Category Archives: News

House Passes $787 Billion Economic Stimulus

The U.S. House passed President Barack Obama’s $787 billion economic stimulus plan designed to help repair the economy through tax cuts for businesses and families and a half-trillion dollars in federal spending.

The House voted 246 to 183 for the measure, with no Republicans in favor and seven Democrats in opposition.

The Senate plans to approve the package in a vote that Majority Leader Harry Reid, a Nevada Democrat, said will start at 5:30 p.m. Washington time. Senate passage would send the bill to Obama for signing and give him the first major legislative victory of his administration.

“After all the debate, this legislation can be summed up in one word: Jobs,” said House Speaker Nancy Pelosi, a California Democrat, during today’s floor debate. “The American people need action and they need action now.”

The final Senate tally may be delayed as one member, Sherrod Brown, returns to Washington from Ohio following the death of his mother.

Because of paperwork that needs to be done, the legislation will reach the president’s desk “no earlier than Monday,” White House press secretary Robert Gibbs said.

Democrats predict the package would save or create 3.5 million jobs. Its centerpiece is a $400 payroll tax cut for individuals and $800 for couples. Retirees, disabled veterans and others who don’t pay payroll taxes would get a $250 payment.

Republicans argued that the bill contained an excess of government spending and, because of that, would fall short of providing a boost for the economy.

“I think everyone in this chamber on both sides of the aisle understands we need to act,” said House Minority Leader John Boehner, an Ohio Republican. “But a bill that’s supposed to be about jobs, jobs, jobs has turned into a bill that’s all about spending, spending and spending.”

Businesses won several tax breaks, including faster write- offs for equipment purchased in 2009 and incentives for companies that produce and invest in renewable resources such as solar and wind power. A business tax break pushed by the U.S. Chamber of Commerce would ease near-term tax burdens on companies and buyout firms that restructure debt without entering bankruptcy.

Democratic congressional leaders negotiated the final version of the bill this week after the House and Senate passed their own versions of it.

When the House voted on its version last month, it passed 244-188 with no Republicans supporting it and 11 Democrats in opposition.

Representative Allen Boyd of Florida was one of the Democrats who voted for the plan today after opposing the original House proposal. He said lawmakers “have worked hard to make this a better product,” in part by reducing some of the spending the House version had included.

The 1,400-page stimulus plan would provide a half-trillion dollars for jobless benefits, renewable energy projects, highway construction, food stamps, broadband, Pell college tuition grants, high-speed rail projects and scores of other programs. It would raise the nation’s debt limit to about $12 trillion.

The package would restrict executive compensation at all companies receiving assistance from the Treasury Department’s Troubled Asset Relief Program, not just those receiving “exceptional” aid as the Obama administration announced last week. The legislation limits bonuses and other incentive pay at those companies on a sliding scale according to how much federal aid they take.

The bill would impose bonus restrictions on senior executive officers and the next 20 highest paid employees at companies that receive more than $500 million from TARP. Companies receiving between $250 million and $500 million would face restrictions on bonuses to their senior executive officers and their next 10 highest-paid workers. The restrictions would apply to the top five employees at companies receiving between $25 million and $250 million.

The nonpartisan Congressional Budget Office said today the stimulus package would cost $787 billion, rather than $789 billion lawmakers estimated earlier this week. The plan would pump $185 billion into the economy this year and $399 billion next year, the agency said.

“This country faces the greatest crisis that we’ve seen in terms of the economy since the ‘30s,” House Appropriations Committee Chairman David Obey, a Wisconsin Democrat, said as he urged passage of the bill. “The other tool normally available to us is monetary policy in the form of low interest rates through actions of the Federal Reserve. We’ve already fired that bullet – – the only bullet left is fiscal policy.”

Representative Jeb Hensarling, a Texas Republican, said the measure would fail to revive the economy because “you cannot borrow and spend your way to prosperity.” He also said that through the bill, Democrats were aiming to “stimulate big government.”

Democrats released the text of the plan late yesterday, prompting complaints from Republicans they didn’t have enough time to review the legislation before voting on it.

“It is over a thousand pages,” said Representative Tom Price, a Georgia Republican. “It is physically impossible for any member to have read this bill.”


US Manufacturing Activity Falls To 26-year Low

A key index of the nation’s manufacturing activity fell to a 26-year low, sliding into recession territory, according to a purchasing managers group.

