- The Washington Times - Monday, July 19, 2010

A political logjam over extending long-term jobless benefits appeared to be breaking Monday as senators reacted to signs that a recent loss of momentum in the economic recovery could snowball into a more serious economic reversal.

With the arrival of a new Democratic senator from West Virginia, the Senate on Tuesday is expected to have the 60 votes needed to approve a $34 billion extension of benefits without offsetting spending cuts, though congressional aides said they expect growing political opposition to deficit spending fueled by Republicans to stiffen Congress’ resolve to pay for any future extensions.

Senate wrangling over whether to offset the benefits with spending cuts caused nearly 2.5 million unemployed people to lose benefits in recent weeks - a factor that economists say could have added to the malaise that throttled economic growth to a snail’s pace in the past two months.

“As long as Congress does not extend the unemployment benefits programs, about 400,000 Americans are exhausting their benefits every week,” said Harm Bandholz, an economist at Unicredit Markets. “This hurts the purchasing power of the affected households, and leaves its mark on the unemployment rate.”

Consumer spending - the main engine of economic growth - has slowed markedly since April, coinciding with the period when emergency benefits started to expire for people who are out of work for up to 99 weeks, as well as the expirations of other federal stimulus programs for home and appliance sales.

President Obama sought to highlight the hardship on unemployed workers in a Rose Garden news conference Monday accompanied by three people whose benefits expired. Republicans are wrong, he said, to say that people lose their incentive to look for work when they are on unemployment benefits.

“These are honest, decent, hardworking folks who have fallen on hard times through no fault of their own” and are “not looking for a handout,” he said. “They desperately want work. Just right now, they can’t find a job.”

Mr. Obama took a political shot at the GOP. “The same people who didn’t have any problem spending hundreds of billions of dollars on tax breaks for the wealthiest Americans are now saying we shouldn’t offer relief to middle-class Americans” unless it’s paid for, he said.

AlthoughMr. Obama claimed that most unemployed workers would rather have jobs than jobless benefits, recent government surveys of unemployment trends suggest otherwise.

As workers lost benefits in recent weeks, rather than step up their search for work, they stopped looking and dropped out of the labor force, Mr. Bandholz said, in an unexpected development that caused the unemployment rate to drop.

People are required to look for work as a condition of getting benefits, so it appears many stopped looking for work when they no longer were forced to do so, he said.

Labor Department surveys found that nearly 1 million people dropped out of the labor force during May and June, helping to draw the unemployment rate down to 9.5 percent.

If they were still looking for work, unemployment would have been much higher at 9.9 percent, Mr. Bandholz estimates.

Any political gainsDemocrats have garnered by championing the unemployed are likely to dissipate Tuesday, when Carte Goodwin, a former aide to West Virginia Gov. Joe Manchin III, is sworn in to replace the late Sen. Robert C. Byrd. That will give Democrats 59 votes in the Senate once again, enough along with one likely Republican defection to overcome GOP objections to the jobless bill.

While the debate continues on whether the availability of jobless benefits for as long as two years discourages people from taking jobs that are available, few economists question that the benefits have provided important support for consumers, whose spending normally fuels about 70 percent of economic activity.

While businesses have created a trickle of new jobs this year, that has produced only a modest revival of wage growth - not enough to fully replace the substantial support consumers received from unemployment benefits and other government transfers since the recession, said Scott Hoyt, an economist at Moody’s Economy.com.

“Cash, or the lack of it, is the primary factor holding back spending” since the spring, he said, noting that is partly because the record share of consumer income that came from government transfers has been on the decline recently.

Jobless benefits are one of the most powerful ways to boost the economy, according to Moody’s Economy.com, which estimates that every $1 in benefits produces a $1.67 increase in the nation’s economic output within a year. The boost is strong because unemployed workers spend nearly all their unemployment checks quickly and save little of the money.

Another potential source of income for consumers - the gains on assets such as houses and stocks - also went into reverse recently, taking yet another prop from under the economy that had helped to spur stronger consumer spending earlier this year.

Consumers tend to spend more when they feel wealthier as a result of gains on their stocks and home values. The setback in housing has been especially sharp since the expiration of a housing tax credit on April 30.

Housing sales, construction and prices have all fallen precipitously. Another sign of the collapse in housing came on Monday, when the National Association of Home Builders reported that confidence among developers fell to the lowest level since March 2009.

c Kara Rowland contributed to this report.



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