Economy shows signs of growth

The U.S. economy grew at the fastest pace in more than six years during the fourth quarter of 2009, according to a government report Friday.

The nation’s gross domestic product, the broadest measure of economic activity, rose at a 5.7% annual rate in the fourth quarter. That was much stronger than expected and provides another sign that a recovery in the economy is taking hold.

The U.S. economy grew at the fastest pace in more than six years during the fourth quarter of 2009, according to a government report Friday.

The nation’s gross domestic product, the broadest measure of economic activity, rose at a 5.7% annual rate in the fourth quarter. That was much stronger than expected and provides another sign that a recovery in the economy is taking hold.

Economists surveyed by Briefing.com had forecast growth of 4.7%.

Good end to a terrible year. The growth in the fourth quarter was the highest since the third quarter of 2003. The economy rose at a 2.2% annual pace in the third quarter of last year.

But even with the strong growth in the second half of 2009, the economy shrunk by 2.4% last year. That was the biggest drop in 63 years and first annual decline for the economy since 1991.

The GDP report does not mark an official end of the recession. That determination will be made by the National Bureau of Economic Research, and that group typically waits months — if not more than a year — to declare when recessions ended and began.

0:00 /3:26The end of the US-centric economy //

But two straight quarters of economic growth is typically a sign of a recovery, and most economists agree that the recession ended at some point in the middle of 2009. The Federal Reserve even used the word “recovery” in the statement following its latest meeting earlier this week.

Inventories lead the way. Much of the improvement was driven by a turnaround in inventories, the supply of goods that businesses produce in anticipation of sales. Businesses slashed inventories in late 2008 and early 2009 due to concerns about worsening economic conditions.

According to Friday’s report, 3.4 percentage points of growth in the fourth quarter came from the change in inventories. A pickup in auto production was a significant part of the inventory turnaround, even though auto sales themselves only rose modestly.

But the U.S. consumer was somewhat of a bystander in the fourth quarter, as personal consumption grew at only a 2% annual rate in the period. Spending by consumers accounts for more than two-thirds of economic activity.

Lakshman Achuthan, managing director of Economic Cycle Research Institute, said that growth from inventories shouldn’t be dismissed since they are typically a driving force of strong recoveries.

“In late 2008 into 2009 everyone freaked out to prepare for Armageddon,” he said. “They fired everybody and stopped buying inventories. That overreaction is what’s being undone. Yes, you have to have jobs growth, but we’ll get that next, probably in January or February.”

Other economists say the turnaround in inventories isn’t enough to lead to strong growth over a sustainable period. A better labor market that would give consumers the confidence and money they need to spend is also necessary.

“I’m not dismissing the inventory gain, but now that inventories are getting more into line with final sales, then the thrust of economic growth depends on final demand picking up,” said John Silvia, chief economist with Wells Fargo Securities.

Stimulus, exports, also feed growth. Economic growth in the third quarter was greatly attributed to the federal stimulus bill passed at the beginning of 2009. But stimulus doesn’t appear to have had as big of an impact in the fourth quarter.

Federal spending on stimulus does not show up on any one line of the GDP report. In fact, government spending contributed little to growth by itself, even as non-defense spending by the federal government rose at an annual 8% rate in the quarter.

But money pumped into the economy by tax cuts, such as the first-time home buyer tax credit, coupled with spending by businesses that received stimulus dollars, did have an impact in the quarter, even if it was harder to quantify.

An 18% jump in the value of exports also played a major role in the economy’s rebound, contributing nearly 2 percentage points of growth. Silvia said exports have a chance to be a significant source of growth in the coming year, helped by the weaker dollar and stronger growth in developing economies, particularly in Asia.

Investment in business equipment and software jumped at a 13% annual rate, the biggest increase in nearly four years. That spending added almost a full point to GDP, and is often a precursor to employers starting to hire once again.

U.S., Russia said to be near arms deal

A new arms-control treaty between the United States and Russia is nearly complete, the White House said.

Progress on a pact was detailed in a brief statement Wednesday.

