Consumer Confidence

Economists were expecting the index to climb to 53, according to a Briefing.com consensus survey. The figure, which is based on a survey of 5,000 U.S. households, is closely watched because consumer spending makes up two-thirds of the nation's economic activity.

Still, the overall index remains at historically low levels and is lower than the it was in August at 54.5. A reading above 90 indicates the economy is stable, and 100 or above indicates strong growth.

"I think it's troubling that the consumer confidence remains as low as it is," said Mark Vitner, senior economist at Wells Fargo. "It tells me folks are seeing little tangible improvements in the economic environment, and there's a huge disconnect with what happening in the stock market and what's happening on Main Street. I think it's a warning light for 2010."

The expectation index, which measures consumers' outlook over the next few months, rose to its highest level in two years to 75.6 from 70.3 last month. It reached 75.8 in December 2007.

"A more optimistic outlook for business and labor market conditions was the driving force behind the increase in the expectations index," said Lynn Franco, director of The Conference Board consumer research center. "Regarding income, however, consumers remain rather pessimistic about their short-term prospects and this will likely continue to play a key role in spending decisions in early 2010."

The percentage of those expecting the job market to improve edged higher to 16.2% from 15.8% the previous month. The national unemployment rate improved to 10% last month and employers cut the fewest jobs in November of any month since the start of the recession.

The percentage of consumers expecting business conditions to improve increased to 21.3% from 19.7%. Those expecting a rise in their incomes fell to 10.3% from 10.9% in November.

Vitner, however, discounts the two-year peak.

"People feel the economy is as bad as it's ever been, so you would have to be incredible pessimistic to think it's not going to get better," he said.

Consumer sentiment of the present situation remained downbeat.

The index component that gauges consumers' judgment of the present situation fell to 18.8 in December from 21.2 the previous month. The measure stands at the lowest level since the 17.5 measured in February 1983.

Consumers' evaluation of the job market was mixed. The percentage of those claiming jobs are currently hard to get fell to 48.6% from 49.2%, but the number of consumers claiming that jobs are "plentiful" fell to a new low to 2.9% from 3.1%.

In order for consumer confidence to rise from its current lows, Vitner said employers will have to start hiring again, but he doesn't expect them to take that step in any meaningful way until the middle of 2010.

Last week, the government said the U.S. gross domestic product, the broadest measure of economic activity, grew at an annual rate of 2.2% in the third quarter, according to the final reading.

The figure was below a previous estimate of 2.8%, which itself was downwardly revised from an initial 3.5% reading. 

Consumer ConfidenceMTSU poll finds slip in consumer confidence

Job Growth

NEW YORK (CNNMoney.com) -- The long-suffering U.S. jobs market improved significantly in November, as employers trimmed the fewest jobs of any month since the start of the recession, and the unemployment rate posted the biggest one-month decline in more than three years.

U.S. payrolls slipped 11,000 jobs in the month, far below any of the job losses posted over the last 23 months. Economists surveyed by Briefing.com had forecast a loss of 125,000 jobs in November.

The October and September job loss estimates were also revised sharply lower, trimming previous job loss estimates by 159,000 between them.

The new reading put October job losses at 111,000 jobs, and September's loss estimate was cut to 139,000. Each of those new estimates would have been the smallest declines in more than a year.

The unemployment rate improved to 10% in the month. Economists had forecast it would remain at the 10.2% level reached in October, which had been a 26-year high. The unemployment rate had risen in 12 of the previous 13 months before November.

"I think it's a little bit premature for champagne, but after enduring two years of really bad news, let's enjoy this one," said Jay Bryson, economist with Wells Fargo Securities. "You've got to walk before you start running. I don't think we're walking yet, but we're starting to get back up on our feet."

Long-term unemployment remains gloomy. Still, the number of jobs lost -- even with the lower revisions -- since the start of 2008 is 7.2 million. And that only captures the net loss of jobs, and doesn't give a full picture of the large pool of those without work or income.

The report showed 15.4 million Americans are now unemployed and seeking work, although that's down 325,000 from the October reading. Another 6 million want jobs but are not counted as part of the labor force because they have stopped looking.

