Thinking Positively
In his first joint Congressional speech on Tuesday evening, President Obama heavily focused his attention on the current state of the economy, particularly the financial crisis we are facing and various steps planned and already being taken to alleviate the situation.
Earlier that day, Federal Reserve Chairman Ben Bernanke pledged to use all available resources to thaw the nation’s markets and renew hope in the future—steps he indicated were desperately needed to halt the recession spun by ongoing housing, credit, and financial difficulties. At issue was the desire to break the vicious cycle currently facing consumers and investors of massive job losses, decreasing home values, and shrinking retirement nest eggs.
At the President’s fiscal responsibility summit on Monday, he shared with 130 members of Congress, private think-tank leaders, and cabinet officers, his ideas to introduce bi-partisan measures to dramatically reduce the fiscal deficit over the next few years.
A lot of attention was also given early in the week to ongoing attempts to revamp the banking industry, particularly the plan suggested on Monday that could lead to a partial “nationalization” of Citigroup or at least a partial ownership of as much as 40% of the financial giant.
The possibility sparked concern among some economic analysts who feared that should such a move occur, it could place rivals of Citigroup at a disadvantage since investors might prefer a bank backed by the faith and credit of the US government, rather than a smaller bank which only has federal insurance on deposits up to $250,000.
Plans to alleviate mounting pressure to put billions more into some of the nation’s largest banks, two of the major automakers, and the country’s biggest insurance company are now on the drawing table. These massive amounts are in addition to the billions the government has already committed to rescuing these entities. The helping hand anticipated for the various banks, of course, is designed to free up lending, as well as stem home foreclosures.
Housing prices have fallen a record 18.5% since December 2007 when the recession officially started. Foreclosures are at the top (or at least near the top) of homeowners’ concerns. The Obama administration is planning to spend upwards of $75 billion to help solve this dilemma.
Because the global economic tide continues to drag down businesses of all kinds, the market is responding negatively, reaching levels not seen since 1997. And as if this was not enough, the latest report on consumer confidence (the lowest since 1967 when this kind of data began to be collected) shows that people are growing more and more concerned about the future.
Also unveiled on Monday was a controversial new bill designed to stimulate the economy by spending up to $410 billion. The measure contains language that will reverse in part or in whole some of the cuts made in various programs by the previous administration.
No one doubts that our nation is in a financial crisis, the definition of which requires a reorientation of our thinking and practices. Evidence of this phenomenon abound in daily media reports on the various steps to finance the massive stimulus plan and economic reorganization. We are, indeed, facing high levels of uncertainty. Attempts are being made at myriad private and government levels to accommodate the needs of individual investors, all of whom are in different stages of their life cycle and have different desires and demands. These varying approaches are putting pressure on our nation’s debt and deficit as we seek to enhance our economic security.
Such will continue to be the case over the next several months. Fortunately, despite the economic difficulties being experienced across our nation, US debt is still in high demand around the world. Foreign investors have confidence the US will rebound. History backs them up, as do some of the “inside” indicators that geeks like me watch. Therefore, there is every reason to think positively, even in the midst of these trying times.
posted @ 08:09 AM CST [link]
Friday, February 20, 2009
Collisions
This has been an extraordinary week, perhaps unique in the history of the world. Two satellites collide above earth, two nuclear subs run into each other under water, and two political parties clash head-to-head on the ground over a plan to jump-start the US economy. Whether your location was land, sea, or air, nobody was safe.
Perhaps the event that has drawn the most worldwide attention, however, occurred Tuesday in Denver when President Obama signed his hard-fought economic stimulus plan which has an estimated price tag of some $787 billion.
The bill has been called by a variety of names ranging from a panacea for all of what ills to alphabet soup with all the bells and whistles to cronyism spending which will have no immediate impact on solving the economic crisis. Not surprising in a situation like we now find ourselves, none of these labels is entirely accurate.
There are, of course, some controversial elements of the package. Many of these have been pointed out by proponents and opponents, and numerous others probably will be brought to light as lawmakers and the public continue to read the plan searching for the devil in the details. There are also legitimate debate over the merits of (1) tax cuts (which have much smaller effects but can sometimes get into the system faster) versus spending (which brings more bang for the buck); (2) spending on social safety net items (which meet pressing personal needs) versus infrastructure (which has more lasting effects); (3) major investments (which have greater long-term benefits) versus “shovel-ready” projects (which can get money flowing faster); and (4) umpteen other things.
