Bad Economic News

Today has brought some bad economic numbers. First, the weekly new unemployment claims were up 1000 from last week. This is the equivalent of being unchanged, but the problem is that last week's number was not good. These are the figures for the survey week that determines the June unemployment rate, so these results indicate that it is unlikely we will see any decline in unemployment when the report is issued in early July. There were also bad numbers from the Philadelphia Federal Reserve and from abroad as well. The GDP growth prediction from Goldman Sachs for the next year was reduced to 1.5%. In other words, we are not yet clearly back into a recession, but we are certainly at a point where one more problem could send us over the cliff. Indeed, it may not take another problem; we may already be on course for a contraction.

From a policy standpoint, the biggest problem is that the government has no plan as to how to proceed. Let me be clear: the problem is not gridlock in DC. There is no proposal from the president as to how to proceed here. President Obama wants to raise taxes on the wealthy, but everyone agrees that this will not speed up economic growth and may slow it further. Obama also talks about job training and helping education, but neither of these steps will do much for growth in the next year either. Indeed, Obama's only proposals that are supposed to help with growth are essentially to have a mini-stimulus which will consist of sending money to states and undertaking public construction. We know from the first stimulus, however, that sending money to the states did not lead to the hiring of additional workers. States used the funds to pay down debt and to meet their budget shortfalls. That does not promote growth. The public construction jobs have to be identified if they are going to be part of a program. Obama never does this. He just talks in generalities but leaves the details unsaid. As a result, even were a proposal passed to increase public construction, nothing would happen since no one knows what is to be built. By the time work actually went ahead, years would have passed.