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CBO says stimulus added jobs; home sales plunge; how MMS failed

Dylan Matthews is writing Wonkbook while Ezra is on vacation.

The latest CBO estimate places job gains from the stimulus package at between 1.4 million and 3.3 million. Meanwhile, existing home sales dropped dramatically, raising the prospect of a double dip in the housing market. And a new account tells how the Minerals Management Service failed to prevent the BP oil spill.

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The CBO says the stimulus is creating jobs, and will only be 70 percent spent by year's end, reports Lori Montgomery: "The CBO said the act also increased the nation's gross domestic product by between 1.7 percent and 4.5 percent in the second quarter, indicating that the stimulus may have been the primary source of growth in the U.S. economy. The Commerce Department estimates that GDP grew 2.4 percent in the second quarter, a figure many economists expect to be revised lower in a report due out Friday."

New home sales are at a 15-year low, report Dina ElBoghdady and Ariana Eunjung Cha: "Existing home sales surged in the early spring largely because of a lucrative tax credit program that targeted some first-time buyers and repeat buyers. Many economists predicted that home sales would drop briefly when the program expired April 30 and would then recover. But now, many are questioning how soon the rebound will occur, and July's results add to those fears."

Juliet Eilperin and Scott Higham explain how a cozy relationship with industry enabled the Minerals Management Service's failure to prevent the BP spill: "Two weeks after BP's Macondo well blew out in the Gulf of Mexico, the federal government's Minerals Management Service finalized a regulation intended to control the undersea pressures that threaten deepwater drilling operations. MMS did not write the rule. As it had dozens of times before, the agency adopted language provided by the oil industry's trade group, the American Petroleum Institute, and incorporated it into the Federal Register. ... MMS has adopted at least 78 industry-generated standards as federal regulations."

Intergenerational mashup interlude: Katy Perry vs. Genesis.

Still to come: The business lobby gets procedural; gas prices plunge; Race to Top announces its victors; and a dancing panda.

Economy/FinReg

The U.S. Chamber of Commerce, National Association of Manufacturers and others are urging the Senate to run Bush tax cuts extensions through the Finance Committee, reports John McKinnon: "If the tax bill were to go through the Finance Committee, a number of centrist Democrats could join with Republicans to produce a bill that extends Bush-era tax breaks for all income levels, say people with knowledge of the Senate’s closed-door negotiations on the tax bill. And Democrats may not have enough votes to amend an across-the-board extension bill, if such legislation were to reach the floor."

Read the CBO's stimulus impact report.

We may be in a much weaker recovery than we think, writes Neil Irwin: "Goldman Sachs economists wrote in a report Monday that analysts have been too slow to mark down their forecasts for growth in the second half of the year to match the new reality. They're now forecasting that the GDP will rise in the second half at a mere 1.5 percent annual rate, well below the 2.4 to 2.7 consensus that mainstream forecasters are still holding to. ... The U.S. economy should grow at a 2.5 to 3 percent annual rate in the long run just due to population growth and higher productivity. So 1.5 percent growth would mean that the gap between what the nation is capable of producing and what it is actually producing would be widening, rather than narrowing."

The head of the Chicago Fed thinks a double dip is unlikely.

Democrats likely will not be able to pass legislation boosting the economy before the midterms, report Lori Montgomery and Neil Irwin: " 'They have played their policy hand, and they've got to hope it's good enough,' said Mark Zandi, chief economist at Moody's Analytics who has been advising congressional Democrats. Given the political environment, he said, 'there's nothing they can do to make a significant difference in the next six months, or even a year.' "

Barney Frank will hold hearings on executive compensation.

Frank Ahrens argues housing sales probably will have to fall still further: "You've probably already seen the value of your home drop 20, 30, 40 percent over the past four years. That's painful, especially because it's the largest purchase most Americans will make in their lives. But today's number -- combined with the general economic malaise -- tells us that home prices probably still have not hit bottom. And that's exactly what needs to happen before the economy can right itself."