The Institute for Supply Management’s (ISM) said Monday that its manufacturing index tumbled to 38.9 in October from 43.5 in September. It was the lowest reading since September 1982, when the index registered 38.8.

Economists were expecting a reading of 42, according to a survey conducted by

The tipping point for the index is 50, with a reading below that indicating contraction in manufacturing activity. The index has hovered around the 50 mark since September 2007, with an average of 49.1.

A reading below 41 is considered a sign that the economy is in recession.

The October numbers are “well within recession territory,” said John Silvia, chief economist at Wachovia economics group.

He said continued weakness in new orders, production and employment, “suggests recessionary conditions in the manufacturing sector for the fourth quarter.”

Employment in the manufacturing sector fell for the third month in a row. ISM’s employment measure registered 34.6 in October, down 7.2 points from September. It was the lowest reading for the employment component since March 1991, when it registered 33.6.

New orders for manufactured goods have been declining for nearly a year. In October, the ISM’s measure of new orders fell 6.6 points to 32.2.

Factories have reported declining levels of production for the last 2 months, with a fall of 6.7 points in October to a reading of 34.1.

The part of the index that measures the prices manufacturers pay for raw materials declined 16.5 points to a reading of 37 in the month. It was the lowest point for the component since December 2001 when the prices index registered 33.2.

“Lower input prices would normally be a positive, but they’re not a positive enough to get other elements to go up,” Silvia said.

In a sign of growing economic weakness worldwide, the index’s measure of export orders fell 11 points to a reading of 41. The decline came after 70 months of expansion.

Rising exports had been a bright spot for U.S. manufacturers as the domestic economy deteriorates. But last month’s decline suggests that struggling consumers overseas are losing their appetite for U.S. exports.

The index also showed that factories and their customers are facing rising levels of inventory as orders dry up. The factory component rose 0.9 point to 44.3, and customer inventories grew 1.5 points to 55.

“It appears that manufacturing is experiencing significant demand destruction as a result of recent events, with members indicating challenges associated with the financial crisis, interruptions from the Gulf hurricane, and the lagging impact from higher oil prices,” said Norbert Ore, chairman of the Institute for Supply Management’s Manufacturing Business Survey Committee, in a statement.

Monday’s report comes after the government said last week that the nation’s economy shrank in the third quarter.

U.S. gross domestic product, the broadest measure of economic activity, fell at an annual rate of 0.3% in the third quarter, compared with a 2.8% growth rate in the second quarter.

Many economists say weakness in consumer spending, among other things, could result in a negative GDP reading in the fourth quarter. Two consecutive quarters of declining GDP are one of the classic, unofficial definitions of a recession.

U.S. GDP Economy Contracts .03%

Thursday, October 30th 2008

The economy suffered its biggest decline since 2001 in the third quarter, ushering in what may be the worst recession in a quarter century and boosting the chances of Barack Obama and his fellow Democrats in next week’s elections.

Gross domestic product contracted at a 0.3 percent annual pace, less than forecast, a Commerce Department report showed today in Washington. The last major economic data before the election also showed that a record two-decade consumer spending boom ended last quarter as the credit crunch deepened.

“The crisis really kicked up in late September,” Ethan Harris, co-head of U.S. economic research at Barclays Capital Inc. in New York, said in a Bloomberg Television interview. “We’re going to be looking at a very unfriendly GDP number in the fourth quarter, with a drop of 2 to 4 percent.”

The economic slump coincided with Democratic presidential nominee Obama’s lead in public-opinion polls. A Bloomberg/Los Angeles Times survey taken Aug. 15-18 showed Republican nominee John McCain with 42 percent support to Obama’s 41 percent; five weeks later, as the credit crunch deepened, the poll showed Obama leading by 49 percent to 45 percent.

Stocks, Treasuries

Stock-index futures, which were up earlier in the day, remained higher after the GDP report. Futures on the Standard & Poor’s 500 Stock Index rose 3.5 percent to 959.20 at 8:39 a.m. in New York. Benchmark 10-year Treasury note yields rose to 3.94 percent from 3.86 percent late yesterday.

The Federal Reserve yesterday warned of further “downside risks” even after cutting interest rates twice this month and pumping billions of dollars into markets.

The slump last quarter was the biggest since the third quarter of 2001, and follows a 2.8 percent growth rate the previous three months. The economy contracted at a 0.2 percent pace in the last three months of 2007.