Even so, there can be no controversy that the US economy is in a sharp downtown, by most measures the steepest since before World War II. And, in spite of the political wrangling and posturing, few would deny that something massive is required to get the economy back on track. Unfortunately, what is truly a bipartisan measure in terms of provisions and structure did not receive bipartisan treatment in terms of votes. Such is the nature of politics.
In examining the plan with a broad brush, the independent Congressional Budget Office (CBO) has indicated that even though the stimulus plan will not be the save all for the economy most people might have desired, it will likely be a key cog in the machinery being implemented to reduce the severity of the recession which began in December 2007. The Obama Administration estimates it will create or save well over 3 million jobs. Based on typical spending per employee numbers in the relevant sectors, that number seems reasonable (if a bit aggressive). Because one can argue ad infinitum about what constitutes a “saved” job, you can bet there will be heated debate in coming election cycles.
Only a portion of the money will be spent this year, and the plan will certainly not eliminate the problems plaguing the economy. There are plenty of things not to like about the bill and, much as they don’t want to hear it, the members of Congress will probably get to revisit this issue a few more times before all is said and done. However, the plan does provide much-needed resources to ease the situation and facilitate the rejuvenation of the private sector.
Various analysts have stated that the plan will increase our national deficit and limit our debt service options in the future, and that it will put pressure on the dollar and lead to possible inflation. Some of these anxieties are clearly warranted and there is certainly no such thing as a free lunch, but there is no doubt that something massive had to be done. Simply put, the private sector does not have the capability on its own to repair the immense damage to our assets or stop the severe hemorrhaging the job market has been facing soon enough to avoid enormous pain and suffering. The pump has to be primed now, and we have to deal with the consequences later. The stimulus plan is far from perfect, but, all things considered, it’s not bad!!!
posted @ 08:08 AM CST [link]
Friday, February 13, 2009
The Employment Picture
During this time of the year, the week leading up to Valentine’s Day, the attention of most folks is normally focused on romantic plans and how best to express one’s feelings.
This year, however, the attention of our nation’s citizens, and indeed people around world, is heavily skewed toward the economy. The chief attraction that seems to be grabbing all the headlines is the stimulus package that has just been approved by both houses of Congress. Some modifications will undoubtedly be agreed upon in the conference committee that is now holding discussions, yet the bill will likely be quite similar to that which the lawmakers initially adopted.
How well and how quickly the measures will move the economy forward is still in question, but there is little doubt that the recession is having a debilitating impact on various elements of our society, especially employment.
Last week, the Bureau of Labor Statistics (BLS) issued a report announcing the loss of nearly 600,000 wage and salary jobs in January. The Bureau also pointed out that the unemployment rate rose to 7.6%. While this level is certainly of concern, as it is the highest in 16 years, the most sobering news pertains to the ongoing loss of jobs.
Almost weekly, the media reports that medium and large employers are releasing workers, some by the thousands. Since the recession officially began in December 2007, approximately 3.6 million people have lost their jobs, almost half of them over the past three months. More US workers lost their jobs last year than in any year since World War II. Currently, the number of unemployed persons totals about 11.6 million, an increase of some 4.1 million in the past 12 months. During this timeframe, the unemployment rate has climbed 2.7 percentage points.
However, unemployment rates as provided by the BLS follow certain precepts and may not be the best indicator for the health of the labor market. While it may appear to many people that the government in providing the unemployment statistics has obtained this information by counting noses of those out of work, the fact is that the information is gathered in a survey that samples about 60,000 households. The sample is, of course, scientifically structured, using a state-based design with both urban and rural areas considered, as well as geographic divisions of each state. Even so, it does not tell the whole story.
Basically, the survey identifies people with jobs as “employed” and those who do not have work, but are still looking, as “unemployed.” What the survey does not take into consideration is the possibility of people working part-time or in lower paying jobs or who have become so discouraged they are no longer seeking employment. In fact, one of the most disturbing aspects of the recent report was the more than 700,000 individuals who stopped actively looking for work. Thus, the data reflects a certain percentage of the nation’s population as being employed or unemployed, but makes no reference to the fact that overall income could be less because of hours worked or pay cuts by changing jobs.
What concerns me more than the unemployment rate is the number of people losing their jobs. The 598,000 who left the labor market in January, the worst month since 1974, indicate a more dire threat to the economy as it shows that the pattern that began in late 2007 is not abating. Even Texas, which has been the nation’s shining star in terms of employment growth over the past several months, is now experiencing a slowdown in the creation of new jobs. In December, seasonally adjusted nonagricultural employment dropped by 25,700, evidence that the economic storm raging across the country is now blanching the Lone Star State.