“President Obama spoke with President Medvedev of Russia to thank him for his hard work and leadership on the New START treaty negotiations, as the two sides have made steady progress in recent weeks,” the White House said.

“The presidents agreed that negotiations are nearly complete, and pledged to continue the constructive contacts that have advanced U.S.-Russian relations over the last year.”

Talks are expected to resume next week in Geneva, Switzerland.

Obama hailed the developments during Wednesday’s State of the Union address.

“The United States and Russia are completing negotiations on the farthest-reaching arms-control treaty in nearly two decades,” he said.

The 1991 Strategic Arms Reduction Treaty, commonly known as START, expired on December 5, but the leaders agreed to honor its spirit until a new treaty could be negotiated to replace it.

Obama and Medvedev, who met in mid-December in Copenhagen, Denmark, had hoped to sign an agreement by the end of 2009, but fell short of reaching a deal.

At the time, U.S. Assistant Secretary of State P.J. Crowley cited a few hurdles to an agreement, including the complexity of the weapons systems, agreement on the numbers of warhead reductions, and verification, but held out hope for a deal in early 2010.

Clinton calls for more aid to Haiti

 

By Paul Armstrong, CNN

January 28, 2010 2:33 p.m. EST

Davos, Switzerland (CNN) — Former U.S. President Bill Clinton has warned that many Haitians still face a daily struggle to find food and water two weeks after the island was decimated by a 7.0-magnitude earthquake that killed an estimated 150,000 people.

Now a U.N. special envoy to Haiti, Clinton told a special session of the World Economic Forum in Davos Thursday that the impoverished Caribbean nation lacked the most basic supplies, together with the vehicles to distribute it all.

“If there’s anybody who knows where I can get pick-up trucks or something slightly bigger, I need 100 yesterday. They do,” he said.

“There are serious, unmet food and water needs and part of it is that a distribution system just does not exist.

“It is simply not enough, even if we had all the food and water we needed every single day, to distribute aid from only 15 sites.” He said more than a 100 sites were required.

“I want the people of Haiti not to have to worry about whether they can eat today or get water today… I want them to at least be able to know that from one week to the next they have a place to sleep, that it’s safe and it’s sanitary.”

Clinton also paid tribute to Haiti’s people as he gave the assembled delegates a sense of the scale of the tragedy.

Analysts view tone of Obama’s speech

When it comes to word choice, President Obama is less positive than any president in modern time, according to a scholar who has dissected the language of State of the Union speeches since Harry Truman’s 1946 address.

James Pennebaker, professor and chairman of the psychology department at the University of Texas-Austin, theorizes that the language that presidents use in these high-profile speeches reflects their overall mood and state of mind.

The president isn’t negative per se, Pennebaker said, but he doesn’t use as many words such as “happy,” “excited,” “enjoyed,” “good” and “nice” that have positive tones, making his tone more somber.

Deborah Tannen, linguistics professor at Georgetown University, disagreed somewhat. She said she thought the tone was positive and optimistic, with a serious overtone.

“I felt like it was serious, because he realized that people are worried and that it’s a serious time. We are facing serious problems,” she said.

But a person who inspires optimism and hope in others doesn’t necessarily exude positive emotions, Pennebaker said. Instead, Obama has shown himself to be “cool in every sense of the word,” Pennebaker said.

“He is a guy that many of us really admire. He’s the cool guy at the high school dance. He’s not giggly and funny. He’s cool. And a cool person can really symbolize optimism for the future, and this person can be a good and strong leader, but they don’t have to be the class clown. They don’t have to be laughing and saying they’re happy or that things will be great,” he said.

Obama‘s speeches also indicate that he is the most complex thinker of the presidents Pennebaker has studied, with John F. Kennedy as the runner-up, he said. That’s because Obama frequently presents an idea and re-evaluates it from a variety of perspectives in subsequent sentences.

Obama is also a more dynamic thinker than he is categorical, Pennebaker said. He does not tend to break things down into components, as other politicians such as George W. Bush have done, but looks at the history of the topics he speaks about.

For example, at the very beginning of his speech Wednesday night, Obama said that while it is tempting to assume America was always destined to succeed, the country’s history shows otherwise.

