessman with real respect and appreciation for Mitt Romney’s business career, I plead, from one numbers guy to another: You must have a balanced plan that reforms the tax code in a progressive, pro-growth manner and produces additional revenue if you are serious about reducing the deficit by at least $4 trillion without disrupting the country’s fragile economic recovery and hurting the disadvantaged...So although I give Romney credit for pledging to reform the tax code to reduce loopholes, his current proposal will not take us to the promised land. Our commission’s tax plan broadens the base, simplifies the code, reduces tax expenditures and generates $1 trillion for deficit reduction while making the tax code more progressive. The Romney plan, by sticking to revenue-neutrality and leaving in place tax breaks, would raise taxes on the middle class and do nothing to shrink the deficit." Erskine Bowles in The Washington Post.

3) COHN: Affordability standards shouldn't deny coverage to family members. "When the Treasury Department issues its final regulation on affordability, it could say that, in cases like the one Soptic described, employees must get coverage from their employers but family members can get coverage from the exchanges. A recent briefing paper from researchers at Berkeley outlined how such a regulation would work. Washington and Lee University Law Professor Tim Jost, who knows the law as well as anybody, thinks the Obamacare text gives administration plenty of flexibility to embrace it. Consumer advocates are lobbying hard for it, noting--among other things--that about half a million kids won't get coverage if the administration doesn't make this adjustment." Jonathan Cohn in The New Republic.

4) ROBINSON: It's time for climate change to hit the campaign trail. "Yes, scientists are finally asserting a direct connection between long-term climate trends and short-term weather events. This was always a convenient dodge for climate-change deniers. There might be a warming trend over decades or centuries, they would say, but no specific heat wave, hurricane or hailstorm could definitively be attributed to climate change. 'To the contrary, our analysis shows that, for the extreme hot weather of the recent past, there is virtually no explanation other than climate change,' Hansen wrote...We can’t do anything about the greenhouse gases we’ve already spewed into the atmosphere, but we can minimize the damage we do in the future. We can launch a serious initiative to develop and deploy alternative sources of energy. We can decide what kind of environment we leave to our grandchildren. I’d like to hear President Obama and Mitt Romney talk about the future of the planet. What about you?" Eugene Robinson in The Washington Post.

5) YGLESIAS: Skilled workers are the key to local success. "Different kinds of urban planning fads come and go, and different local industry mixes are sometimes beneficial at different times. But over the long term, cities are first and foremost made up of people. The cities with large numbers of skilled workers will either attract employers from outside or else lay the groundwork for homegrown success. The unfortunate news for local officials in places that draw the short straw is that more economically dynamic cities will also tend to attract the most skilled workers. Even if you do a better job of educating your local population, that’s no guarantee they won’t just move elsewhere when they graduate." Matthew Yglesias in Slate.

Top long reads

Jeff Himmelman on the future of residential solar power:"Most mornings, Danny Kennedy hops on a bike with orange saddlebags and rides half an hour from his home to Oakland’s Jack London Square. He makes for quite a picture cruising down Telegraph Avenue, decked out as he often is in an orange helmet, orange jacket and orange leather Adidas shoes. When he arrives at his office, he often makes his rounds on an orange indoor bike. (He’s not joking around with the orange thing.) Though Kennedy was once a young environmental activist documenting the horrors of the oil and mining industries, he’s now a 41-year-old company man. The orange that he wears daily -- which extends even to the checks on his shirts, and which drives his wife crazy -- is the brand color for his rapidly growing residential solar company, Sungevity, whose revenues grew by a factor of eight in 2010 and doubled again in 2011, and whose employees have grown to 260 from 3 since the company’s inception five years ago."

Kate Nash interlude: Kate Nash plays "Nicest Thing" on Live From Abbey Road.

Got tips, additions, or comments? E-mail me.

Still to come:No charges for Goldman Sachs; Medicare overspends on a drug; bad news for Postal Service fans; the UN wants the U.S. to make less ethanol; and a message from Carl Sagan.

