Something odd is happening in the economy. Jobs are coming back, and relatively quickly. But growth is lagging. Or, at the least, we think it is. Virtually every estimate of GDP growth for the first quarter of 2012 is below two percent -- that's a third lower than it was in the fourth quarter of 2011, when payroll growth was lower -- and many of those estimates are being revised downward as new data streams in.
A couple of things could be going on here. One possibility is that the preliminary GDP data is wrong. That happens. In the fourth quarter of 2008, the early GDP data said the economy shrunk by 3.8 percent. Later on, we learned the real number was closer to nine percent. A smaller, more positive discrepancy might explain this riddle, too.
Another is that the confidence fairy has come for a visit. Businesses are very, very lean right now. Perhaps a little too lean. One possibility is that many employers have come to the conclusion that their payrolls are lower than even the weak economy justifies, and the employment bounceback is a function of them hiring to reach a level they should already be at. Another is that businesses are increasingly confident that a recovery is coming, and they're hiring in expectation of it.
And then there's the possibility that the previous three months of job growth turn out to be a tease, and the recovery will falter in the middle of the year. Call that the "2011 scenario": Back in February, March and April of 2011, payrolls rose by an average of 239,000 jobs a month. In May, June and July, that fell to an average of 78,000 a month. So far, this economy has not been kind to those who try and extrapolate a self-sustaining recovery from a few months of strong job growth.
The federal government could, of course, puts its thumb on the scales in favor of recovery. The Federal Reserve could launch QE3, or more clearly communicate its intention to err on the side of promoting growth rather than combating inflation for some extended period of time. Congress could launch a major program of infrastructure investment or double the size of the payroll tax cut. It would be smarter -- and cheaper -- to do all or any of that in concert with a recovering economy, rather than as a palliative measure if the recovery abruptly ends. But I wouldn't hold my breath.
1) There's a growing disconnect between unemployment and growth. "Something about the U.S. economy isn't adding up. At 8.3%, the unemployment rate has fallen 0.7 percentage point from a year earlier and is down 1.7 percentage points from a peak of 10% in October 2009. Many other measures of the job market are improving. Companies have expanded payrolls by more than 200,000 a month for the past three months, according to Labor Department data. And the number of people filing claims for government unemployment benefits has fallen. Yet the economy is barely growing. Many economists in the past few weeks have again reduced their estimates of growth. The economy by many estimates is on track to grow at an annual rate of less than 2% in the first three months of 2012. The economy expanded just 1.7% last year. And since the final months of 2009, when unemployment peaked, the economy has expanded at a pretty paltry 2.5% annual rate." Jon Hilsenrath in The Wall Street Journal.
@mattyglesias: We need a word for what happens when job growth outpaces GDP growth. Outputless recovery? Makework recovery?
LEONHARDT'S TAKE: The gap means job growth is likely to slow. "If you looked only at the monthly jobs report, you could start getting pretty optimistic about the American economy. The largest, broadest survey of employment — a survey of businesses — shows the best job growth in more than five years over the last 12 months, with the pace mostly accelerating in recent months. The other survey that the Labor Department does — of households — shows even faster job growth, suggesting that the business survey may be understating the economy’s strength. But the jobs report isn’t the only measure of economic activity, and another major measure — of gross domestic product — doesn’t look quite so cheerful. The most likely situation is that job growth will slow in coming months, economists say, which will make President Obama’s economic narrative a bit more complicated than it now is...Based solely on the gross domestic product numbers, the obvious conclusion is that job growth will slow in coming months." David Leonhardt in The New York Times.