“But when the Union was turned back at Bull Run and the Allies first landed at Omaha Beach, victory was very much in doubt. When the market crashed on Black Tuesday and civil rights marchers were beaten on Bloody Sunday, the future was anything but certain,” he said.

Obama, despite criticisms from both ends of the political spectrum, is seen by most Americans as being trustworthy, polls show, and the State of the Union address largely reflected why, one expert said.

“He was very forthright and honest, taking responsibility to some extent for ‘Change we can believe in’ not coming fast enough,” said Paul Rutledge, a professor of political science at the University of West Georgia. “To his credit, I think he took too much of the blame for this,” Rutledge said.

Generally, the way he spoke this year was similar to the way he spoke at his inaugural address last year and even during the campaign, Pennebaker said.

“You don’t see any giant jumps in terms of the way he’s thinking, feeling, relating to others,” he said.

See how Pennebaker and colleagues track language in speeches

Presidents tend to be consistent in their speaking regardless of what is going on in the country, Pennebaker said.

After the September 11 attacks, President George W. Bush continued to use positive-emotion words at relatively high rates. Pennebaker’s team also analyzed blog posts from that year and found that people’s emotions reflected on the blogs were back to their pre-9/11 state within four days.

“If there’s something bad that happens, you bubble back up to your emotional state surprisingly quickly,” he said.

Obama’s word choice also reveals that he is a bit more psychologically and emotionally detached than some other presidents, perhaps on par with Ronald Reagan, he said. It’s not necessarily that he’s hiding his feelings, but he does not present himself as an emotional person.

He also consistently seeks to exude confidence, as most leaders do, while still acknowledging some of the setbacks his administration has faced.

“I think all of these thing have a chance to restore some of the public confidence in his administration, although what seemed to be a mea culpa for not delivering fast enough really could go either way – might be a Republican soundbyte for 2010,” Rutledge said.

“If you sit down and talk with him, you’re not going to get a sense of what his deep emotional feelings are,” Pennebaker said. “Whereas if you sat down with Bush and Clinton, they would give you signals of how they felt.”

The subtleties that Pennebaker studies are nearly impossible to hear just by listening to a speech, he said. He uses a computer algorithm to calculate the percentage of total words in a speech that reflect a variety of categories, such as “positive emotionality” and “dynamic thinking.”

One parameter is the number of function words — pronouns, prepositions and articles — a person uses, which can say a lot about his or her mindset, Pennebaker said. For instance, someone who thinks a lot about people and is social would use a lot of pronouns. Someone who wants to avoid the press tends to use “I” a lot, he said.

Although presidents generally don’t write their own speeches, they do approve them, and speechwriters must know them very well, Tannen said.

“It’s as much his own words as any speech is going to be these days,” she said.

Bank bosses talk about financial crisis

 Four top bank chief executives told a panel probing the financial crisis Wednesday that they made mistakes but didn’t realize how bad they were at the time.

In a heated exchange in Washington with the head of the Financial Crisis Inquiry Commission, Lloyd Blankfein, Goldman Sachs’ CEO, agreed the banks had assumed too much exposure to risk at the height of the crisis, and he wished he could go back and change things.

“Anyone who says I wouldn’t change a thing, I think, is crazy,” Blankfein said. “Knowing now what happened, whatever we did, whatever what the standards of the time were — It didn’t work out well.”

“Of course, I’d go back and wish we had done whatever it took not to find ourselves in the position we found ourselves in,” he added.

The remarks came during a hearing of the Financial Crisis Inquiry Commission, a 10-member panel appointed last summer by Congress. Testifying were chiefs of some of the best-known and largest banks: Goldman Sachs (GS, Fortune 500), Morgan Stanley (MS, Fortune 500), J.P. Morgan Chase (JPM, Fortune 500) and Bank of America (BAC,Fortune 500).

The panel’s chairman, Philip Angelides, said he wanted to hear about the banks’ role in creating the crisis and benefiting from the Troubled Asset Relief Program, which was set up to provide them with liquidity.