So what does all of this mean? Though no one can predict the future accurately, from my experience, the difficult times we find ourselves in currently are not going to be solved quickly. The government’s stimulus plan will help in putting people back to work, but overall it will probably be toward the latter part of 2009 before we will see any notable uptick in employment and, thus, any significant enhancement in the health of our economy (although output growth should occur earlier in the year).
Nonetheless, I remain convinced that our state and nation are sufficiently resilient and determined to improve current matters and that we as a people have the desire and capability to make tomorrow look quite different from today.
posted @ 07:59 AM CST [link]
Friday, February 6, 2009
Electric Power Infrastructure Investments Benefit Texas Economy
Over the 10 years since the passage of the Texas Electric Choice Act, investments in electric power generation capacity and transmission infrastructure have served as a substantial stimulus to business activity in Texas. Not only have these expenditures benefited firms in construction, manufacturing, engineering, and many other segments of the economy, they have also helped ensure an adequate supply of power in the state.
Although Texas is not immune to the national downturn, the state remains in a relatively strong position due to its favorable business climate. Private-sector investments in infrastructure have also enhanced the Lone Star State’s economy, generating jobs and improving our position in the competition for desirable corporate expansions and relocations. My projections call for Texas to continue to outperform the nation, and to come back from the current malaise with significant momentum.
Past economic and population growth have led to a sizable need for additional facilities. While the energy supply in Texas is currently sufficient, shortages would have emerged without the additions to capacity. Moreover, recent projections indicate the state would likely face a supply shortfall in the next few years in the absence of these new and planned investments. Fortunately, Texas has created a positive environment which is conducive to developing a diverse set of resources to meet current and future needs.
In addition to providing a foundation for other types of business activity to flourish, these outlays (1) involve substantial impacts on business activity in their own right (both in the construction and operational phases), (2) offer benefits to customers through helping secure a stable and sufficient supply of electric power, and (3) provide an increasing trend toward a more diverse fuel mix and facilitate the full realization of the benefits of competition.
My firm, The Perryman Group, was recently asked to examine the effect of investments in electric utility generation and transmission capacity within the service region of the Electric Reliability Council of Texas (ERCOT); this area represents approximately 85% of all power consumption within the state. (The full study, “The Impact of Investments in Electric Power Generation and Transmission Infrastructure in the Electric Reliability Council of Texas (ERCOT) Region on State Business Activity: An Assessment of Recent Patterns and Future Prospects,” is available on my firm’s website at www.perrymangroup.com.)
One of the foremost conclusions of our analysis is that investments in power generation capacity and supporting transmission infrastructure are vital to economic growth and sustainable prosperity. Without this expansion, future economic development within Texas could be jeopardized.
Some $36.5 billion (in 2008 dollars) has been invested in generation capacity in the ERCOT service region since 1999, increasing generation capacity by more than 41,000 MW. The construction and development of these facilities has served as an important source of economic stimulus in many areas. We measured the total gains in business activity stemming from generation capacity infrastructure enhancements to be $136.4 billion in spending, $66.1 billion in output, and 854,742 person-years of employment.
The incremental business activity linked to the $5.8 billion invested in transmission infrastructure (including over 6,000 miles of lines) leads to another $20.0 billion in total spending, $9.7 billion in output, and 126,096 person-years of employment.
Investments in generation and transmission also involve ongoing effects once operational. We quantified the yearly gains in business activity from the maintenance of the incremental resources developed over the past 10 years at $17.4 billion in annual spending, $5.9 billion in annual output, and 51,766 permanent jobs.
Specific initiatives, such as the anticipated $4.9 billion investment in transmission facilities comprising the Competitive Renewable Energy Zone (CREZ) program, are an important component of overall gains. CREZ alone is expected to provide economic benefits including $17.1 billion in spending, $8.3 billion in gross product, and 107,572 person-years of employment. It will also support significant additional investments in renewable energy, thus providing an even larger stimulus to the economy and helping to sustain the leadership role of Texas in this critical arena.
Improvements in generation and transmission capacity over the past 10 years and others that are presently planned or in progress have helped the Texas market for electric power to emerge as one of the healthiest in the nation (and, in fact, the world). These substantial outlays are essential to sustain long-term growth and development and are only one aspect of the overall benefits being fostered by a vigorous, competitive electricity market in Texas.
posted @ 07:44 AM CST [link]