SUROWIECKI DISAGREES: The recovery is here to stay. "The story of America’s recovery from the recession has been one of dashed hopes. In early 2010, and again early last year, the economy looked as if it might be starting to grow under its own power, only to slow markedly in the months that followed. So what should we make of the current signs of rebound? The employment report for February, which came out last week, was solid, meaning that businesses have created more than two hundred thousand jobs a month for three months in a row. Economic data show that the economy, and real incomes, grew at a fine clip at the end of 2011. And unemployment, while still painfully high, has fallen a full two points from its peak. Bitter experience might suggest that we regard these numbers with a jaundiced eye. But there are at least a couple of reasons to think that, this time, we aren’t looking at a false spring." James Surowiecki in The New Yorker.
2) The Supreme Court's health reform case is a BFD. "In two weeks, the U.S. Supreme Court takes up the case that could lead to the biggest 'I told you so' of 2012. The challenge to President Barack Obama’s health care reform law will result in the court either upholding it — giving bragging rights to Obama and congressional Democrats — or finding major pieces of it unconstitutional, setting off a political earthquake that would vindicate Republicans and conservative groups. Both sides will start to lay the groundwork for that ruling during six hours of oral arguments, which will spread over three days beginning March 26. And when that ruling comes down, probably in June, the winners will try to make it sound like the final word. But everyone knows that’s a fantasy. The Supreme Court will have the last word on the legal issues, at least the major ones. The political fight will go on for years — if it ever really ends." Jennifer Haberkorn in Politico.
@DLeonhardt: Intrade, by the way, gives 60% odds on the Supreme Court upholding the health-care mandate.
3) Romney and Santorum split Saturday's GOP contests. "At the end of a full day of more presidential primary contests, the tally showed a familiar pattern: No definitive winner, and no end in sight for the bruising GOP nomination battle. Former senator Rick Santorum (Pa.) cruised to a victory in the Kansas caucuses with 51 percent of the vote, sweeping all but one of the state’s 105 counties, the Associated Press reported, and bolstering his argument that he, and not former House speaker Gingrich, is the conservative alternative to Mitt Romney. But in the end, only one number counts: 1,144 — the number of delegates a candidate needs to cinch the Republican nomination. And Romney’s campaign claimed victory for the night, collecting 39 delegates overall, to Santorum’s 33. In Wyoming, where some counties had held caucuses earlier in the week, Romney easily outpaced his rivals and won seven of the 12 delegates at stake." Felicia Sonmez and Brady Dennis in The Washington Post.
4) SLEEPER ISSUE: Student loans may be the next big 'debt bomb.' "Bankruptcy lawyers have a frightening message for America: They’re seeing the telltale signs of a student loan debt bubble that is placing increased financial pressure on families struggling with their children’s mounting debt. According to a recent survey by the National Association of Consumer Bankruptcy Attorneys, more than 80 percent of bankruptcy lawyers have seen a substantial increase in the number of clients seeking relief from student loans in recent years...The amount of student borrowing skyrocketed from $100 billion in 2010 to $867 billion last year — or more than the $704 billion in outstanding U.S. credit card debt, according to the Federal Reserve Bank of New York. Of the 37 million borrowers who have outstanding student loan balances as of third-quarter 2011, 14.4 percent have at least one past-due student loan account. Together, these balances come to $85 billion, or roughly 10 percent of the total outstanding student loan balance." Eric Pianin in The Washington Post.
@BetseyStevenson: Hey college naysayers: unempt for those w/ a degree 4.2% & 73.1% are employed; among high school grads: 8.3% unempt & only 54.1% employed
5) Meet Todd Park, the federal government's new Chief Technology Officer. "The White House on Friday named Todd Park as U.S. chief technology officer, a post that came with high expectations when it was created in 2009, but has produced questionable outcomes, analysts say. Park, who oversaw technology for the U.S. Department of Health and Human Services, replaces Aneesh Chopra, the first to hold the post. Park launched healthcare.gov at HHS, a site that allows consumers to compare health insurance plans. In his new role, Park will work to reduce bloated IT budgets and push for initiatives that use technology to make government information more easily available to the public...When Obama promised during his presidential campaign to create the role, many thought that a Silicon Valley executive or Internet visionary would be picked to lead the charge on Web policies such as net neutrality and privacy." Cecilia Kang in The Washington Post.