During the hearing, Angelides cast doubt on Blankfein’s defense of Goldman Sachs’ actions in the mortgage markets — such as buying parts of risky mortgages and then placing bets against such morgages — as part of their job as a “market maker.”

“It sounds to me a little like selling a car with faulty brakes and then buying an insurance policy on the buyers of those cars,” Angelides said. “It doesn’t seem to me that that’s a practice that inspires confidence.”

Blankfein responded that Goldman was just selling what investors wanted.

“These are the professional investors who want this exposure,” he said. “Even today, people are coming for exposure to these very products. .. That’s what a market is.”

The chief executives — Blankfein, John Mack of Morgan Stanley, Jamie Dimon of JPMorgan Chase, and Brian Moynihan of Bank of America — testified under oath, standing up for a swearing-in during the public session.

The hearing lasted more than three hours and most of the testimony revolved around bad lending in the housing market.

Dimon said that one of the the banks’ “big misses” was failing to “stress test” the housing market.

“We didn’t stress test housing prices going down by 40%,” Dimon said.

It has been suggested that this lack of accountability could be remedied if all of the firms and individuals involved in the creation of financial instruments had to “eat their own cooking.” That would, for example, require that the bulk of their fees not be taken in cash, but in the securities they created, which they would be required to hold unhedged until maturity.

One commissioner asked Morgan Stanley’s Mack if investment banks could have remediated the volume of illiquid toxic securities by eating “their own cooking,” and taking fees for financial transactions via toxic securities, instead of cash. Mack said his firm did hold some of those securities.

“We did eat our own cooking and we choked on it,” Mack said. ” We kept positions and it did not work out.”

State of the union speech anticipated

 

President Obama has faced tough criticism for his handling of the economy.

Tune in to CNN and CNN.com tonight to watch President Obama’s State of the Unionaddress. CNN.com and Facebook are partnering up, allowing you to participate in the conversation as you watch online at CNN.com/live. Prime-time coverage with the best political team on television begins tonight at 8 ET.

Washington (CNN) — Hours away from what is arguably the most important address of his short presidency, President Obama will huddle with his top speechwriters to go over the latest revisions to his State of the Union address, according to White House spokesman Robert Gibbs.

Later Wednesday, Gibbs said, the president will get behind a podium to practice for his 9 p.m. address to the nation.

Aides say the speech will focus on job creation, helping the middle class, fighting the deficit and health care reform. But Gibbs said the president will also take responsibility for the political climate that has left a lot of Americans angry and frustrated, and he will express disappointment at how difficult it is to change the way Washington works.

Obama’s first State of the Union address comes against a backdrop of an American people nervous about the pace of economicrecovery.

In the days leading up to the speech, the White House started to lay out some of the measures Obama plans to take, announcing this week that the president will propose a three-year freeze on discretionary spending and that his middle-class task force recommended further tax credits and economic support measures.

On the eve of the speech, aides said the president would freeze salaries and bonuses for White House staffers.

The Republican response to the address will be delivered this year by newly minted Virginia Gov. Bob McDonnell, who won a tough election battle last year against Democrat Creigh Deeds.

House Minority Leader John Boehner, R-Ohio, said the test at Wednesday night’s speech will be whether Obama will offer merely a “rhetorical pivot, or are they really going to do something?”

But Boehner, wary of disrupting what he called the political wind at Republicans’ backs, is also warning his GOP rank and file to be respectful. The last time the president addressed Congress, Rep. Joe Wilson, R-South Carolina, famously yelled “you lie” at Obama.

“You invite someone to your home, you should be respectful and considerate,” Boehner said at a Wednesday morning breakfast.

Still, Boehner gave some insight into just how politically polarized Washington is right now by revealing that, besides occasional White House meetings with congressional leaders, he has “zero” private dialogue with the president or his top aides.

“I have not talked to Rahm Emanuel in a year,” Boehner said of the president’s chief of staff, a former House member. “It’s really shocking. … There’s just no interaction.”

The House GOP leader was careful to emphasize that he has a “great” relationship with House Speaker Nancy Pelosi but said, “we never talk about anything real. She and I talk about policy? I mean, why bother? And we both recognize it.

