Economic Reports Muddle Predictions about Recovery
Byline: Chris Versace, SPECIAL TO THE WASHINGTON TIMES
We continue to get mixed results about the economy from both economic data streams and company earnings.
On the one hand, management teams of some companies, such as Cisco and Whole Foods, are saying their respective businesses are turning the corner. Even so, we are not out of the woods yet, Toto - for even while Cisco noted improving trends for its business, CEO John Chambers noted that concerns about the strength of the global economy remain, citing uncertainties regarding the strength and shape of the recovery.
Also, we have heard more news on corporate layoffs from the likes of Microsoft, Time and Sprint-Nextel.
This follows the monthly ADP-Macroeconomic Advisers national employment report that was released midweek and showed that private-sector jobs in the U.S. fell by 203,000 in October. Although this was better than the 227,000 jobs lost in September, the October results, combined with continuing jobless claims at more than 500,000 per week, is but the latest confirming sign that we are in for a protracted recovery.
One concern I have is how the recent bankruptcy of CIT Group and the continued tightness among banks when it comes to lending will affect small and medium-sized businesses, particularly those with lumpy or volatile cash flows. The risk is that even in an economy that has stabilized, the cash-flow volatility of these businesses that are not backstopped by a funding source for working capital needs - seasonal or otherwise - could result in additional layoffs in the coming weeks and months. Again, it's a concern, and given the expectation voiced by ADP that it does not see the unemployment rate peaking until sometime in the second half of 2010, I am not alone in my concerns. Currently, unemployment stands at 9.8 percent, the highest since 1983, and pundits predict it will reach 9.9 percent when new figures for October are released, set for Friday.
It comes as little surprise, then, that the Senate has voted to extend unemployment insurance by 14 weeks for jobless people who have exhausted their benefits. Moreover, in the 27 states, plus the District of Columbia and Puerto Rico, that have unemployment rates of 8.5 percent or higher, the jobless will receive an additional six weeks of benefits. Naturally one of the first questions that runs through my mind is, where will the additional funding come from to support this latest program extension amid a record federal budget deficit? Unemployment insurance payments, which average $308 per week, usually expire after six months, but Congress has already extended them twice.
Some economists theorize these benefit payments will act as an economic stimulant because they are spent quickly and help the jobless avert foreclosure and bankruptcy. Now, the theory is always interesting, but will be nice to see whether the real world data matches up against the theory. …