Add to that group the 9.2 million who have only found part-time work when they want full-time jobs or have had their hours cut as a result of the downturn, and that brings to 30.6 million Americans who are not able to find the full-time job they want or need.

The long-term unemployment problem was worse in November than at any time in the 61 years those records have been kept. A record 5.9 million people have been out of work for more than 6 months, as the average length of time those with work have been without a job rose to 28.5 weeks.

Rises in work week, temp hiring. Still, there were signs of good news in the report beyond the overall drop in unemployment and sharp decline in job losses. One is that the average work week increased to 33.2 hours from a record low of only 33 hours in October, a sign that employers who had cut the hours of their workers were starting to restore those hours.

The jump in work week meant the total number of hours worked by American workers increased by 0.6%, the biggest such jump in three years, which was crucial to help lift the size of paychecks, even as average wages remained relatively unchanged. And that is important for feeding into the recovery in the economy.

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"Consumer spending is a function of income, not jobs," said Bryson. "Working people longer hours is a way of creating more income."

Another hopeful sign cited by economists was a 52,000 increase in the number of temporary workers. Typically employers bring on temporary help before they add permanent employees. It was the biggest jump in temporary help in five years.

"The temporary workers and the longer hours, those are signs this is finally going in right direction," said Tig Gilliam, CEO of Adecco Group North America, a unit of the world's largest employment staffing firm. "Now we need to get to creating 200,000 to 300,000 jobs a month. That's what it'll take to get improvement in labor market. It's very possible it can be in the second quarter of next year."

White House still concerned. The report came the day after the Obama administration held a "jobs summit" at the White House, during which business leaders, economists and policymakers discussed what could be done to end the job losses.

President Obama continued to focus on the job situation during a trip to Allentown, Pa., Friday, at which he toured Allentown Metal Works and a community college. He said he would announce additional measures Tuesday that he will send to Congress in an effort to jumpstart private sector hiring.

"This is good news, just in time for the season of hope. But I want to keep this in perspective," the president said. "Good trends don't pay the rent. We've got to actually grow jobs and get America back to work as quickly as we can."

Alan Krueger, the Treasury Department's chief economist, said the report and other economic readings show that the layoffs have slowed but that hiring still remains weak.

"The trend of slow healing continues but there is a long way to go before the labor market returns to full health," he said. While Krueger said there are many encouraging signs in the report, "unemployment remained unacceptably high."

Republican National Committee Chairman Michael Steele issued a statement pointing out that the economy has lost 2.8 million jobs since the Obama administration passed its economic stimulus bill in February, and that the unemployment rate remains in double digits.

"If President Obama is truly interested in job creation, then he should stop campaigning for re-election, stop pushing 'Stimulus II,' and start working with Republicans on common-sense conservative solutions," said Steele. 

Job GrowthUnemployment rate improves in Tennessee

Jobless claims fall to 17-month low

A consensus estimate of economists surveyed by Briefing.com expected claims to jump to 460,000.

The 4-week moving average of initial claims totaled 460,250, down 5,500 from the previous week's revised average of 465,750.

"It's encouraging to see that we're continuing to move in the right direction toward 400,000 claims," said Tim Quinlan, economic analyst at Wells Fargo. "We're certainly off the highs we saw earlier this year.

Jobless claims have been trending downward since the end of March, when they peaked at 674,000, the highest figure since 1982.

Continuing claims: The government said 4,981,000 people filed continuing claims in the week ended Dec. 19, the most recent data available. That's 57,000 down from the preceding week's revised 5,038,000 claims.

The 4-week moving average for ongoing claims fell by 122,250 to 5,101,250 from the previous week's revised 5,223,250.

But the slide may signal that more filers are dropping off those rolls into extended benefits.

Continuing claims reflect people filing each week after their initial claim until the end of their standard benefits, which usually last 26 weeks. The figures do not include those who have moved to state or federal extensions, or people whose benefits have expired.

Congress passed legislation last month to extend federally paid benefits up to 99 weeks, depending on the state, but the law only helps those who exhaust their federal unemployment lifelines by the year's end.

Lawmakers in the House and the Senate recently passed measures to extend the filing deadline through the end of February. The President is expected to sign the legislation soon.

