Stocks rise, oil drops, but economic worries hold steady

McClatchy NewspapersJuly 16, 2008 

WASHINGTON — America's economy got another jolt of frightening news Wednesday as consumer prices logged their second biggest monthly jump in 26 years.

And although the stock market was up and oil prices were down, policymakers' concern heightened as congressional Democrats began seriously considering a new economic stimulus package.

House Speaker Nancy Pelosi, D-Calif., said she aimed to craft a plan that would target "those most in need, middle-income families and those who aspire to the middle class."

Under discussion was more money for infrastructure repairs, for food stamps, for state Medicaid programs and energy aid for low-income people. Some also are talking about tax rebates.

Republicans — including President Bush — said they were in no rush to offer another stimulus, and economists weren't keen on the idea.

"Let's get through the existing crisis first, dealing with the housing situation," said House Republican Conference Chairman Adam Putnam, R-Fla.

Federal Reserve Board Chairman Ben Bernanke also urged caution.

"Given the high degree of uncertainty, monetary policymakers will need to carefully assess incoming information bearing on the outlook for both inflation and growth," Bernanke told the House Financial Services Committee on Wednesday.

More ominously, he added: "There's no single solution. If there were, of course, we would have used it by now."

Concern about the economy has muscled aside almost every other political issue. A new Associated Press-Ipsos poll, taken last Thursday through Monday, found that 77 percent of those surveyed thought the nation was on the wrong track; 16 percent said it was on the right track.

The Conference Board, a New York-based research firm that tracks consumer sentiment, found last month that consumer confidence was among the lowest ever recorded.

Wednesday, consumers got a new reason to be concerned, as inflation had accelerated last month at nearly its fastest pace since the mid-1980s. The Labor Department reported that consumer prices jumped 1.1 percent in June, spurred largely by higher energy costs.

The increase was the biggest since prices rose 1.3 percent in September 2005, after Hurricane Katrina affected energy supplies. This time, energy was also the culprit, as June prices were up 6.6 percent, after a 4.4 percent spike in May.

The cost of food also rose sharply, as the survey found that most major grocery-store food groups — meats, fruits and vegetables, and dairy products — were up significantly.

There were some brighter numbers Wednesday: The Dow Jones Industrial Average was up 276.74 points to 11,239.28, spurred by falling oil prices. Over the last two days, the price of a barrel of oil has fallen about $10.

That good news didn't stop policymakers from stepping up efforts to find ways to ease the wider economic pain.

The year's first stimulus appears to have had only a minimal effect. A survey late last month of 3,004 people nationwide who get financial counseling found that 29.4 percent used their rebate checks to pay for "everyday expenses" such as food and gasoline. Another 20 percent paid down credit card debt.

"The check helped them get by another month," said Scott Scredon, a spokesman for the Consumer Credit Counseling Service of Greater Atlanta, a nationwide firm that conducted the survey.

Economists didn't see the rebates giving the economy a significant boost, and didn't see much prospect for a second round of checks or aid doing much more.

"The first check may have had a small, one-time effect," said Muhammad Islam, an associate professor of economics at St. Louis University. "But the real problems are concentrated in the finance and energy sectors, and those aren't going to go away for a while."

The idea of a second rebate check is on the Democrats' list of possible stimulants later this year.

Presumptive presidential nominee Barack Obama backs a $50 billion plan that includes helping consumers pay energy bills and deal with possible housing foreclosures and providing states with fiscal relief.

Pelosi convened an economic meeting Tuesday at which lawmakers and economists generally sympathetic to Democrats made the case for more stimuli.

"I think all of us believe that the problems are likely to get worse before they get better, since unemployment in the labor market lags the entire economy," Rebecca Blank, a senior fellow in economic studies at the Washington research center the Brookings Institution, said at the meeting.

As a result, she said, "The argument for economic stimulus, particularly targeted at some of these issues, is very, very high."

Outside Democratic circles, the ideas were greeted with skepticism and even sharp criticism.

"If the speaker is serious about taking action to stimulate the economy, she should start by allowing a vote on increased American energy production," said House Republican leader John Boehner of Ohio.

Many Republican lawmakers want Congress to end the ban on drilling off most U.S. coastlines as well as permit exploration in the Arctic National Wildlife Refuge in Alaska.

Presumptive Republican presidential nominee John McCain sympathizes with that view, and has said that any relief should begin with energy. He wants to suspend the federal 18.4 cents-a-gallon gasoline tax until Labor Day; his other ideas are long-term strategies to create jobs and increase energy supplies.

The White House on Wednesday reiterated its stance that it's too soon to seriously consider a second stimulus. "We're always open-minded to things," President Bush said Tuesday, "but let's see how this (first) stimulus package works."

McClatchy Newspapers 2008

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