2009 Stimulus Check

Continued from The U.S. Economy Part 1

Of particular interest is that though unemployment in manufacturing has been rising as the economy slowed person incomes and spending have been growing at an annualised rate of about a 5 per cent during the past four months. Now Austrian analysis tells us that in the final phase consumption will continue to expand and incomes rise while manufacturing suffers a profit squeeze. We now find that service sector income rose at a rate of 0.7 per cent in February, 7 times the manufacturing rate. A year-on-year figure reveals that total service sector income rose by $US112 billion, or 6.5 per cent, compared with US18.5 billion, or 2 per cent, for manufacturing. This indicates that the spending shift that Austrian analysis predicts has been underway for sometime.

Even so, Austrianism also predicts that the consumption end of the production structure must also feels the effects of recession once manufacturing has been hit. The latest National Purchasing Management’s report on non-manufacturing activity shows its index for this sector dropping in four months from 61 to 47, a 23 per cent fall. Note that this fall occurred despite the fact that incomes were rising. Given these facts, any joy from April’s lift in retail sales will be short lived.

Productivity down, profits down, investment down, manufacturing down, employment down, savings down, labour costs up, spending up, prices up, consumption up, money supply up. These are not the economic ingredients that make for prosperity. They are the fruits of an appallingly loose monetary policy for which America, and the rest of world, are going to have to pay.

Nevertheless, I am not entirely full of gloom. So long as the Bush administration allows the economy to make the necessary, though painful, adjustments recovery should be fairly fast.

Not all retailers will benefit from the 2009 stimulus check.

When the 2009 stimulus was signed, many retailers were hoping that they would be helped by the stimulus package. The idea behind the stimulus checks is to create a project where the country would produce as much as 3.5 million job opportunities while at the same time give consumers stimulus checks to spend and help boost the country’s economy. However, it looks like only some of these retailers will get any kind of financial support from the 2009 stimulus.

Gregory Melich, one of the analysts at Morgan Stanley, said that even though the 2009 stimulus checks would result in consumers spending as much as $200 each, it is possible that this will only result in retail sales worth between $30 billion and $50 billion. And the stimulus checks and tax credits are likely to be spent on retailers that are value-oriented or those who are selling products that are considered as necessities by the consumers.

In a recent article, Gregory Melich wrote that the overall impact of the 2009 stimulus checks will only help a few retailers in the country. In the same article, Gregory Melich said that analysts like him are expecting that the Obama stimulus will only stimulate retail sales by 1 percent. Hopefully, the retail sales industry would not have a 2 percent decline given the current financial crisis of the country, resulting with rising unemployment as well as the decreasing value real estate properties.

He described the 2009 stimulus checks as a form of reallocation rather than a way to boost the economy’s growth. Consumers like him are always in favor of the distributors or retailers offering their goods at a very cheap price especially when it comes to their essentials or the things that matter most to them. Some of the distributors that he considered will benefit from the stimulus checks and tax credits to the Americans include Korger, Wal-Mart, and Wendy’s. Gregory Melich also mentioned that the Advance Auto Parts as well as the Discounter Dollar Tree are also in the category of well-favored distributors in the country.

Many Americans and even non-Americans think of the 2009 stimulus bill as the solution to the country’s financial dilemma. There are several features of the legislation that give everyone hope of receiving a 2009 stimulus check, not least those on unemployment benefits.

In the American Recovery and Reinvestment Act of 2009 (the stimulus bill), there are numerous provisions that are mostly related to the unemployment problem in the country.

First of all, those who will be receiving the unemployment compensation benefits this year will get as much as $2,400. However, this unemployment compensation is still taxable by many states including New York. If you think that you will be getting unemployment compensation this year, make sure that you plan for your 2010 income tax filing.

Aside from that, the stimulus bill also calls for an extra 20 weeks of the stimulus checks in the form of ordinary unemployment benefits. Moreover, there will also be at least 13 more weekly checks, in addition to the 20 additional weeks, for those who will file for unemployment compensation that is living in a so-called “high unemployment state.”As of today, there are 30 states that have a high unemployment rate. Try to check if your state is included by asking your local employment bureau.

But that’s not all. Part of the 2009 stimulus bill that was recently signed by President Barack Obama is increasing benefit payments by as much as $25. Although some people do not think that a stimulus check of $25 would really help in their current budget dilemma, there are also many who think that this $25 increase will be a big aid. Imagine saving up $25 for 12 months! In the state of New York the maximum benefit that can be received weekly is $405. But thanks to 2009 stimulus checks, this will now increase to $430 a week.

By Gerard Jackson

Falling Productivity Is a Bad Omen

That the recorded fall in productivity took so many economists by surprise is a clear demonstration of just how defective Keynesian thinking is. However, Paul Kasriel, chief economist at Northern Trust Co, is one economic commentator who predicted falling productivity, saying that “productivity is not as miraculous as some had thought”. Why? Because he applied Austrian analysis.

I have explained a number times how credit expansion distorts production, eventually causing manufacturing to contract while still stimulating consumption. In the final phase of the boom we find labour costs rising even as profits are squeezed and manufacturing output falls. This is precisely what is happening now. A phenomenon with which the classical economists were familiar is causing confusion among our mainstream economists.

Now for the facts. The Labor Department reported that labor costs leapt by a 5.2 percent rate in the first quarter At the same time productivity fell by 0.1 percent, taking the majority of economists by surprise. The last time labor costs exceeded 3.5 per cent was in 1990 when unit cost increased 6.1 per cent in the second quarter and then continued into the third and fourth quarters. For those who have forgotten, the economy slid into recession in the third quarter of 1990.

Is the economy following the same pattern as 1990? I fear so. Bob Barbera, chief economist at Hoenig & Co. in Rye Brook, New York said: “Productivity is comporting itself in a traditional cyclical pattern. . . . This is painfully old news. Companies have already told us profits are lousy, and the government is finally getting around to figuring it out in the macro data.” If government advisers and the Fed has have used the correct economic approach in the first place they wouldn’t now be trying to figure out what happened.

Continued at The U.S. Economy Part 2