Both chambers initially introduced bills to push the deadline to apply for benefits through 2010 or beyond, but Democratic leaders in the House scaled back the effort in hopes of getting the bill through the Senate more quickly.

State-by-state: Jobless claims in 10 states declined by more than 1,000 for the week ended Dec. 19, the most recent data available. Claims in Tennessee dropped the most, by 2,972.

A total of 12 states said claims increased by more than 1,000. Claims in New York jumped the most by 1,155. A state-supplied comment attributed the increase to layoffs in the construction, service and real estate industries.

Outlook: The employment picture will continue to improve as jobless claims continue to fall, but Quinlan said they will need to drop near 350,000 for positive job growth.

He expects nonfram payrolls to return to positive territory by the second quarter of 2010, and for the unemployment rate to fall by the end of the year. 

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My sins (and good deeds) of 2009

I was wrong to predict that the government would lose money on its TARP bailout loans to Citigroup (C, Fortune 500) and Bank of America (BAC, Fortune 500). BofA has repaid its loans, Citi has repaid $20 billion of them, and the government is a bit ahead on the other $25 billion, which it converted to Citi common stock at $3.25 a share.

My mistake was not realizing how much the government would continue to subsidize Wall Street, whose overreaching got us into this mess.

It never occurred to me that the Treasury would let Citi and BofA repay their bailout loans (and escape most government control) even though they're not exactly financially robust. It also never occurred to me that the Treasury would want to recycle the TARP loan repayments into other programs. Foolish me.

2. The prudent lose. It's nice to have company. I've been saying almost since the bailout started two years ago that the prudent people among us have been penalized by the way the government is bailing out imprudent borrowers and institutions. Now, competitors of mine are making the same point.

It's important to revive the economy, and low short-term rates have traditionally been the primary tool for doing that. But the Federal Reserve has gone way beyond cutting short rates. It's been trying to prop up house prices by keeping mortgage rates artificially low, and has been supporting the prices of longer-term securities by buying vast amounts of them.

This has clobbered retired people who are trying to live off interest income to supplement Social Security. So these retirees either have to reduce their standard of living, eat into principal, or take more risk to keep their income up. Not a way to reward lifetime savers.

3. Regulation. I was right to be skeptical about the "populism" in Washington. The Obama administration and Congress have beaten up on the worker-bee types at places like AIG (AIG, Fortune 500) and Wall Street investment houses, and are shrieking about bonuses that in many cases are really part of base pay. But the government got the pay czar to give the designee of its choice a $10.5 million annual contract to run AIG, and will doubtless cut deals for high-level hires at places like Chrysler.

0:00/2:45Best investing bets for 2010

Meanwhile, there's no serious move afoot to break up the "too big to fail" institutions so they won't be too big to fail in the future. So these institutions, some bailed out directly by the government, others bailed out when the government bailed out the world financial system, will go merrily on their way. Until the next crisis, when taxpayers will rescue them again.

The proposal to make hedge fund and private equity fund managers pay a full tax on their piece of their investors' income has gone nowhere. So these fees are still considered lightly-taxable capital gains rather than fully-taxable fee income.

It's the same-old, same-old: the really big players, the ones who contribute so much to campaigns and wield real power, are barely touched while upper-middle-income and small rich types get whacked.

4. The market. At least I got the stock market right. In late 2007, with stocks in free fall, I said that it was time to consider buying stocks, provided you had staying power and a six- or seven-year time horizon. (In fact, I did just that with my own money, and have recovered much of what I lost in 2008 and early 2009.) Through Monday, the Wilshire 5000 index was up $3.1 trillion, or 28%, for the year, according to Wilshire Associates. If stocks end the year where they closed on Monday, the dollar gain would be the biggest ever, following the biggest-dollar-loss year, 2008.

With the market so much higher, stocks are a bigger risk than they were a year ago. What will the market do this year? Would that I knew.

5. Next year: In August, I predicted that Social Security would be the big story of 2010. We'll come back in a year, and see if I was right.

Meanwhile, a happy, healthy, and prosperous new year to you and yours. 

