Recovery on the Horizon?

"Modestly", "moderately", and "jobs" are the three words that cover just about everything that is going on in the U.S. political economy. The latest summary of economic conditions prepared by the Federal Reserve Bank of New York reports that "economic conditions have generally improved modestly; consumer spending picked up moderately; manufacturing conditions [are] moderately improving across the country." Perhaps most important, the Fed report noted that goods inventories, although up a bit last month, are lean, so lean that one-third of all manufacturers report that their customers' inventory levels are too low, and only 7% that they are too high. If White House economist Larry Summers is right that the level of inventories is among the more important indicators of future economic activity, the resulting bare shelves and warehouses will produce a pickup in orders and in economic growth. It is certainly true that car showrooms have been so denuded of stocks that manufacturers are upping next year's production schedules. Ford is planning to make 58% more vehicles in the first quarter of 2010 than it did in the same period this year, and GM is planning a 75% boost from the depressed level earlier this year. One cheer only: these increases are from the very depressed levels of last year.

The moderate improvement includes an increase in manufacturing activity in November for the fourth consecutive month; a rebound in new orders, a rise in pending home sales (contracts out, but not completed) for the ninth consecutive month to the highest level since March 2006; and sales of jewelry, not a necessity in most homes, have risen in each of the past three months. But retail sales last month were disappointing, and credit remains tight, so the economy remains in fragile condition, subject to some external shock -- something to keep in mind as President Obama's year-end deadline (which experience suggests might in fact prove not to be any such thing) for cooperation from Iran approaches, and the Israelis digest Iran's report that it plans to build ten new nuclear facilities.

So much for "moderate". Friday's jobs reports was hardly that. After months in which hundreds of thousands of jobs have been lost, such lay-offs totaled a mere 11,000 in November, the lowest level in two years. The unemployment rate dropped from 10.2% in October to 10.0% in November, the work week lengthened, average hourly earnings rose a bit, and the job loss figures for September and October were revised downward by 159,000. Good news for the president.

But he knows three things. First, one month does not make a trend. Second, 38% of the unemployed have been out of work for more than six months, which might make it more difficult to find work for them as their skills atrophy. Third, the 15.4 million workers classified as unemployed do not include workers so discouraged that they have dropped out of the work force, and those involuntarily working only part-time. Add those workers, and the total comes to 26.5 million direct victims of the recession, or 17.2% of the total work force (down from 17.5% last month). Throw in their families, and their still-employed but nervous neighbors, and you have a block of voters unlikely to smile on those of his party's incumbents who will be seeking their votes next year. The economy is a long way from the 4.9% unemployment rate that prevailed in December of 2007, when the recession started and since when the number of unemployed persons has increased by 7.9 million. It may be a long road to the corner around which prosperity lurks.

So the president "pivoted," to use the Washington buzz word. He has been concentrating on health care and Afghanistan, but voters tell pollsters their biggest concerns are jobs and the deficit. He will now concentrate on those issues, with jobs top of his new agenda, and the deficit to be shuttled off to a bipartisan commission for study.

As for jobs, last week he invited union leaders, economists, businessmen and others to a "jobs creation" summit. Since the president already knows what he is going to recommend when he addresses the nation on Tuesday, this was a public relations stunt. The liberals in attendance favor more government spending, perhaps $200 billion more, on a variety of programs, including cash grants to states to head off planned lay-offs of bureaucrats, the direct hiring of workers to build bridges and other infrastructure projects, and subsidies to encourage homeowners to hire workers to weather-proof their homes -- cash-for-caulkers. They also want the money from the banks' repayments of bail-out funds to be used extend unemployment benefits.