“The idea that they’re going to ask us for $500 million to fix up this prison in Illinois, and they’re going to ask us to change the law to allow them to bring these detainees here, is not going to pass the Congress. It’s not gonna happen,” Boehner said.

Looking ahead to some of the substance of Obama’s State of the Union address, Boehner called the idea to freeze some discretionary spending “a modest step in the right direction.”

Guests in the first lady’s box will include Kim Munley and Mark Todd, police officers who apprehended the Fort Hood shooting suspect in Texas last year. Other notables will include several military service members, students and dignitaries.

Economy failing, even after stimulus

Video: Paul on the state of the nation

OPINION COLUMN

Editor’s note: Ron Paul is a Republican congressman from Texas who ran for his party’s nomination for president in 2008.

A year after a nearly $800 billion stimulus package was passed, the U.S. economy still finds itself mired in mediocrity.

Economic growth is stagnant, unemployment remains higher than almost any time since the Great Depression and millions of Americans are upset that trillions of taxpayer dollars have been committed to numerous government bailout programs with no improvement of the economy within sight.

They question, rightfully, is where this money is going and why it hasn’t been as helpful as the government has claimed.

The problems with stimulus packages are manifold. The primary reason they fail is because they do not address the roots of the problem. If you are unable to identify the cause of your problem, then your solution is doomed to fail.

In the case of the current economic crisis, it had its root in loose monetary policy and easy credit that skewed the allocation of resources within the economy.

Combined with other measures to promote home ownership, these easy money policies caused a massive housing bubble. Money that would have been put to other uses was used to produce raw materials, hire workers and loaned to homebuyers, all while home prices spiked.

The boom was, of course, unsustainable, as many prognosticators pointed out during the housing bubble’s peak. But the damage was done, and now that the bubble has burst, we need to stand back and allow the mess to unwind. Yet the government does everything in its power to stave off true recovery and is attempting to re-inflate the bubble.

Rather than allow prices to fall so that the housing market returns to a sustainable level, the government does everything in its power to try to keep housing prices elevated.

The reasoning behind the stimulus package was that underconsumption was to blame for the collapse of the housing bubble and the resulting economic crisis. The government seems to think that if consumption can be spurred, then the economy will be return to normal.

In reality, the collapse of the economy was not caused by a sudden lack of consumption but rather a malinvestment of resources into sectors of the economy that were unsustainable without easy credit. The rise in housing prices was not, in fact, indicative of the new normal but rather an indicator that something was seriously wrong.

Government attempts to boost the economy through measures such as stimulus packages merely take money from hardworking taxpayers and throw that money into unproductive endeavors, into the sectors of the economy that already suffer from malinvestment or into make-work projects. Washington is throwing good money after bad, wasting hundreds of billions of taxpayer dollars and accomplishing nothing.

As the eminent economist Frederic Bastiat once pointed out, there is a difference between what is seen and unseen.

The government likes to tout the number of jobs that have been created or saved by the stimulus. But even if these numbers are accurate, they do not count the number of jobs that are not created in other more productive or self-sustaining sectors of the economy. Nor do they count the jobs that will be lost in the future when tax rates will have to be increased to pay off the interest on the debt that is financing much of the stimulus package.

Finally, the stimulus package enables the government, rather than the market, to pick winners and losers.

Whenever the government doles out money, political factors come into play. Firms that are politically well-connected or located in important congressional districts will benefit, while those firms without political connections, the ability to navigate bureaucratic hurdles or that exist in isolated areas unimportant to Washington will lose out.

Once the stimulus money runs out, the companies and jobs dependent on that handout will find themselves once again struggling.

A company that cannot satisfy consumer needs in the marketplace and that requires a government stimulus to remain competitive is a company that should not be in business.

The last thing this country needs is more government spending, especially on such wasteful measures as stimulus packages. We have wasted trillions of dollars in the past year and a half in stimulus packages, bailouts and guarantees to unsound companies.

