Economic Daily Outlook




American earning more, but spending still in question

Americans are earning more money amid the strengthening job market, but economists say the arc of the recovery largely hinges on what consumers do with the extra cash.

Government data released Thursday showed wages and salaries rose 0.4 percent in January from the previous month, following a similarly strong increase in December. Total personal income increased 0.3 percent in January, and government economists recently revised their calculations upward for income growth during the second half of last year.

“There were some bright spots,” Wells Fargo senior economist Mark Vitner said. “Wage and salary growth has clearly improved in recent months, confirming the pickup in employment.”

The rise in income tracks the steady decline in the nation’s unemployment rate from 9 percent over the summer to 8.3 percent last month. The good news continued this week as new jobless claims hit their lowest level in four years. The number of people filing for unemployment benefits was 351,000, down from last week and fewer than analysts had expected.



OPINION: Financial Crisis Amnesia (Timothy Geithner)

Four years ago, on an evening in March 2008, I received a call from the CEO of Bear Stearns informing me that they planned to file for bankruptcy in the morning.

Bear Stearns was the smallest of the major Wall Street institutions, but it was deeply entwined in financial markets and had the perfect mix of vulnerabilities. It took on too much risk. It relied on billions of dollars of risky short-term financing. And it held thousands of derivative contracts with thousands of companies.

These weaknesses made Bear Stearns the most important initial casualty in what would become the worst financial crisis since the Great Depression. But as we saw in the summer and fall of 2008, these weaknesses were not unique to that firm.

In the spring of 2008, more Americans were starting to face higher mortgage payments as teaser interest rates reset and they could no longer refinance out of them because the value of their homes stopped rising—the leading edge of a wave of foreclosures and a terrible fall in house prices. By the time Bear Stearns failed, the recession was then already several months old, but it would of course get much worse in coming months.

These problems were partly the result of amnesia. There was no memory of extreme crisis, no memory of what can happen when a nation allows huge amounts of risk to build up outside of the safeguards all economies require.



McConnell vows full-fledged assault on health law amid threat to his leadership

Senate Republican Leader Mitch McConnell (Ky.) said he’s committed to repealing President Obama’s healthcare reform law after a conservative group threatened to go for his head over the issue.

The Hill reported Thursday that McConnell told his conference this week that he does not want to vote again on repealing the law until after the November elections. In response, the conservative Restore America’s Voice Foundation said it would “unleash” its 2.3 million activists to call for McConnell’s resignation if he didn’t retract his comments.

“Leader McConnell not only is an unapologetic advocate for the complete repeal of Obamacare, he authored the repeal amendment and forced a vote on it at the beginning of this Congress,” McConnell spokesman Don Stewart told The Hill after the Restore America’s Voice Foundation said he should resign his leadership post if he doesn’t have “the will or the backbone to force a floor vote” on repeal.

OPINION: Determining the Level of Payments in Health Care (Uwe E. Reinhardt)

In my previous post, I presented the following menu of payment systems for health care and discussed the various bases (the columns in the chart) upon which payment could be made. Now I’d like to discuss the rows in this chart – the methods by which the level of payments are determined.



Gas prices are no silver bullet for GOP

As the economy shows some signs of progress — which are good for President Obama, no doubt — Republicans have turned to gas prices as their silver bullet.

They’ve got their work cut out for them.

While Americans have been more than happy to question Obama’s stewardship of the economy during the bad times, the vast majority aren’t clamoring to blame him for continually high fuel prices.

According to a new Pew Research Center/Washington Post poll, fewer than one in five Americans volunteer Obama’s name when asked whom they blame for high gas prices.

Obama is still the top culprit — 14 percent blame oil companies while 11 percent blame conflicts in the Middle East, the next two most-mentioned reasons — but that fact that four in five Americans don’t reflexively blame the president for gas prices shows that drawing the connection will be a difficult task for the GOP.

The good news for Republicans is that they don’t shoulder the blame either. Only 9 percent volunteer Congress or politicians in Washington when asked whom they blame, and only 4 percent blame Wall Street.



Where the Jobs Are, the Training May Not Be

As state funding has dwindled, public colleges have raised tuition and are now resorting to even more desperate measures — cutting training for jobs the economy needs most.

Technical, engineering and health care expertise are among the few skills in huge demand even in today’s lackluster job market. They are also, unfortunately, some of the most expensive subjects to teach. As a result, state colleges in Nebraska, Nevada, South Dakota, Colorado, Michigan, Florida and Texas have eliminated entire engineering and computer science departments.

At one community college in North Carolina — a state with a severe nursing shortage — nursing program applicants so outnumber available slots that there is a waiting list just to get on the waiting list.

This squeeze is one result of the states’ 25-year withdrawal from higher education. During and immediately after the last few recessions, states slashed financing for colleges. Then when the economy recovered, most states never fully restored the money that had been cut. The recent recession has amplified the problem.



EU Leaders Sign Fiscal Pact

European Union leaders Friday signed the region’s new fiscal pact, adopting strict new rules on deficits and debts, even as some members warned a tougher economic environment is challenging their fiscal commitments.

The fiscal accord, which was finalized in January and calls for sanctions on those member states that fail to meet targets, was signed by 25 member states. The U.K. and the Czech Republic opted out.

Heading into a meeting of EU leaders Friday, German Chancellor Angela Merkel said the fiscal pact represented a milestone for the EU and was necessary for stability and growth in the region.

“We are doing now for the first time what’s necessary to ensure new growth in Europe,” she said on entering.

For Obama and Netanyahu, Wariness on Iran Will Dominate Talks

Nearly four years ago, when Senator Barack Obama was running for president and Prime Minister Benjamin Netanyahu of Israel was head of the opposition, they met here in what aides described as a warm atmosphere.

“Senator,” Mr. Netanyahu said to Mr. Obama, “as president, many things will cross your desk, but the most important, by far, will be stopping Iran from obtaining nuclear weapons.”

On Monday, the two will meet again in the shadow of an American presidential election, and Iran will again dominate the conversation. But the bonhomie will be replaced by wary intrigue as Mr. Netanyahu and Mr. Obama try to sort out their differences, in timing, messaging and strategic bottom lines, on how to grapple with Iran — while also managing their own strained relationship.

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