Economy

The U.S. won't bring charges against Goldman Sachs for mortgage fraud. "After a yearlong investigation, the Justice Department said Thursday that it won't bring charges against Goldman Sachs Group Inc. or any of its employees for financial fraud related to the mortgage crisis. In a statement, the Justice Department said 'the burden of proof' couldn't be met to prosecute Goldman criminally based on claims made in an extensive report prepared by a U.S. Senate panel that investigated the financial crisis...The Justice Department reserved the right to bring charges in the future if new evidence emerges...In April 2011, the U.S. Senate's Permanent Subcommittee on Investigations published a scathing report on the financial crisis, highlighting Goldman as a culprit." Reed Albergotti and Elizabeth Rappaport in The Wall Street Journal.

@BCAppelbaum: So nice to hear that Goldman did nothing wrong during the crisis. It was beginning to feel like we were running out of heroes.

@ddayen: So today is "clean up all of Goldman Sachs' underlying legal exposure" day, then?

Mortgage delinquencies rose slightly last quarter. "The number of American households behind on mortgage payments or in foreclosure rose slightly in the second quarter from the first but was still lower than a year ago, offering the latest sign of the economy's uneven recovery from the housing bust. The Mortgage Bankers Association said 11.9% of mortgage loans on one- to four-unit homes were 30 days or longer past due or in the foreclosure process at the end of second quarter, according to a survey it released Thursday. That represents more than 5.8 million households. The second-quarter figure was down from 12.9% a year earlier but up from 11.8% at the end of March." Nick Timiraos in The Wall Street Journal.

The CFPB will propose rules for the mortgage-servicing industry. "Rules proposed for the mortgage-servicing industry, coming after a $25 billion legal settlement, could further erode the profits banks make from the business of collecting loan payments, pushing the job to more specialized firms. A federal consumer regulator is expected to propose Friday the first set of national standards for the mortgage-servicing industry, which has been riddled with problems in the wake of the housing bust. Under the Consumer Financial Protection Bureau's proposal, loan servicers would be required to evaluate homeowners' applications for loan-assistance within 30 days of receiving an application and would be barred from going ahead with a foreclosure until a final decision has been reached on a borrower's application for help." Alan Zibel in The Wall Street Journal.

Some defense companies still plan to send out sequester layoff notices. "Despite administration warnings that notices related to sequestration were unnecessary, Lockheed Martin and Pratt & Whitney are continuing their preparations. Lockheed Martin and Pratt & Whitney are going forward with plans to issue layoff notices to thousands of employees due to looming defense cuts under sequestration, despite administration claims that such warnings are unnecessary...Administration officials from the Department of Labor have argued that such notices did not fall under the act's mandates, noting the law only required notices to be sent out if layoffs are caused by a foreseeable event." Carlo Muñoz in The Hill.

Mars interlude: Carl Sagan's message to future Martian settlers, from 1996.

Health Care

Medicare is vastly overspending on an anemia drug. "The U.S. health-care system is vastly overspending for a single anemia drug because Medicare overestimates its use by hundreds of millions of dollars a year...The overpayment to hospitals and clinics arises because Medicare reimburses them based on estimates rather than the actual use of the drug...Medicare’s current estimates are based on Epogen usage in 2007 for dialysis treatments. But since then, use of the drug has fallen 25 percent or more, partly because of Food and Drug Administration warnings about its perils and partly because Congress removed the financial incentives for clinics and hospitals to prescribe the drug. Because Medicare continues to reimburse health-care providers as if the dosing levels haven’t changed, the significant savings in doses has not translated into savings for the U.S. Treasury. The amount of the overspending is more than $400 million annually, according to calculations done separately by The Washington Post and experts." Peter Whoriskey in The Washington Post.