Chris Farrell proposes modest tax reform steps: "Another potential way to get the tax reform process going comes from Andrew Samwick, economist at Dartmouth College. He went to the President's Council of Economic Advisers in July 2003 and served as its chief economist for a year. He suggests leaving the income tax system alone for the moment. Instead, he would raise the federal gasoline tax and use the proceeds to reduce the deficit or temporarily offset a portion of the payroll tax. At a very basic level, you get less of what you tax and more of what you don't. 'We get less congestion, emissions, and pollution,' he says. 'We get more payroll.' "

Adorable animal edited to be more adorable interlude: A dancing panda.

Energy

Gas prices are at an eight-month low, reports Steven Mufson: "Long-term trends -- such as improvements in the fuel efficiency of American autos -- played a part too, other analysts said. A steady increase in the biofuels component of U.S. motor fuel is another reason; the four week average for ethanol production ending Aug. 13 was 854,000 barrels a day, up nearly 18 percent from a year ago and now more than 9 percent of the volume of motor fuel, according to the Renewable Fuels Association."

A lack of gear prevented an effective response to the oil spill.

A new study credits microbes in the gulf with breaking up much of the oil plume, reports David Brown: "Petroleum-eating bacteria -- which had dined for eons on oil seeping naturally through the seafloor -- proliferated in the cloud of oil that drifted underwater for months after the April 20 accident. They not only outcompeted fellow microbes, they each ramped up their own internal metabolic machinery to digest the oil as efficiently as possible. The result was a nature-made cleanup crew capable of reducing the amount of oil in the undersea 'plume' by half about every three days, according to research published online Tuesday by the journal Science."

A ruling on Virginia's "climategate" lawsuit is expected next week.

Jason Pontin interviews Bill Gates on green energy technology: "If you wanted the U.S. energy industry as a whole to fund this R&D, you'd only have to tax energy 1 percent. That is, the amount of tax you'd need to fund the R&D is an order of magnitude less than the amount you'd need to increase the price of energy in order to start to have a strong price signal in terms of efficiency and tradeoffs in new power plants. The tradeoffs in new power plants you can do through regulation--just say, 'Hey, you have to retire CO2-intensive plants at various dates, and you have to replace them with ones that meet various CO2 standards.' So that actually creates a market, in the sense that people have to buy those things. But it'd take a very small tax to fund even a significant level of R&D increase."

Scientist Linda Hooper-Bui argues the feds are falling short on coordinating research in the Gulf: "True, the National Science Foundation has a rapid-response grant program that has been a lifeline to independent researchers, dispersing more than $14 million to 90 short-term research projects associated with the disaster. My team submitted a proposal that was quickly peer-reviewed and approved, allowing us to continue our research. But given the unprecedented nature of the disaster, that’s not nearly enough money. Instead, we need a unified national research plan administered by the National Science Foundation."

Foreign cinema interlude: Werner Herzog discusses WrestleMania.

Domestic Policy

Nine states and D.C. have won the Race to the Top competition, report Stephanie Banchero and Neil King: "Jilted states and other observers questioned the validity of a scoring system that left out states such as Colorado and Louisiana--which many had considered shoo-ins based on their reform efforts -- while awarding money to Hawaii, which made few changes to strengthen its application. Some observers noted that seven of the 10 winners have governors who are Democrats. Critics also pointed to a clear tilt toward Eastern states with big cities and states in which teacher's unions signed on to the applications."

The DOJ is appealing a judge's ruling against the administration's stem cell policy.

Obama is targeting tech contracts as a means to budget cuts, report Kate Andersen Brower and Todd Shields: "Former White House budget director Peter Orszag ordered a review of the $80 billion the government spends annually on technology to determine whether lax oversight has led to cost overruns, delays and the implementation of obsolete systems. 'We need to end a culture in Washington where we continue to throw good money after bad money,' said Vivek Kundra, the government's chief information officer, on a conference call Monday. 'If these projects can't be turned around, if they don't add value, we will take the appropriate actions. They may be discontinued.'"

