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Dan Dorfman

Dan Dorfman

Posted: December 2, 2009 05:31 PM

Kinks In Obama's New Era of Hope

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'Tis the season to be jolly! Maybe so for you and me, but not so President Obama, who is in the 12th month of his new era of hope.

Why not him? Because even though the president was recently the beneficiary of a dose of good news on the economic front, the durability of that news is open to serious question. Not only that, Obama -- reflecting the agonizing number of economic potholes and his inability to get rid of them -- is increasingly being viewed by Wall Street as a non-achiever, a veritable misfit when it comes to concocting a meaningful plan to revitalize the economy and a likely one-term occupant of 1600 Pennsylvania Avenue.

First, lets kick off with three of the countries biggest economic worries: lofty unemployment (a jobless work force of 15.7 million), a marked slowdown in consumer spending and ongoing deterioration in the housing market.

All three got what looked like a shot in the arm. After 53 consecutive weeks of initial jobless claims topping 500,000, the figure recently dropped to 466,000, indicating the pace of firings is slowing down. Add to that better than expected holiday shopping on Black Friday, as evident by estimated retail sales that day of about $10.7 billion, slightly ahead (0.5%) of last year, and continued lively buying over the weekend at shopping malls nationally, Number three: a healthy 10.1% jump in October home sales.

Also tack on a spurt in October auto sales to a 10.4 million annual rate, even though the cash for clunkers program is over.

To some market observers, it suggests the consumer, despite a lofty 10.2% jobless rate, equivalent to a jobless work force of 15.7 million, is not as financially impotent as he's supposedly cracked up to be. That, in turn, is throwing off signals that the recession, for now at least, is officially kaput and the prospects of a double-dip recession popping up later next year are highly unlikely.

Sounds good, but not to Peter Morici, professor of economics at the Robert H. Smith School of Business at the University of Maryland. Taking issue with the consensus assessment of this past weekend's level of initial holiday shopping, Morici tells me he found the sales figures disappointing, marginally better, he says, but not sufficient to pull the economy out of its slump. His take on it all: the consumer is still showing he's in hot water, we're in for a weak and jobless recovery and the rolls of the unemployed will continue to expand.

Whereas some economist are looking for the jobless ranks to begin shrinking, not so Morici. The unemployment rate, as he sees it, will remain above 10% and climb to 11% by the second half of next year.

Every 1% up or down change in the unemployment rate is equivalent to a 1.5 million increase or decrease in the number of working Americans. So if Morici is right in his projected jobless rate of 11%, it would boost the number of unemployed workers to around 17 million.

That would surely raise the current ballooning number of mortgage delinquencies and foreclosures, hardly the stuff of what economic recoveries or a rising stock market are all about.

The main problem, contends Morici, is that "Obama is not the people's president, but Wall Street's man in the White House."

He also took pot shots at Obama's $789 billion stimulus package, noting that it has mostly been spent on temporary tax credits that have failed to generate much additional spending, shorted furloughs for state and local government workers and provided financial rewards for other campaign constituents.

What about the president's much publicized jobs summit? Here again, Morici is unimpressed. No doubt, he says, attendees will include business leaders who have contributed to his campaign and labor-leaning economists. These constituents, he figures, will advocate more tax cuts specifically geared to their businesses and industrial policies that boost unionized employment. These effort will create some temporary jobs, but at a very high cost, he says.

As we all know, the rate of employment will largely determine the tempo of the economic recovery. On this score, David Wyss, the chief economist of Standard & Poor's, also weighs in with some sad tidings.

Any way you measure it, he says, job growth is lagging the recovery more than usual. People who don't have jobs can't spend, and those afraid of losing their jobs also won't spend. Although Wyss expects employment to begin to rise around year end 2009, he doesn't see unemployment peaking until next summer. And that's at 10.6%.

What's even more worrisome, some brainy and respected pros think Morici could be low-balling the unemployment risk at 11%. For example, a former Merrill Lynch economist is on record with a forecast that the jobless rate is headed to 12% to 13% because of what he says are serious structural issues undermining the U.S. labor market. Well known banking analyst Meredith Whitney is also of a similar mind.

These big unemployment numbers, of course, are strictly crystal-ball gazing. But if indeed the loss of jobs continues to swell, you can be sure, 'tis not the season for Obama to be jolly.

What do you think? E-mail me at Dandordan@aol.com