Health refunds may stall in employers' hands. "It was the great health insurance giveback: $1.1 billion in premiums returned to policyholders under the Affordable Care Act. But while many people who buy their own insurance found a check in the mail last week, millions insured through employers are still wondering what is happening with the money. Workers were notified in form letters from insurers this month that a 'rebate' had been sent to their employer, who 'must follow certain rules in distributing the rebate to you.' But even when employees paid a significant share of the premium, many employers are still deciding how, when or even whether to share the cash...The law gives employers up to three months and considerable discretion to decide how to spend the employees’ money, so long as it is eventually used to benefit insurance plan participants. And while some employers are returning the money directly in paychecks, or planning 'premium holidays' that increase take-home pay, others are weighing different options." Nina Bernstein in The New York Times.

A Medicare pilot program will try to stop costly bills for seniors. "Medicare has launched a pilot project to test whether it can relax hospital-payment rules to help the growing number of seniors who are shelling out thousands of dollars for follow-up nursing-home care. The issue involves what should be an easy question: Is the Medicare beneficiary an inpatient or an observation patient?...Under Medicare rules, patients must have at least three days in the hospital as an inpatient -- not just for observation -- to qualify for follow-up care in a nursing home. In addition to generally higher hospital co-payments, hospital observation patients can be billed any amount by their hospital for the routine maintenance drugs they need. Some have reported charges of $18 for one baby aspirin and $71 for one blood pressure pill that costs 16 cents at a local pharmacy." Susan Jaffe in The Washington Post.

Domestic Policy

The Postal Service reported a $5.2 billion loss. "The Postal Service’s financial problems worsened in the spring. The agency reported a $5.2 billion net loss on Thursday for the quarter that ended June 30. In the same period last year, the agency reported a net loss of $3.1 billion. In the first quarter of 2012, the service had a $3.2 billion loss. The latest report brings total losses so far in its fiscal year, which ends Sept. 30, to $11.6 billion, compared with $5.7 billion over the same period a year earlier. The Postal Service’s revenue in the quarter fell to $15.6 billion, a decrease of $153 million, or a 1 percent decline, compared with the same period last year. The agency had operating expenses of $20.8 billion, an increase of $1.9 billion, or 10.2 percent." Ron Nixon in The New York Times.

Short documentary interlude: The Art of Glitch.

Energy

The drought worsened in hard hit regions. "The worst U.S. drought in decades intensified in hard-hit corn- and soy-growing regions of the Midwest during the past week, even though overall drought conditions eased in the region and the country as a whole, the latest U.S. Drought Monitor map showed Thursday. The Midwest as of Tuesday morning was 5.8% in 'exceptional' drought, the worst category, up from 5.0% a week ago, Drought Monitor data showed. In Iowa, the top state for production of both corn and soybeans, 69.1% of the state was in 'extreme' drought, the second-worst category, up from 30.7%. None of the state was in exceptional drought." Owen Fletcher in The Wall Street Journal.

Removing drilling bans wouldn't generate much revenue. "A wholesale removal of oil-and-gas drilling bans that cover many public lands and waters would raise only limited federal revenues over the next decade, according to a new Congressional Budget Office study that could provide political ammunition to drilling foes...CBO notes that legislation that forces federal officials to immediately offer up currently off-limits federal lands and waters 'would accelerate the collection of around $2 billion of future leasing receipts into the next decade.'...Opening ANWR would bring in about another $5 billion over the next 10 years, mostly from bids on drilling leases, according to CBO, which notes that a substantial portion of the revenues would be shared with the state of Alaska." Ben Geman in The Hill.

The UN wants the U.S. to cut ethanol production. "The UN has called for an immediate suspension of government-mandated US ethanol production, adding to pressure on Barack Obama to address the food-versus-fuel debate in the run-up to presidential elections. Most US ethanol is made from corn...The UN intervention will be seized upon by state governors, lawmakers and the meat and livestock industry, who have expressed alarm at surging prices for corn. Members of the Group of 20 leading economies - including France, India and China - have already expressed concern about the US ethanol policy." Javier Blas and Gregory Meyer in The Financial Times.

Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.

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