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More employers to boost hiring in 2010

Although employers remain cautious about hiring, "there have been many signs over the past few months that point to the healing of the U.S. economy, especially the continued decrease in the number of jobs lost per month," Matt Ferguson, CEO of CareerBuilder, said in a statement.

Only 9% of the employers surveyed said they plan to decrease headcount in 2010, down from 16% last year, while 61% don't plan to change staff levels and 10% are unsure.

Part-time opportunities are also on the rise, CareerBuilder said. Eleven percent of employers said they plan to add part-time employees in 2010, up from 9% in 2009.

Just 8% said they plan to decrease their part-time help in the year ahead, down from 14%, while 69% plan no change in headcount and 13% are unsure.

Hiring is expected to increase in information technology, manufacturing, financial services, professional and business services and sales in the coming year, CareerBuilder said.

When asked which areas employers plan to hire for in the year ahead, one-third said technology, followed by customer service. Slightly less than one-quarter said they plan to add sales people, while research/development, business development, accounting/finance and marketing positions were also well represented.

In keeping with 2009's trend, many employers anticipate hiring freelancers or contractors to keep costs down in 2010.

According a recent tally, 7.2 million jobs have been lost since the start of the recession and 15.4 million Americans are now unemployed and seeking work.

CareerBuilder surveyed more than 2,700 hiring managers and human resource professionals across industries. 

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Blank check sends Fannie, Freddie soaring

While the support from Treasury would appear to be a vote of confidence for the firms, the companies' leaders apparently have no interest in owning the stocks themselves.

According to pay packages disclosed for Fannie Mae and Freddie Mac on Thursday, no stock or options are being issued to any of their top managers. That is unusual for shareholder-owned companies.

Other firms receiving federal bailouts, such as General Motors and American International Group (AIG, Fortune 500) have been pushed by the government to pay their executives with stock.

Both Fannie Mae CEO Michael Williams and Freddie Mac CEO Charles Haldeman were given $6 million annual pay rates for 2009, with all the compensation coming in cash. Other top executives received annual cash payments of $2 million or more each, according to the companies' filings.

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The lack of stock and options for Fannie and Freddie executives suggests that when Congress and the Obama administration decide what to do with the mortgage firms, shareholders could be left with little or no equity.

Bose George, an analyst with investment bank Keefe, Bruyette & Woods, wrote in a note to clients that the lifting of the $200 billion limit is likely a sign that the Obama administration wants to use Fannie and Freddie to provide additional help to the housing market.

In July 2008, Congress gave Treasury the right to provide as much aid as it deemed fit to the two firms, meaning that the current administration does not need additional Congressional approval for more funding.

"We believe that this change is not primarily directed at covering losses from [the firms'] existing portfolios," he wrote Monday. "Our estimates suggest that even in a stress case scenario [the firms] are unlikely to exceed the $200 billion each that they had been allowed to access."

George said it's not a surprise that top executives at Fannie and Freddie would demand all-cash compensation packages.

"The shares have no long term value," he wrote. "This reinforces our view that the common shares will eventually trade to zero."

The Treasury Department reiterated Thursday that it expects to present its plan for what to do to reform Fannie and Freddie in February. But KBW's George said in an interview that he doesn't believe there will be much reform for at least another year.

George said it's clear that hundreds of billions of dollars in losses will have to be written off. He added that Fannie and Freddie will eventually need between $100 billion to $150 billion of assistance each from Treasury, making their bailouts by far the most expensive of the financial crisis.

The shares of the two firms are still publicly traded even though the federal government placed the companies into conservatorship in September 2008 due to losses from rising home foreclosures and falling home values. The two firms own or insure about $5 trillion of mortgage-backed securities between them.

The conservatorship will give Treasury about 80% of the shares of both companies, but it puts taxpayers on the hook to cover ongoing losses. Fannie has drawn down $60.9 billion and Freddie has drawn $50.7 billion of federal help so far under the reorganization process. 

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Mr. Sunshine's happy economic outlook

Wesbury predicts economic growth of 5% or more in the last three months of this year, nearly twice the average forecast, followed by at least 4.5% growth in 2010.

