By William Patalon III
Money Morning/The Money Map Report
President-elect Barack Obama said Saturday that an analysis of his stimulus proposal found that the capital infusion could save or create as many as 4 million U.S. jobs by 2010, nearly 90% of them in the private sector. Obama previously estimated that his estimated $800 billion strategy for winching the American economy out of its year-long recession could save or create 3 million jobs, but the new study has found that the actual number would range between 3 million and 4 million.
The analysis was submitted by Christina Romer, head of Obama’s council of economic advisors, and Jared Bernstein, the economic advisor to Vice President-elect Joe Biden. The analysis directly follows an official government report showing that U.S. employers slashed more than half a million jobs in December, pushing the unemployment rate to 7.2% and bringing the number of jobs lost last year to 2.6 million — the worst showing since 1945.
“The jobs we create will be in businesses large and small across a wide range of industries,” President-elect Obama said on his weekly radio and Internet address. "And they'll be the kind of jobs that don't just put people to work in the short term, but position our economy to lead the world in the long term.”
With President-elect Obama’s inauguration set for Jan. 20 – a week from tomorrow (Tuesday), expect around-the-clock discussions about the stimulus package (and potential tax cuts), as the political bickering begins in earnest.
Because of the plan’s high cost and proposed tax cuts, Obama has faced opposition from Republican and Democratic lawmakers. The incoming president’s top aides visited Capitol Hill on Friday to attempt to allay lawmaker concerns. The plan would combine the tax cuts, aid to states and public-works projects.
Obama said his plan would create nearly 500,000 jobs by investing in clean energy, by committing to double the production of alternative energy in the next three years and by improving the energy efficiency of 2 million American homes. However, he also warned yet again that the economy is likely to get worse before it gets better and that any recovery will not happen overnight.
“These made-in-America jobs building solar panels and wind turbines, developing fuel-efficient cars and new energy technologies pay well, and they can't be outsourced," Obama said during his address.
In excerpts from an interview with ABC News to be broadcast on Sunday, President-elect Obama said Americans will have to scale back and make personal sacrifices.
“I want to be realistic here, not everything that we talked about during the campaign are we going to be able to do on the pace we had hoped," he said in a taped interview with ABC's "This Week with George Stephanopoulos."
"Everybody's going to have (to) give," Obama said.
Obama also said the proposal:
- Showed the recovery plan would put nearly 400,000 people back to work repairing infrastructure like crumbling roads, bridges and schools and adding miles of broadband network cable.
- Would include bipartisan extensions of unemployment insurance and health care coverage, a $1,000 tax cut for 95% of working families, and assistance to help states avoid deep-and-painful budget cuts in essential services like police, fire, education and health care.
“We won’t just create jobs, we'll also provide help for those who've lost theirs, and for states and families who've been hardest-hit by this recession," Obama said.
Investors will be tested in the coming weeks as earnings season approaches and corporations share their “gloom and doom” of the past quarter – Intel Corp. (INTC) and Wal-Mart Stores Inc. (WMT) offered investors a sneak peak.
The monthly inflation gauges should depict additional energy price contraction, which actually has served as an unofficial stimulus package at the pumps (though no one ever talks about it). Traders who thought oil had set a floor around $40 a barrel may have to reassess their views. Cuts by the Organization of Petroleum Exporting Countries (OPEC), Middle East turmoil, Russian/Ukrainian disputes … nothing seems capable of halting the slide in oil prices.
Instead, the eternal pessimists focus on deflation, fearful that consumers will hold off on all purchases (regardless of pricing) and the economic downturn will continue well into 2009. On that note, the retail sales data should offer few positive surprises. At least, that new “chief performance officer” represents job expansion. But as Money Morning’s investing gurus have demonstrated, it is inflation – not deflation – that will be the big worry.
Six days and counting. Just how will equities perform in 2009? According to the January Effect: As the first five days of January go, so goes the market for the year. Often investors sell stocks late in the year to lock in capital losses. When they reinvest during the first five days (stocks rise), they believe the markets will increase and look to take advantage of the appreciation. When stocks fall during that week, investors are less optimistic about the future of the markets. In 2008, both the Dow Jones Industrial Average and Standard & Poor’s 500 Indexes dropped by more than 5% during the initial five trading sessions, a highly negative (but accurate) precursor of the year to come. However, in 2009, the predictor turned out to be less clear; the Dow dropped by 0.39%, while the S&P 500 rose by 0.72% (though both were lower after Day Six). The market uncertainty continues into the New Year.
In corporate news, published reports state that Citigroup Inc. (C) and Morgan Stanley (MS) are looking to combine their brokerage units. Morgan Stanley could pay $2 billion to $3 billion or more for a controlling stake in Citigroup's Smith Barney retail brokerage business.
Terms of the deal are still being worked out, sources familiar with the matter said, adding that Citi may put its toxic assets into a separate unit as a preliminary step toward shedding them.
Under the current plan, Citigroup and Morgan Stanley would set up a joint venture for their combined retail brokerage businesses. Morgan Stanley would own 51%, control the venture, and would expect to buy Citigroup's remaining share over the next five years.