1) KLEIN: Presidential speeches don't convince the public, and they can turn off Congress. "The annual State of the Union address offers the clearest example of the misconception...Obama’s 2012 address fit the pattern. His approval rating was forty-six per cent on the day of the speech, and forty-seven per cent a week later. Presidents have plenty of pollsters on staff, and they give many speeches in the course of a year. So how do they so systematically overestimate the importance of those speeches? Edwards believes that by the time Presidents reach the White House their careers have taught them that they can persuade anyone of anything. 'Think about how these guys become President,' he says. 'The normal way is talking for two years. That’s all you do, and somehow you win. You must be a really persuasive fellow.' But being President isn’t the same as running for President. When you’re running for President, giving a good speech helps you achieve your goals. When you are President, giving a good speech can prevent you from achieving them." Ezra Klein in The New Yorker.
2) HASEN: You can blame the rise of the super PACS on Citizens United. "Most of what you hear about Citizens United v. FEC is negative. By opening the door for corporations to spend unlimited sums in elections and to allow for the creation of super PACs, the Supreme Court has made a campaign finance system that was already flooded with money much worse. But Citizens United obviously has its defenders, and they have advanced a number of arguments to try to blunt criticism of the Supreme Court’s controversial decision: The public actually learns from the flood of negative advertising coming from these super PACs; super PACS increase competition; The Supreme Court’s Citizens United decision didn’t create super PACs, so stop blaming the court for the flood of dollars and the negative campaign ads they buy...It is true that before Citizens United people could spend unlimited sums on independent advertising directly supporting or opposing candidates. But that money had to be spent by the individual directly...After Citizens United, the courts (most importantly in Speechnow.org v. FEC) and the FEC provided a green light for super PACs to collect unlimited sums from individuals, labor unions, and corporations for unlimited independent spending." Richard Hasen in Slate.
3) BARRO: The best way to solve the deficit is to do nothing. "Sometime soon — likely in 2013 — Washington policymakers will have to get the budget much closer to balance. You’ll note that I didn’t write that policymakers will have to 'take action.' That’s because, if they do nothing, the budget will move toward balance on its own. Last year’s debt ceiling negotiations produced a deal that is scheduled to produce $2.5 trillion in spending cuts over 10 years. Meanwhile, the George W. Bush-era tax cuts are set to expire at the end of December, which would mean an extra $2.8 trillion in revenue. However, it is widely expected that Congress and the President will intervene to stop many of those gap closing measures...Obama remains committed to making permanent the tax cuts that apply on incomes below $250,000, which is about 80% of the total. Republicans want to make all of the cuts permanent, and all of the GOP presidential candidates want to cut taxes even further than that. Those would all be major fiscal mistakes." Josh Barro in The New York Daily News.
4) KRUGMAN: Austerity is a recipe for depression. "For the past two years, the Greek story has, as one recent paper on economic policy put it, been 'interpreted as a parable of the risks of fiscal profligacy.' Not a day goes by without some politician or pundit intoning, with the air of a man conveying great wisdom, that we must slash government spending right away or find ourselves turning into Greece, Greece I tell you...But what Greek experience actually shows is that while running deficits in good times can get you in trouble — which is indeed the story for Greece, although not for Spain — trying to eliminate deficits once you’re already in trouble is a recipe for depression...So it is time to stop invoking Greece as a cautionary tale about the dangers of deficits; from an American point of view, Greece should instead be seen as a cautionary tale about the dangers of trying to reduce deficits too quickly, while the economy is still deeply depressed." Paul Krugman in The New York Times.
@michaelroston: If Greece's debt deal doesn't trigger C.D.S.'s, what will be the pivot point for Michael Lewis's next book?
