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Wednesday, March 7, 2012

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Economic Events of the Week

Wednesday – Productivity
Thursday – Jobless Claims
Friday – Employment Situation

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Story of the Day
It Was the Best of Recoveries, It Was the Worst of Recoveries (Matt McDonald)

Washington Update
Super Tuesday Primaries: Mitt Romney Wins Ohio and 5 More, but Rick Santorum Hangs Tough (Politico)

Market Talk
Oil Prices and the Economy (Econbrowser)
A New Twist for the Fed? (Real Time Economics)
Freight Spending Up Only 1.2% (Cass Frieght Index)

Editorials & Opinions
Republicans Blow With the Wind (Wall Street Journal Editorial)
Bernanke Needs Some Bounce in His Tail (Stevenson and Wolfers in Bloomberg)
Investors Will Shoulder Price of Bank Regulation (Larry Tabb in Financial Times)

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Story of the Day

It Was the Best of Recoveries, It Was the Worst of Recoveries (Matt McDonald)

Well, maybe not “best,” but at least getting better. After a tough 2011 in the job market, recent economic and jobs indicators are trending in the right direction. This is good news, with a caveat: we’ve been here before, and the real question is whether the recovery we’re witnessing is real and sustainable or whether headwinds could knock it off course again. In advance of jobs day on Friday, we’re going to try to make the case for each view based on the evidence. One reason for optimism is the job numbers themselves. We’ve had job growth in the employer survey above 200,000 for two months in a row and the 4-week moving average for initial unemployment claims has dropped from its long streak above 400,000 to 354,000. Moreover, as we noted last month, the underlying data in the last jobs report was positive. While the revisions told us that 2011 was worse than we thought, the month-on-month labor force participation actually stabilized after a long slide.


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Washington Update

Super Tuesday Primaries: Mitt Romney Wins Ohio and 5 More, but Rick Santorum Hangs Tough (Politico)

A Super Tuesday primary night that was supposed to bring clarity to the Republican nomination fight is on track to leave things nearly as muddled as ever, as the 10 states voting across the country scattered every which way and the most important battleground, Ohio, remained too close to call. Mitt Romney entered the day’s contests tantalizingly close to a secure hold on the GOP nomination, and is still likely to run up his lead in the delegate count. If the current numbers hold in the Buckeye State, Romney may well deal a symbolic blow to his opponents by putting the key swing state in his column. Romney appears, however, to have missed his opportunity to put to rest doubts about his strength as a candidate and claim the status of presumptive 2012 nominee.


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Market Talk

Oil Prices and the Economy (Econbrowser)

Here's why I believe that the current high price of oil is not enough to derail the U.S. economic recovery. Although the prices of oil and gasoline have risen significantly from their values in October, they are still not back to the levels we saw last spring or in the summer of 2008. There is a good deal of statistical evidence that an oil price increase that does no more than reverse an earlier decline has a much more limited effect on the economy than if the price of oil surges to a new all-time high. One reason for this is that much of the impact on the economy of an increase in oil prices comes from abrupt changes in the patterns of consumer spending.

A New Twist for the Fed? (Real Time Economics)

As the June 30 expiry nears for the Federal Reserve‘s so-called Operation Twist stimulus plan, Credit Suisse says extending this program in the face of improving economic data may be the easiest move for policymakers. “A Twist extension would likely fly under the political radar while continuing to support long-term Treasurys, allowing the Fed to continue to assess economic progress,” firm says. With about $150 billion in short-dated Treasurys left in the sellable range, the Fed can extend the program to year-end by allowing itself to sell four-year notes as well.

Freight Spending Up Only 1.2% (Cass Frieght Index)

Monthly freight spending from January rose only 1.2 percent against the 2.5 increase in volumes. Year-over year freight expenditures were 9.8 percent higher than in 2011, a difference that strongly contrasts January’s gap of 22.1 percent. This gap in year-to-year freight spending has been slowly eroding since early last year, but has stayed ahead of the gap in year-to-year shipments. Flatter rates are indicative of the sluggish economy and adequate capacity. Fuel costs have been rising during 2012, but total spending does not seem to reflect this increase. The conclusion would be that carriers have eased up on base rates to compensate for higher fuel charges.


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Editorials & Opinions

Republicans Blow With the Wind (Wall Street Journal Editorial)

Congress finally ended decades of tax credits for ethanol in December, a small triumph for taxpayers. Now comes another test as the wind-power industry lobbies for a $7 billion renewal of its production tax credit. The renewable energy tax credit—mostly for wind and solar power—started in 1992 as a "temporary" benefit for an infant industry. Twenty years later, the industry wants another four years on the dole, and Senator Jeff Bingaman of New Mexico has introduced a national renewable-energy mandate so consumers will be required to buy wind and solar power no matter how high the cost. The truth is that those giant wind turbines from Maine to California won't turn without burning through billions upon billions of taxpayer dollars. In 2010 the industry received some $5 billon in subsidies for nearly every stage of wind production.

Bernanke Needs Some Bounce in His Tail (Stevenson and Wolfers in Bloomberg)

Federal Reserve Chairman Ben Bernanke is trying out a new communication strategy that has the potential to dramatically change the outlook for the economy. The idea: By telling people more about its longer-term plans, the Fed can stimulate the economy even when interest rates are as low as they can go. Unfortunately, Bernanke’s timid approach could doom the strategy to failure. To explain, we ask readers to suspend disbelief and join us on a trip to the Hundred Acre Wood, where Eeyore and Tigger have become central bankers. The wood’s economy is suffering the repercussions of a recent honey binge. Both Eeyore and Tigger want to help the recovery along, a goal they hope to achieve by holding interest rates low for a long time. But each communicates this differently.

Investors Will Shoulder Price of Bank Regulation (Larry Tabb in Financial Times)

Mea Culpa? Yes, the banks did wrong. They became overlevered; hopped-up on greed, they took on more credit than a loan shark would have extended. When the bets turned sour, they went cap in hand to the taxpayer. Once bailed out, the banks threw petrol on the fire by not being contrite, hoovering up cheap cash, paying bonuses as if there were no tomorrow and refusing to develop a set of even the least offensive business restrictions. So what did legislators and regulators do? They did what they normally do in a crisis: they legislated and regulated. While the new rules may or may not preclude another crisis, they will certainly punish the banks and may inadvertently punish the taxpayer.


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