The cash would be a big boon for Citigroup, which is under tremendous pressure from the U.S. government to shore up its balance sheet after taking $45 billion of government capital in October and November, the sources told Reuters.
The bank is considering multiple options in addition to the Morgan Stanley deal.
"Everything is on the table," the sources said.
Dismantling the rest of Citigroup would be difficult, since not many are in the market for big-ticket financial assets now. A few smaller businesses or groups may be sold off – Citi has internally discussed the possibility of selling its Banamex Mexican banking unit, for example. But splitting up Citigroup completely is unlikely.
Wal-Mart Stores, Inc. (WMT) joined the ranks of depressed retailers by missing December sales projections and then cut its outlook for the quarter. Toyota Motor Corp. (ADR: TM), General Motors Corp. (GM) and Ford Motor Co. (F) reported sales declines of 30% (or more) last month, while Volkswagen AG (ADR: VLKAY) and Bayerische Motoren Werke AG announced plans for greater expansion in the U.S. market to take advantage of their struggling domestic competitors.
Alcoa Inc. (AA) added to the gloomy unemployment picture by reducing its work force by 15,000 jobs. Intel again warned that the economy is hindering its operations as consumers and businesses shy away from technology purchases. Indian high-tech giant Satyam Computer (ADR: SAY) pulled a “Madoff” by informing investors that its chairman had been falsifying financial results and exaggerated his $1 billion cash balance. Even Madoff himself was appalled (as he attempted to mail $173 million of checks to loyal investors and send $1 million in jewelry to friends and family).
Oil surged above $48 a barrel early in the week as war escalated in Gaza; however, a mid-week report depicted higher-than-expected inventories and prices plunged 12% in a day – and ultimately dropped below $40 for the first time in 2009.
Stocks gave back those gains from the first trading day as investors (over)analyzed the retail numbers and other data. On the fixed income front, bond investors appear more willing to accept risk as $750 million flowed into high-yield (junk) funds during the last two weeks of 2008.
Year Close (2008)
Qtr Close (12/31/08)
Dow Jones Industrial
10 yr Treasury (Yield)
So what’s $1.2 trillion between friends? After entering office with a budget surplus, the fiscally conservative President Bush will leave his successor with a $1.186 trillion deficit (that is sure to rise with the afore-mentioned Obama stimulus package). For his part, Obama promises to "put government on the side of taxpayers and everyday Americans" as he created a new position – chief performance officer – to eliminate waste wherever it exists in the federal budget.
Good luck with that, Mr. President (elect).
While the economic calendar was quite hectic, economists and investors alike eagerly awaited (rather, reluctantly feared) the late-week unemployment and non-farm payroll releases. In December, the jobless rate surged to 7.2%, its highest level in 16 years, as another 524,000 jobs were eliminated from the economy.
For all of 2009, 2.6 million jobs were lost, the biggest contraction since 1945, though the labor force has tripled since that time. While new claims for unemployment benefits has shown some improvement over the past few weeks, continuing claims rose to a 26-year high, revealing that laid-off workers are having significant difficulties finding new jobs during the recession.
Factory orders fell for the fourth straight month as the weak (and getting weaker) auto sector continued to restrict any progress in manufacturing.
Consumers borrowing declined by a record amount in November, as individuals remained afraid to make any purchases or add to debt positions during these dire times. Unfortunately, the surest way to work our way out of this recession is for those individuals and businesses (who are able) to pour money back into the economy and that is simply not happening. The minutes from the December U.S. Federal Reserve meeting were released and policymakers appear highly pessimistic about growth prospects for 2009 and implied that rates could remain just above 0% for the foreseeable future.
Meanwhile, the Bank of England cuts its rate to the lowest level in its 315-year history.
Weekly Economic Calendar
Construction Spending (11/08)
Much better than expected report
Factory Orders (11/08)
4th straight monthly decline
ISM – Services (12/08)
Better than expected survey results for sector
Initial Jobless Claims (01/03/09)
High “continuing” claims indicates difficulty finding jobs
Consumer Credit (11/08)
Largest decline in consumer borrowing on record
Unemployment Rate (12/08)
Soared to highest rate in 16 years
Non-farm Payroll Additions (12/08)
2.6 million jobs lost in 2008
The Week Ahead
Retail Sales (12/08)
Initial Jobless Claims (01/10/09)
Industrial Production (12/08)
News and Related Story Links:
- Money Morning News Analysis:
Blue Christmas for Retailers as Slumping Economy Hammers Sales .
- Money Morning News Analysis:
Why Fed Policies and Treasury Department Bailouts Will Lead to Inflation Rather Than Deflation.
- Money Morning News Analysis:
How to Avoid Madoff Mayhem.
About the Author
Before he moved into the investment-research business in 2005, William (Bill) Patalon III spent 22 years as an award-winning financial reporter, columnist, and editor. Today he is the Executive Editor and Senior Research Analyst for Money Morning at Money Map Press. With his latest project, Private Briefing, Bill takes you "behind the scenes" of his established investment news website for a closer look at the action. Members get all the expert analysis and exclusive scoops he can't publish... and some of the most valuable picks that turn up in Bill's closed-door sessions with editors and experts.