Ahead of the key August payroll number Friday, unemployment claims totaled 409,000 last week, right in line with expectations. Initial claims fell 12,000 from the previous week, which was revised up 4,000, but the number remains too high to signal any sort of jobs recovery.
With the U.S. unemployment rate at 9.1%, GDP for the first half of the year revised down and consumer confidence falling, fears of the U.S. economy falling back into recession are running high. Although Wednesday's ISM report was better than feared, many economists have lowered growth expectations and several prominent pundits say a recession is imminent, if not already underway.
One notable economist predicting a slowdown is NYU professor Nouriel Roubini. "We've reached a stall speed in the economy, not just in the U.S., but in the euro zone and the UK," he told Bloomberg on Tuesday. "We see probably a 60% probability of recession next year and unfortunately we're running out of policy tools."
This prediction comes ahead of President Obama's jobs speech to a joint session of Congress next week, which is now slated for the evening of Sept. 8. The administration appears to be pulling out all the stops on the jobs front. In a letter to Speaker Boehner, Obama writes he is set to "lay out a series of bipartisan proposals that the Congress can take immediately to continue to rebuild the American economy."
In a Rose Garden speech at the White House on Wednesday, the President also urged Congress to pass the highway transportation bill that is set to expire at the end of September.
"If we allow the transportation bill to expire, over 4,000 workers will be immediately furloughed without pay. If it's delayed for just 10 days, it will lose nearly $1 billion in highway funding -- that's money we can never get back. And if it's delayed even longer, almost one million workers could lose their jobs over the course of the next year," said Obama. "It's inexcusable to put more jobs at risk in an industry that's already been one of the hardest hit over the last decade."
Professor Jeremy Siegel, professor of Finance at the Wharton School of Business at the University of Pennsylvania, is a bit more optimistic about the state of the economy and the prospects of a recession.
Why? Because of "high frequency" indicators like retail sales and weekly jobless claims, are not signaling an imminent recession. "I am not trying to pretend we are in a boom in any sense, but they are not showing the type of deterioration that precedes a recession," he tells The Daily Ticker's Aaron Task. "I give the probably of recession 25% at most…. I still think that late in this quarter and end of the fourth quarter we will see an acceleration in our economy."
Professor Siegel's EconFix
Siegel is of the mind that plenty can be done to help prop up the economy on both the monetary and fiscal side.
"I don't think that the Fed is totally out of its bullets," he says even after the Fed announced it will keep interest rates near zero until mid-2013.
Siegel is not opposed to another round of QE, as long as the size of the program is not preannounced to the market, as was the case with QE2. This decision would be better made behind closed doors at FOMC meetings, he says.
And he is in favor of reducing the interest rates banks can earn on so-called excess reserves. Currently, the Fed pays banks 25 basis points to sit on capital; Siegel would like to see that drop to zero like it was during the first 80 years of the Fed.
On the fiscal side, he agrees with the Obama administration that extending the payroll tax cut through 2012 would help the economy.
And Siegel thinks the time has finally come phase down unemployment compensation, an idea he admits is not popular among the ranks. "The problem is there are some jobs out there, it just isn't worth while for people to take them given the congress keeps on voting these benefits," he says.
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