GDP was forecast to drop at a 0.5 percent pace in the third quarter, according to the median forecast of 75 economists surveyed by Bloomberg News. Estimates ranged from a 1.2 percent rate of expansion to a contraction of 1.9 percent.

The report is the first for the quarter and will be revised in November and December as more information becomes available.

Consumer spending dropped at a 3.1 percent annual pace, the first decline since 1991 and the biggest since 1980, after President Jimmy Carter imposed credit controls. The median forecast was for a 2.4 percent drop.

Worst Since 1950

The 6.4 percent rate of decline in spending on non-durable goods, like clothing and food, was the biggest since 1950.

Cutbacks in investments in business equipment and less spending on residential construction projects also contributed to last quarter’s contraction.

A narrower trade deficit and a smaller decline in inventories prevented a deeper contraction. Excluding those two categories, the economy would have contracted at a 1.8 percent pace, the most since 1991.

The report also showed what may be the last burst of inflation before the economic slowdown forces companies to limit price increases. The price gauge rose at a 4.2 percent pace last quarter, the biggest gain in 17 years. Costs tied to consumer spending and excluding food and energy, increased 2.9 percent, the most in two years.

The Fed yesterday cut the benchmark interest rate by a half percentage point to 1 percent, matching a half-century low, and projected inflation would ebb.

Fed’s Outlook

“The intensification of financial market turmoil is likely to exert additional restraint on spending, partly by further reducing the ability of households and businesses to obtain credit,” the Fed’s statement said. “The pace of economic activity appears to have slowed markedly.”

The National Bureau of Economic Research, the Cambridge, Massachusetts-based official arbiter of U.S. economic cycles, has yet to call a recession.

The group bases its assessment on indicators including GDP, employment, sales, incomes and industrial production, and usually takes six to 18 months to make a determination. According to the NBER, the last recession lasted from March to November 2001.

Chief executive officers from Ford Motor Co., Starwood Hotels & Resorts Worldwide Inc. and Caterpillar Inc. are among those in the past two months that have said the U.S. is in a recession.

Slow Pullout

“You might have a two- or three-quarter negative growth and then a slow pullout,” General Electric Co.’s Chief Executive Officer Jeffrey Immelt said in an Oct. 24 Webcast presentation. Government efforts to improve liquidity will “take a while” to work. GE’s businesses, spanning jet engines, medical equipment and consumer finance, make it an economic bellwether.

Whirlpool Corp., the world’s largest appliance maker, this week said it’ll cut 5,000 jobs, and forecast lower annual profit as the credit crunch clipped sales. Williams-Sonoma Inc., the biggest U.S. gourmet-cookware chain, yesterday forecast a third- quarter loss because sales slowed “significantly” during the past six weeks.

Industry figures showed cars and light trucks sold at a 12.5 million annual pace in September, the fewest since 1993. October sales may drop to an 11 million pace, according to a Deutsche Bank AG estimate.

“These are truly unimaginable times for our industry,” Robert Nardelli, chief executive officer of Chrysler LLC, said in a statement last week. The third-largest U.S. automaker will cut 25 percent of salaried workers and reduce production.

Incomes after taxes and adjusted for inflation dropped at the fastest pace since comparable record began in 1947, today’s GDP report also showed. The 8.7 percent decrease followed an 11.9 percent jump in the previous three months and reflected the influence of the tax rebate payments from the government’s economic stimulus plan.

Homeless Camps Swelling

Last summer in Nashville, TN, police responding to complaints about campfires under a highway overpass found dozens of homeless people living on public land along the Cumberland River.

Eviction notices went up — and then were suspended by Nashville Mayor Karl Dean, a Democrat, who said housing for the homeless should be found first.

A year later, little has been found — and Nashville, with help from local nonprofits, is now servicing a tent city, arranging for portable toilets, trash pickup, a mobile medical van and visits from social workers. Volunteers bring in firewood for the camp’s 60 or so dwellers.

Jack Adkins sat in what he calls his “office” at his home in Tent City in Nashville.

Nashville is one of several U.S. cities that these days are accommodating the homeless and their encampments, instead of dispersing them. With local shelters at capacity, “there is no place to put them,” said Clifton Harris, director of Nashville’s Metropolitan Homeless Commission, says of tent-city dwellers.

In Florida, Hillsborough County plans to consider a proposal Tuesday by Catholic Charities to run an emergency tent city in Tampa for more than 200 people. Dave Rogoff, the county health and services director, said he preferred to see a “hard roof over people’s heads.” But that takes real money, he said: “We’re trying to cut $110 million out of next year’s budget.”

