Is Obama planning a jobs stimulus?

White House to hold employment summit as the jobs market begins to heal.

By Anthony Mirhaydari Nov 13, 2009 5:28PM

MirhaydariWith the unemployment rate at 10.2%, the powers that be in Washington are starting to worry about the 2010 midterm elections. President Barack Obama announced on Thursday that the White House will convene a "jobs summit" in December. Separately, Senate Majority Leader Harry Reid recently said that the Congress will likely consider a "jobs" bill early next year.

 

All of this was enough for Goldman Sachs analyst Alec Philips to declare that yet another round of springtime stimulus is probably on the way. If it follows the timetable we've seen over the past two years, then policy will be formulated in December, debated in January and enacted in February.

 

These are savvy operators who can feel the political winds shifting. Whereas things like Iraq, health care and climate change loomed large in the 2008 elections, getting back to work is top of mind for a lot of folks right now. While we haven't reached the post-World War II peak in unemployment of 10.8% (set in November 1982), by another measure the current situation is as bad as it's ever been.

 

The unemployment rate back in March 2007, just nine months before the recession started, was 4.4%. Compare this to the 7.5% unemployment rate nine months before recession of the early 1980s. According to Deutsche Bank economist Joseph LaVorgna, in relative terms "the current deterioration in the labor market is without precedent."

 

Philips said Congress will likely enact $250 billion in additional fiscal measures to support growth over the next three years, including $75 billion more in 2010. However, recent developments -- including the $45 billion law enacted last Friday to help homebuyers -- make this assumption look increasingly conservative.

 

What form these additional measures take is the subject of much speculation. My guess is we're likely to see a combination of tax credits on new hiring, small business lending and a further extension of fiscal support to state and local governments.

 

LaVorgna believes unemployment could have already peaked. This is based on an analysis of the duration of unemployment. He finds that the number of people unemployment between five and 14 weeks is a strong leading indicator for the labor market that operates on a one-quarter lag -- and it turned and moved lower last quarter. It would be all too typical for the politicos to start directly addressing the jobs problem just as it's about to get better.

 

Disclosure: The author does not own or control a position in any of the funds or companies mentioned.

 

Anthony Mirhaydari is a researcher for the Strategic Advantage investment newsletter. He can be contacted at anthony.mirhaydari@live.com. Feel free to comment below.

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