Posts Tagged ‘American Recovery and Reinvestment Act’

The Self-Fulfilling Prophecy?

Monday, September 26th, 2011

Mark Zandi of Moody’s Analytics, who often discusses the economy, recently said something disturbing and fascinating about the possibility of a double-dip recession.  According to Zandi, it could be the only recession that we will ourselves into.   Zandi was talking about gloomy expectations that make people so nervous that in terms of economics, they freeze.  His remarks are a reminder that while we regularly report economic data – unemployment, cost of living, home prices, trade deficits – there are other measures of our economy that are, by definition, subjective.  Do we feel secure?  Do we have confidence in the future to the point where we’re willing to spend money and take risks?

According to Dennis Jacobe of the Gallup Organization, “We’re a lot less confident than we normally are. Three out of four right now will say the economy is getting worse.  And that’s a number that approximates the numbers of late 2008.  I think the American people don’t see the economy that most of us economists and the public policymakers see.  Americans see high unemployment rates and are concerned about losing their job.  They’re concerned about higher food prices and higher energy prices, even though we say that there’s not much inflation.  They’re worried about the housing market.  And then on top of that, they’re worried about things like politics and the confrontational kind of stalemate in D.C. 

“That certainly had an impact according to our numbers,” according to Jacobe.  And what we see happening over the last several weeks is interesting in the sense that the average American, middle and lower income American, has been fairly pessimistic for quite a while with all these things that have been bothering them.  But what we’ve seen happen recently is that things like the confrontation over the debt ceiling bill and on other kinds of things seem to have troubled upper-income Americans.  Now, they’re also affected by what’s happening on Wall Street and what’s happening internationally with the problems in Europe and those kind of things, but when upper-income people also get very pessimistic, that’s when our numbers get up to three-quarters or 80 percent of Americans being worried. 

“There really isn’t.  And, you know, I think that one of the things that’s happening is that we’re not paying enough attention to consumer psychology as opposed to Wall Street and investor psychology.  People all the time talk about how that affects Wall Street and how when Europe has had financial problems, they thought – people thought back to 2008 and the financial crisis and all those kind of things.  But the average American is affected by the same kind of thing.  They saw tremendous financial shock in 2008 and early 2009.  And they saw that in their lives and in terms of not only credit access, but also in terms of their jobs and their job security.  And I think people forget that when a lot of these things happen, like the budget confrontation, that that brings back memories of those days and those troubles.  And that has a major impact on consumer psychology.  So the statement like Zandi made makes a lot of sense in the sense that consumers actually are impacted today differently than, say, in years past,” Jacobe said.

“The trouble is people are so shell-shocked and haven’t really gotten over the recession,” according to Zandi.  “They’re extraordinarily nervous, and when anything goes off script even a little bit they freeze, and that’s where we are right now and why we are so close to recession.”

In discussing the recent Standard & Poor’s downgrade of the United States’ credit rating from AAA to AA+, Zandi believes that there is a logical apprehension that a financial market selloff could feed on itself, doing real economic damage if it drags on.  Wary households might respond by cutting back on spending, and anxious businesses would be even more cautious about investing and hiring.  This could cause a double-dip recession, which would only intensify the nation’s fiscal troubles.  Federal Reserve policymakers are certain to take this into account.  S&P might even downgrade other nations’ sovereign debt, since the U.S. government provides vital support to the entire global financial system. This could increase borrowing costs for homebuyers seeking mortgages and businesses that want to expand.  The impact on lending rates would be small, a few basis points at most.  Financial markets should be able to weather the S&P downgrade, with little lasting economic impact.  “Fundamentally the United States does not deserve a downgrade, because policymakers have made significant strides toward fiscal responsibility.  The debt-ceiling deal was a vital step that doesn’t solve the nation’s problems, but it goes more than halfway,” Zandi said.