Ontario, a city of 175,000 residents about 40 miles east of Los Angeles, provides guards and basic city services for a tent city on public land.

A church in Lacey, Wash., near the state capital of Olympia, recently started a homeless camp in its parking lot after the city changed local ordinances to permit it. The City Council in Ventura, Calif., last month revised its laws to permit sleeping in cars overnight in some areas. City Manager Rick Cole said most of the car campers are temporarily unemployed, “and in this economy, temporary can go on a long time.”

After years of enforcing a tough anticamping law to break up homeless clusters, Sacramento recently formed a task force to look into designating homeless tracts because shelters are overflowing. One refuge in the California capital, St. John’s Shelter for Women and Children, is turning away about 350 people a night, compared with 25 two years ago, said executive director Michele Steeb.

Some communities may be “less inclined to crack down quite as hard on people” because of the recession, said Barry Lee, a professor of sociology and demography at Pennsylvania State University.

Municipal leniency isn’t universal. New York City officials last month shut down a tent city on a vacant lot in East Harlem. It was erected partly as shelter and partly to campaign for more-affordable housing. Seattle authorities have repeatedly booted off public land a tent city that popped up last year.

Anticipating Tuesday’s vote on the homeless proposal in Tampa, hundreds of neighbors in a nearby 325-house subdivision have formed the “Stop Tent City” coalition. They are gathering petitions, passing out lawn signs and threatening lawsuits. Hal Hart, a paralegal and a neighbor who is part of the coalition, testified at the county meeting that a tent city would “devalue my home” and “devalue my community.” He lives 300 feet from the proposed park.

Some homeless are battling mental illness or addictions, or both. Municipal officials in the U.S. acknowledge the tent cities can breed crime and unsanitary conditions, but with public shelter scarce, they say they have to weigh whether to spend police time to break up encampments that are likely to resurface elsewhere.

Pastors in Champaign, Ill., last week asked the City Council to allow people to live in organized tent communities of as many as 50 people. Legalizing the camps is more compassionate and cost-effective than forcing “poor people who are camping because they have a lack of better choices to constantly have to fear being rousted and cited by police,” says Joan Burke, advocacy director for Sacramento Loaves & Fishes, a homeless-assistance agency.

In Nashville, Mr. Harris, director of the city’s homeless commission, said tent cities have existed for years, but he has seen the numbers surge. He now knows of 30 encampments. While some people are chronically homeless, he said, foreclosures have forced others into the streets, as has Tennessee’s 10.8% unemployment rate, the highest in 25 years.

Nashville estimates that on any given day, the city has 4,000 homeless people and 765 shelter beds. About 25% of the homeless have jobs, Mr. Harris said, but can’t afford housing. A nonprofit coalition of 160 churches called Room in the Inn said it received 816 requests for financial assistance to ward off evictions or electricity shutoffs in July, up from 499 in July 2008.

More housing could be available soon. Tennessee will receive $53 million in federal stimulus money to help pay for the development of affordable rental housing across the state, the federal government announced last month.

While no one is suggesting that the tent city that popped up on police radar last summer is a permanent solution, local churches and synagogues are trying to give residents there a sense of order. The Otter Creek Church of Christ built residents a shower, with a fiberglass stall, plywood door and garden hose, and on Friday, associate minister Doug Sanders went to the tent city in what is the start of a church project to help residents institute some type of formal rules — for everything from cleaning the shower to determining the progress residents should have to show toward finding housing.

The city and local nonprofits have found permanent housing for about 25 people from the tent city.

Many haven’t been so lucky. David Olson, 47 years old, said last week he and his wife wound up under the Nashville overpass after he lost a job making cement pipes in Iowa four months ago. The couple came to Nashville for a remodeling job that turned out to be a scam. “I’ve got five years’ experience in carpentry and 10 years’ roofing and I can’t find a job,” he said.

Mr. Olson, his arms and shirt caked with dirt, said life is hard in the swampy woods. The couple woke up to mud after a night of rain. His wife said she is frightened by the dogs that roam around the encampment.

As mosquitoes buzzed, they tried to set up camp on higher ground. They struggled to secure a tarpaulin over their tent to keep out the rain. Mr. Olson’s wife, holding onto a pole to prop up the tarp, cried. “I’m not used to living like this.”

Source: Wall Street Journal