A Senate-stalled food safety bill could have prevented the salmonella outbreak, reports Meredith Shiner: "Current law is so weak that it does not permit the FDA to authorize recalls. Instead, the government must rely on the responsible parties to issue recalls themselves -- a loophole that often translates into weeks or months of negotiations between the government and companies afraid of losing profits before contaminated food gets called back.The pending legislation not only gives the FDA recall authority but also imposes stricter rules on mandatory inspections, trace-back protocol, access to company records and whistleblower protections -- all of which are lacking in the current food safety law, which is more than 70 years old."

Donna Dickenson argues our focus on personal, not public, health is driving costs up.

Sarah Lueck has recommendations for states implementing insurance exchanges: "States may, for example, decide which insurers or products will be available on the basis of price, performance on quality measures, and customer satisfaction, in order to improve the affordability and quality of plans offered through the exchange. Such a model would likely lead to different plan offerings within the exchange compared to the outside markets. However, if a state decides not to use a selective process to pick plans for an exchange, it could help protect against adverse selection by requiring all insurers who wish to offer products in outside markets to also offer coverage in the exchange and to offer the same products (priced the same) both inside and out."

Dylan Matthews is a student at Harvard and a researcher at The Washington Post.

By Dylan Matthews  |  August 25, 2010; 9:52 AM ET
 
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Next: Are private prisons worth the cost? Ctd.

Comments

Here in Florida, the big bad Obamacare repealer heroes Bill McCollum and Holly Benson both lost their primary elections.

Holly Benson loved her TV ads in which she cited health care reform as Obama's health care "scam".

And McCollum of course loved to brag he was the first AG to bring a lawsuit to repeal HCR.

Nevertheless, the people who beat them aren't that much better, but I would think McCollum's defeat does help the Dem chances because of Rick Scott's unsavory past. Even my right-wing boyfriend says he won't vote for Scott.

Posted by: lauren2010 | August 25, 2010 10:11 AM | Report abuse

"The head of the Chicago Fed thinks a double dip is unlikely."

Let's go through the list:

-Initial jobless claims hit 500,000 last week
-The household employment survey peaked in April at 139,455k jobs, and by July we had lost 500k jobs and stood at 138,960k.
-Home sales have fallen to record lows, and with demand pulled forward sales/prices are likely to remain weak for sometime going forward
-The inventory cycle (which drove most of the GDP gains over the past year) is over
-Core retail sales (which feed directly into GDP) have flatlined and have been down for months, and consumer attitudes towards spending have undergone a secular shift towards frugality
-The Fed is wary of trying any real amount of monetary easing
-Fiscal stimulus has peaked, and to the extent it has any effect on growth it will be a drag as the stimulus winds down
-Regional Fed activity indexes mixed, some showing outright contraction
-Durable goods orders ex-aircraft plunged last month, clearly breaking the last year's uptrend
-Bank credit continues to contract
-ECRI weekly leading index has been signaling the onset of recession for about a month or two now
-There are no bubbles left to inflate

On the positive side of the ledger, there is:

-Favorable yield curve shaping (although similar shaping in 1936 didn't prevent the 1937 recession)
-Several activity indexes (e.g. ISM, some Fed indexes) are still positive
-Hope that recent surge of business capex spending will continue

The balance of risks suggests it is unlikely to avoid a double dip into contraction. Mainstream economists are consistently surprised by negative news, be it housing numbers, jobless claims - often times the actual data is worse than the forecasts of all economists.

Macroadvisers' estimate for monthly GDP peaked in April, and it's entirely possible we are four months into a double dip.

Posted by: justin84 | August 25, 2010 11:05 AM | Report abuse

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