The Economy's Negative Weakening Status

GDP Report: The Economy Not as Strong as it Appears

November 7, 2013

Cnn.com

By Annalyn Kurts

The Economy's Negative Weakening Status 

Although it appeared as though the U.S. economy perked up a bit this summer, as stores re-stocked their shelves, consumer spending rose slightkly, and the housing recovery chugged along.Gross domestic product -- the broadest measure of economic activity -- rose at a 2.8% annual rate in the third quarter, according to the Bureau of Economic Analysis. That marked the fastest growth in a year and was stronger than economists had anticipated. However, the gross domestic product report can be deceiving.

"In reality, it's a weaker report than it looks on the surface," said Adolfo Laurenti, deputy chief economist for Mesirow Financial. An added .8 percentage points to gross domestic product was in itself a surprise. When inventories, like these,  build up, it can mean two very different things: 1. Businesses have a valid reason to expect the demand for products to increase, in the future, so they stock their shelves in advance, or 2. The demand is weaker than they expected,  and the goods already ordered tend to linger on shelves. 

Laurennti believes it is a latter case. Growth is slowing into the end of the year as people range and complain about the absurd amount of money they spend on groceries and holiday gifts."When we see recent reports by retailers that sales are not as strong as we were expecting for back-to-school and sales for Halloween are a little bit softer than we were expecting, I have reason to believe the accumulation in inventories is mostly unexpected and not good news," he said. "Unless of course, people expect gangbuster sales for Christmas, which quite frankly, I don't think is in the data either."

Uncertainties about economic growth and government policy are holding them back from investing, said Sung Won Sohn, economist at California State University Channel Islands.

"Until the latest report, businesses had been trying to boost productivity by using the latest technology saving labor," he said in a research note. "Unfortunately, they seem to be losing confidence in the future course of the economy putting equipment purchases on hold." 

However, a few good things came out of spending on housing and commercial real estate. Federal budget cuts have been holding back economic growth for four quarter. Nevertheless, over this past summer, the state and local governments have increased their spending and investments enough to compensate for federal cuts. It is unclear whether that will continue. This report does not yet reflect the government shutdown in October, which put thousands of federal workers temporarily out of a job and halted some government work for 16 days.

The Truth of Food Stamps

“The Grim Economics of Food Stamps”

LA Times

By the Times editorial Board

November 3, 2013

The Truth of Food Stamps

On November 1, the federal government rolled back food stamp benefits for 47.6 million people who receive them, which was the official end to one of the last stimulus efforts from President Obama’s first months in office. In turn, this has created conflict among people who are poor because they do not have enough money to eat, therefore they are not getting enough to eat because of this. This action has negatively affected thousands of people all over the United States. This insensitive action was not done at the right time considering the disarray and unavailability of job opportunities and fair pay. This cut in food stamps is not a good economic policy.

Over the next ten month, this 5.5% reduction will pull approximately five billion dollars in federal spending out of the economy. This money was borrowed, so the government is taking one step closer to economic sustainability. However, the federal government will not make it all the way to economic sustainability by failing to adhere to put food on the table for poor Americans.

In April of 2009, Congress increased the maximum food stamp benefit by 13.6% as part of the American Recovery and Reinvestment Act, a $787-billion effort to stimulate the economy. This was meant to pay for the cost-of-living, in advance, that the program was expected to receive over the next five years. An estimate states that for every one-dollar in food stamps leads to $1.70 in economic activity.

But the lawmakers soon withdrew some of the budget for the higher food stamp benefits, using it to help pay for Medicaid benefits, teacher salaries, and a childhood nutrition program. The benefits were cut across the board on November 1. The maximum monthly benefit will shrink by thirty-six dollars for a family of four, to $632. For the average recipient, the aid will drop to $1.40 per meal.

Even with the enormous lowered benefits, the price for food stamps is still costing close to 80 billion dollars a year. This is because of the deep-seated, complex recession that required the food stamp rolls to expand, along with the increased unemployment rate. The new farm bill that lawmakers are negotiating will almost certainly shrink that number because both chambers want to amend fewer people eligible for the benefits.  

The percentage of people on food stamps is significantly higher than originally anticipated. The government must realize that pulling federal dollars out of the economy has consequences too and that their money must be equally balanced. The best way to cut the amount of money spent on food stamps is not to lower the benefits, but, instead, offer more jobs for people to ultimately get them off of food stamps, entirely. The government needs to make the job-less, “jobbed.” American is in desperate need of work now more than ever and the government’s original intention for their actions will not be fulfilled unless they offer more jobs to Americans.