@zerohedge: Number of unemployed Greeks has increased by 41% in one year
5) PEARLSTEIN: Competition is still the best way to set prices. "As a general rule, we don’t prefer monopolies. We know that, over the long run, monopolists tend to raise prices, reduce choice and stifle innovation. But are monopolies so bad that we might want to tolerate a little price-fixing by customers or suppliers in order to break them? Could a little anti-competitive behavior actually be pro-competitive? That is what five leading book publishers are arguing in explaining why they simultaneously accepted an offer from Apple, just before the release of the iPad, to change the way e-books are priced and distributed...The only really safe mechanism for setting price is open competition, says Andy Gavil, an antitrust expert at Howard University, and anything that prevents that ought to be viewed with suspicion. Sounds like good advice to me." Steven Pearlstein in The Washington Post.
Post-punk interlude: Franz Ferdinand plays "Michael" live on MTV.
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Still to come: QE3 is probably not coming soon; the exchanges are getting their rules; Todd Park is the new CTO of the U.S.; school standards will weigh in on climate change; and a cat has a distinctive sense of hat fashion.
House Republicans are trying to use budget reconciliation to avoid the sequester's defense cuts. "House Republicans leaders hope to use this spring’s budget resolution to set in motion a novel deficit-reduction bill designed to substitute for the nearly $110 billion in automatic spending cuts due to take effect in January. At this stage, the goal is not to match the full $1.2 trillion in 10-year savings ordered by the Budget Control Act last summer. Instead, the primary focus is on the first round in 2013, half of which — about $54.7 billion — would come from national defense spending...Individual House committees would be instructed to report back with designated savings and the final package then reported from the House Budget Committee under the expedited, reconciliation procedures allowed for in the budget law.
Typically, reconciliation has been used as a joint exercise with the Senate, since it allows a deficit-reduction bill to move without fear of a filibuster. But House Budget Committee Chairman Paul Ryan (R-Wis.) and Majority Leader Eric Cantor (R-Va.) recently circulated a “primer” on how it could be used in the House alone. And the goal is to put a bill on the Senate’s doorstep as one alternative to the threatened cuts from the Pentagon." David Rogers in Politico.
U.S. exports to China are booming. "While the U.S. trade deficit with China continues to soar, a surge in U.S. exports is emerging as a bright spot in the often-troubled trade ties between the world’s largest economy and its largest foreign creditor. With a richer China showing a growing appetite for U.S. products, the flow includes an increasing volume of American soybeans, cars, airplanes and medicine, and even garbage that can be mined for copper and aluminium. Overall, U.S. exports to China are up nearly 50 percent in value since 2008. The surge is happening without much change in Chinese government policies and without much specific help from the Obama administration, which has a stated goal of doubling all U.S. exports globally by 2014. Instead, experts say, the main reason for the increase has been a booming China, where wealthier tastes include an increased appetite for meat — and hence for soybeans used as livestock feed." Keith Richburg in The Washington Post.
@blakehounshell: "American exports to China have increased by an astounding 468 percent since 2001… and are up by nearly 50 percent since 2008."
The Fed is likely to stick with its current policy. "A lack of simple options for monetary easing and big unanswered questions about the economy mean the US Federal Reserve is set to leave policy unchanged when its rate-setting committee meets on Tuesday. Ben Bernanke, Fed chairman, has spelt out the economic conundrum in testimony to Congress: the US labour market seems to be doing better, but this has not been not matched by a rise in production, demand or consumer spending. The Fed’s economic forecast suggests inflation at 1.8 per cent in 2014 – below its 2 per cent goal but quite close – and unemployment still high in 2014. As long as it expects to miss both its objectives, the Fed is likely to keep a strong bias towards further monetary easing, but it needs to weigh the risk that consumer spending will soon accelerate to match the strength of the labour market." Robin Harding in The Financial Times.