One idea that Zandi has to stimulate the economy is to take back unspent dollars from the American Recovery and Reinvestment Act (ARRA) and spend it on projects or on short-term stimuli like food stamps.  This is easier said than done and might create more problems than it fixes.  “It’s meaningful, but it’s not a game-changer,” Zandi said.  “From an economic and political perspective, I’m not sure that would make a lot of sense to do.  A lot of this spending has generated a lot of planning, a lot of environmental designs.  They’re counting on the money. If you’re going to divert it, you’re going to create all kinds of problems for them.”

National Infrastructure Bank Could Finance Rebuilding America

Sunday, October 3rd, 2010

Proposed infrastructure bank could provide funds to rebuild America's crumbling infrastructure. As the nation’s roads, railways and sewers crumble, President Barack Obama’s proposal to create a $50 billion infrastructure bank is one way to build on the American Recovery and Reinvestment Act (ARRA).  According to Margaret Donahoe, Executive Director of the Minnesota Transportation Alliance, “A new multi-year transportation authorization act is almost one year overdue and the administration acknowledges the need to work with Congress to pass a new program.”

President Obama’s goal is to invest $50 billion to rebuild 150,000 miles of road; lay and maintain 4,000 miles of new railroad track; reconstruct 150 miles of airport runways; and create an air-traffic control system that meets 21st-century standards.  The $50 billion will be offset by eliminating tax breaks and subsidies for the gas and oil industry.  “The new proposal couples a boost in funding with new policies that begin to change the way transportation has been funded in the past,” Donahoe says.  “The plan includes the establishment of an Infrastructure Bank to leverage federal dollars with other sources of revenue, including private capital.  Outside investors would need a return on investment, so many of the projects would likely involve increased fees, taxes or tolls.”  The proposal has the potential to create construction jobs and refurbish the nation’s deteriorating infrastructure.

“Rebuilding our third-rate transportation infrastructure will also help us catch up with established competitors such as Germany and new players such as China, Brazil and India,” according to Donahoe.  “Those nations are investing in their economies and their future competitiveness by putting money into modern highways, ports, freight rail and other infrastructure.  Our country clearly needs to improve our infrastructure to provide the service level American businesses need.  There is little disagreement on the benefit of putting skilled people to work immediately while building the infrastructure our economy needs.”

The good news for President Obama is that the infrastructure bank enjoys significant support from legislators in both the House and Senate. Additional support comes from workers, firms, and organizations involved in transportation, communication, and construction.

Rick Mattoon: Is the Recession Over?

Monday, March 8th, 2010

The Fed says the recession is over.Economic indicators show that the recession is over.  This is the opinion of Rick Mattoon, a senior economist and advisor in the economic research department of the Federal Reserve Bank of Chicago and a lecturer at the Kellogg School of Management at Northwestern University.  Rick’s primary research focuses on issues facing the Midwest regional economy.

In a recent interview for the Alter NOW Podcasts, Mattoon warned that most people probably don’t feel like the nation is coming out of a recession because there are few signs of job creation or easier access to credit.  One of the major concerns economists have is that this will be a double-dip “W-shaped” recession because once the bump from the $787 billion stimulus ends, there will be scant pent-up consumer demand for products and services to take the place of government spending.

One positive sign is an uptick in hiring by temporary employment agencies, which usually is considered to be a good harbinger of what future demand will be.  Another interesting theory about this particular recession in terms of jobs is the idea that companies adjusted their employee levels much more aggressively at the beginning of this cycle.  As a result, they are operating at extremely lean levels and so may hire earlier rather than later.

One problem is that there is a skills mismatch in the economy.  Many people who have lost their jobs don’t possess the right skills to find employment in growth industries such as clean energy or healthcare.  The challenge is training these individuals to bring their skills up to par.