We have run up our national debt to unprecedented levels. We are destroying the dollar. And it seems as if there is no end in sight.

Loose monetary policy, easy credit and too much debt created the bubble and got us into this economic crisis. Unless the government learns its lesson and opts for restrained monetary and fiscal policy, it risks a complete implosion of the U.S. economy.

The opinions expressed in this commentary are solely those of Ron Paul.

Firms that broke laws still got stimulus funds

The federal stimulus program is funding roadway construction in many Massachusetts towns. But more than half of the companies that have received taxpayer dollars to perform the work have a history of breaking the law.

According to an investigation by Boston University’s New England Center for Investigative Reporting, more than half the companies given stimulus contracts have histories of defrauding taxpayers.

Using funds from the $787 billion American Recovery and Reinvestment Act, the Massachusetts Highway Division has awarded nearly $54 million in contracts for highway improvements. One company, Aggregate Industries Northeast Inc., based in Saugus, Massachusetts, was awarded two stimulus contracts totaling $8.9 million for roadwork in the state.

Aggregate Industries is one of the largest producers of aggregate, asphalt and ready-mixed concrete in New England. But Aggregate Industries has a record of misconduct, and six of its former managers pleaded guilty or were convicted of defrauding the government.

The company supplied thousands of truckloads of substandard concrete to Boston’s “Big Dig” project. The “Big Dig,” which cost $22 billion and was the most expensive highway project in the U.S., rerouted Interstate 93 underneath the center of Boston. The project was plagued with problems, mainly due to shoddy construction and inferior materials.

In 2007, the state of Massachusetts announced a fraud settlement against Aggregate Industries, alleging that for years the company had supplied defective concrete to the “Big Dig” project. According to the settlement, the quality of the concrete was so poor that it wouldn’t set properly, which led to cracking, leaking and other defects.

The company agreed to pay $50 million in fines, and this past summer six of the company’s former managers pleaded guilty or were convicted of defrauding the government.

But two years later, Aggregate is using taxpayer dollars to perform roadwork in Harvard, Littleton, Avon and Stoughton, Massachusetts.

Luisa Paiewonsky is the Highway Division administrator for the Massachusetts Department of Transportation, which is responsible for allocating stimulus funds for transportation projects.

Asked why the department continues to work with companies that have defrauded the state in the past, Paiewonsky replied, “We do have a history of referring contractors to the attorney general’s office, and we have suspended contractors in the past.”

But Aggregate isn’t alone. The New England Center for Investigative Reporting found that 13 of the 21 companies that got federal transportation money have a history of misconduct. Aggregate is just one of the most glaring examples.

Paiewonsky said she can only follow the law with Aggregate Industries — the law laid out in its settlement.

Under that agreement finalized by the U.S. attorney, the Massachusetts attorney general and the U.S. Department of Transportation, Aggregate Industries paid a $50 million fine and was put on probation overseen by a federal monitor, who was to ensure the company abided by federal and state rules. The settlement also stipulated that Aggregate Industries would not be cut off from government contracts.

Nancy Sterling, a spokeswoman for Aggregate Industries, said the company learned its lesson.

“The company took it extremely seriously. It’s a very different company prior to the ‘Big Dig.’ There are new managers, new owners and a whole new corporate ethics and compliance policy in place.”

Sterling said Aggregate Industries had lived up to the terms of the settlement and is not doing anything wrong.

“We paid the fine, and part of the reason we agreed to settle was we would be allowed to continue to do work for the government,” she said.

But even Paiewonsky admits she had a visceral reaction when the state Department of Transportation gave another contract to the company.

“I have to follow the law, and I can only go as far as the law will allow me to go. We punished them as far as we could. They’re back,” Paiewonsky said.

Aggregate Industries Northeast is part of a major multinational corporation. It has spent thousands of dollars on lobbying and political donations over the years, according to federal election records.

One state official told CNN the company is such a huge contractor in New England that many projects would not be accomplished without it.

So even after selling bad concrete that caused a $22 billion highway project to leak excessively, the state of Massachusetts has re-contracted Aggregate for another project and is using federal taxpayer dollars to fund it.