He sees job growth returning as soon as December of this year. Unemployment, now at 10%, will fall to about 8.5% by the end of 2010, he believes. That's about a percentage point better than most economists' estimates. In 2011, he says, the rate will drop to about 7%.

He's bullish on housing, too: He says things are improving so fast in real estate that by the third quarter of 2010, there could be a seller's market for new homes.

Wesbury maintains this rosy view even though he believes government action to rescue the economy hurt more than it helped.

He blames the financial meltdown not on lack of government oversight, but on mark-to-market accounting, which required banks and Wall Street firms to value the assets on their balance sheet at current market prices. Those rules, which caused massive losses when the housing bubble burst, were significantly loosened earlier this year. That easing, he argues, was the key to reopening the flow of credit and reviving the economy.

Despite his policy worries, he believes the economy can overcome the headwinds caused by government intervention to post solid growth. Here now is a question-and-answer session with Mr. Sunshine, Brian Wesbury.

How quickly do you think we'll start to see substantial job growth of 200,000 or more needed to help lead to a sustained decline in unemployment?

Typically when you are in a V-shape kind of recovery, that happens pretty quickly. I expect by very early spring or late winter we'll be seeing significant job growth. Retail sales are up at an annualized rate of 7% in the last six months. Manufacturing output is up 8%. Inventories are very low. What that means is I think we've fallen behind, companies have waited almost too long to try to catch up, so we'll see this thing accelerate pretty quickly.

What are the primary drivers you see behind that kind of growth?

Easy money by the Fed, pent-up demand, that's two of the factors. Mostly, we're rebounding from a panic. But look at the pent-up demand for cars, for houses. We're only starting 550,000 houses at an annualized rate. Just population growth alone says you need about 1.5 million a year. We're down to about a seven months' supply. That means if builders don't start right now, by the third quarter of next year there will be shortages of housing.

Do you believe that TARP and stimulus and the other money that the government has pumped into the economy has hurt the recovery?

It made people believe that we have to have government save the economy. I don't believe that. The Fed created the bubble. There's no doubt about it. Then the question is how do you deal with those problems, do you let the market deal with them or the government deal with them? We let the government deal with them. But nothing turned the economy and market around until we changed mark-to-market rules. That's when banks were able to start raising money, that's when stocks started to go up.

Is it difficult to be an optimistic supply-side economist at a time that even Arthur Laffer, the dean of supply-side economists, is writing a book called "The End of Prosperity"?

I'm not having any difficulty. What I find interesting is how negative many conservatives are. I'm a short-term bull on the economy. I'm a long-term worrier. You can worry about the policies, you fight against them, but you should be long stocks at the same time, because they're undervalued, and the economy is going to come back strong.

If we get strong growth in 2010, are you worried that it will be taken as an affirmation of the kind of government intervention in the economy that you decry?

Yes. I want to always see the economy do well. What I don't want is people to take the wrong lessons from this. That's why I think conservatives are making a huge mistake right now arguing that just Obama breathing every day will cause the stock market to go down and you should buy gold and head to the hills. The economy is bouncing back, it's going to be stronger than people think. That's only going to make it easier for (conservatives') political opponents to argue that they saved the day by spending lots of money.

In your book you try to strike down a number of generally accepted economic problems that you argue are overstated. Do you think that reports about continued tight credit for both consumers and small businesses are overstated? How can the economy see the kind of growth you're expecting if credit is so tight?

It's absolutely true that credit is tighter than it was, but it's not the sort of thing that will stop the economy. Money is like a flood. You can try to stop the water, but it is always going to find its own level somewhere. When the Fed prints this much money, it's going to find its way into the system. We're seeing the same kind of reduction of credit we've seen in other recessions in the past, and none of those stopped the recovery.

Isn't it tough to argue that you're not a starry-eyed optimist since you go to almost every Northwestern University football game and you're counting on your Chicago Cubs to end a century-long drought and win the championship this year?

Every year I predict they're going to the World Series. That way I know I'm going to be wrong about one thing. We hope that the long history is eventually broken. So this is my counter-cyclical nature. I'm an optimist on the economy and the long history of the economy shows I'm usually right. But I guess the Northwestern Wildcats and the Cubs usually don't fulfill my dreams.

Interview has been condensed and edited.  

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