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“Cash for Appliances” Part of an Ongoing Effort to Jump Start the Economy

Wednesday, March 3rd, 2010

After the success of the “Cash for Clunkers” and “Cash for Caulkers” programs, the Obama administration has rolled out “Cash for Appliances”, with the goal of replacing aging washers and refrigerators with new ones that consume less energy.  Funded by the $787 billion American Recovery and Reinvestment Act stimulus bill, “Cash for Appliances” is a $300 million program where consumers receive rebates for purchasing energy-efficient appliances.  Eligibility requires that the appliance carry the Energy Star logo, which affirms that it meets efficiency guidelines set by the Environmental Protection Agency and the Department of Energy.  The program’s goal is to conserve energy, boost retail sales and help speed the economic recovery.Stimulus bill’s “Cash for Appliances” seeks to replace old washers and fridges with energy-efficient models.

Rebates are allocated by the states.  New York, for example, is offering rebates that range from $75 to $105 on refrigerators, freezers and washing machines.  If all three appliances are purchased together, the rebate can be as much as $555.  “This program will provide a tremendous incentive for consumers all across New York to reduce their energy consumption while providing an important stimulus to our economy,” according to a statement by New York Governor David Paterson.

Retailers are pleased with the program, but think it will not be easy to predict how the program will affect sales.  Home Depot spokeswoman Jean Neimi notes that “It’s tough to say, from a sales perspective, because each state has such a different program.  But we’re excited the program is in place.  Any opportunity to educate our customers on the benefits of energy efficiency is welcome.”

Is Wind the New Oil?

Tuesday, September 22nd, 2009

114975-004-10ac61f4After investing $16 billion in wind turbines, the United States has overtaken Germany as the world’s largest wind-power generator.  Wind power accounted for 42 percent of new generating capacity last year, an increase from just two percent four years ago. The American heartland’s sparsely populated states — from Texas to the Dakotas — are the ideal locations for wind turbines.

The momentum for wind power is slowing, though, and in July, T. Boone Pickens – oilman and clean-energy entrepreneur – called off plans for the world’s biggest wind farm in Texas.  His planned 687 turbines, valued at $2 billion, are now in search of a new location because the necessary transmission lines could not be built.  Harnessing wind power requires extensive grid infrastructure, which involves a complicated and lengthy state and municipal approval process.

The credit crunch also has caught up with the ability of wind farms to come online.  Wind is a capital-intensive business that requires long lead times.  While 2008 was a good year for wind power and installations are still moving forward, a slowdown is anticipated as firms fail to obtain the financing they need to purchase additional turbines.

Wind capacity grew by 50 percent last year, according to the American Wind Energy Association (AWEA).  In 2009, growth is expected to be around 20 percent.  The AWEA notes that although 2,800MW of new turbines were installed during the first quarter, just 1,200MW came online in the second.

Nothing Succeeds Like Success

Thursday, March 12th, 2009

Tuesday, March 10’s 379.44 stock market spike – the best finish since Thanksgiving – came on the heels of Citigroup, Inc.’s news that it had made a healthy profit during the first two months of 2009.  At the end of the day, the stock market had soared to a 6,926.49 close.

man-with-cigarSo, what did it?  It wasn’t a bold move by Treasury Secretary Timothy Geithner.  It wasn’t the American Recovery and Reinvestment Act.  It wasn’t hope.  It wasn’t a government plan.

The catalyst that triggered the 5.8 percent Dow Jones Industrial Average stock market rise was honest-to-God good news.  The revelation was in the form of a leaked memo written by Citigroup CEO Vikram Pandit stating that the banking giant had enjoyed its best financial performance in more than a year.  The memo, written to reassure the bank’s employees about its stability, said that Citigroup had recorded an operating profit of $8.3 billion before taxes and special items through the end of February.  This was Citigroup’s best performance since the third quarter of 2007 and puts it into a sound cash position.

The memo did not detail what the special items involved, but they could include credit losses and writedowns.  Still, the news kicked off a buying frenzy.  Worldwide financial stocks rose, with Citigroup up 38 percent for the day.

Broader indices like the Standard & Poors 500 index rose 43.07 to 719.60; NASDAQ soared 89.64 points to 1,358.28.