The future of Europe rests in the hands of Christine Lagarde and Angela Merkel. "With a deal on Greek debt finally done, Europe will shift its attention to two of its most powerful women, friends who have dueling views about what needs to be done to prevent future Greek-like meltdowns from spreading to other economies. The International Monetary Fund’s managing director, Christine Lagarde, who is French, finds herself on a collision course with Chancellor Angela Merkel of Germany, posing a test for the unusually close relationship between the two leaders. They have opposing stances on how much money is needed to protect vulnerable economies, and how it should be raised. Ms. Lagarde says Europe needs at least $1 trillion in emergency funds and is pressing for a much more robust European contribution before the I.M.F. commits to raising more money from its members. She has worked hard to drag along Ms. Merkel." Annie Lowrey and Nicholas Kulish in The New York Times.
Stop motion interlude: An ant colony eats a scanner.
The Obama administration is set to issue rules for the exchanges. "The Obama administration is about to carry out a major provision of the new health care law by issuing standards for health insurance exchanges, the markets where consumers and small businesses will be able to buy coverage from competing private plans. To encourage states to set up the exchanges, federal officials said, they will give state officials broad discretion to decide the operational details. However, the federal officials made clear that they would set up and operate an exchange in any state that refused to do so. Federal officials said the rules showed how President Obama was moving to expand insurance coverage, even as critics attacked the health care law in Congress, in court and in campaigns for the White House and Congress...Under the rules, each exchange will certify health insurance plans, operate a Web site comparing costs and benefits, and help consumers enroll." Robert Pear in The New York Times.
The Supreme Court's health reform case isn't only about the mandate. "The individual mandate won’t be the only star of the show at the U.S. Supreme Court’s oral arguments on the health law. It will share billing with three other major issues awaiting the justices’ review...If the court decides the mandate is unconstitutional, it will have to figure out what happens to the rest of the health care law, which also contains insurance market and health care delivery system reforms as well as changes to Medicare and Medicaid. If the mandate gets struck down, the Obama administration argues the law should stay on the books, with two key exceptions: the requirements that insurers cover everyone who applies; and that they use a 'community rate' that ignores a person’s health status for underwriting. Without the mandate, these consumer-friendly provisions could drive up insurance costs because people could wait until they got sick to buy insurance, and there would be few healthy people in the risk pool to tamp down prices." Jason Millman in Politico.
The Obama administration's efforts to increase competition in contracting are falling short. "The number of new suppliers to the U.S. government fell 14 percent last year even as the Obama administration sought to increase competition in contracting. Contract awards in the year that ended Sept. 30 went to about 29,800 companies that hadn’t done business with the government in seven years, compared with 34,800 in fiscal 2010, according to procurement data. The decline may be partly due to businesses avoiding the federal market because agencies are cutting budgets. Without new competition, taxpayers might end up with higher costs, said Dan Gordon, who stepped down in December as President Obama’s top procurement official...New contractors won $10.9 billion in orders in fiscal 2011, a 17 percent drop from $13.1 billion the prior year. First-time small businesses experienced a steeper decline, tumbling 34 percent to $3.64 billion from $5.5 billion in the same period." Danielle Ivory in The Washington Post.
Adorable animals with packaging on their heads interlude: A cat enjoys wearing boxes on its head, for fun.
School standards are set to weigh in on climate change. "After many years in which evolution was the most contentious issue in science education, climate change is now the battle du jour in school districts across the country. The fight could heat up further in April, when several national bodies are set to release a draft of new science standards that include detailed instruction on climate change. The groups preparing the standards include the National Research Council, which is part of the congressionally chartered National Academies. They are working from a document they drew up last year that says climate change is caused in part by manmade events, such as the burning of fossil fuels. The document says rising temperatures could have 'large consequences' for the planet. Most climate experts accept those notions as settled science." Tennille Tracy in The Wall Street Journal.
Wonkbook is compiled and produced with help from Karl Singer and Michelle Williams.