The Federal Reserve on Wednesday is expected to reaffirm its intention to keep U.S. interest rates at ultra-low levels for a long time to support the economy, even as signs of recovery accumulate.
The Fed’s policy-setting Federal Open Market Committee resumed a two-day meeting at about 9 a.m. (1400 GMT), a Fed spokesperson said. The Fed will issue a statement around 2:15 p.m. (1915 GMT).
The central bank cut overnight rates close to zero percent last December and it has vowed to keep them there for an “extended period.” While some analysts think the Fed could start to tip-toe away from that pledge, most say it is too soon.
“Once they start removing that, that’s a real sign that they intend, within six months, to start raising rates,” said Deutsche Bank economist Torsten Slok. “But it’s just premature, looking at the economic numbers, to arrive at that conclusion.”
Analysts expect the Fed to nod to modestly encouraging signs suggesting the economy is gaining strength, but still expect a cautious tone on policy.
A private report on Wednesday showing U.S. companies cut payrolls at the slowest pace in more than a year may add to a sense that the economic numbers are moving in the right direction.
The government on Friday is expected to report that the decline in employment is abating, though the jobless rate is forecast to rise to a fresh 26-year-high of 9.9 percent.
ECONOMY’S STAMINA IN DOUBT
Policymakers will need to take into account the economy’s faster-than-expected 3.5 percent annualized growth rate in the third quarter, which effectively signaled the end of the most painful recession since the 1930s.
Suggesting further momentum, data on Monday showed manufacturing activity hit its highest level in 3-1/2 years last month, though a report on Wednesday showed the nation’s vast services sector was growing only modestly.
Improved third-quarter corporate earnings have also fed optimism that the upturn can be sustained next year even after government help has dried up.
In an act underlining rising confidence in the recovery, billionaire investor Warren Buffett on Tuesday said his company, Berkshire Hathaway Inc, agreed to purchase the nation’s largest rail company, saying it is poised to benefit from the recovery.
Fed officials in recent weeks, however, have sent the message that while the outlook has improved, the recovery is likely to be sluggish and needs continuing support.
Unemployment is expected to climb into next year, damping the consumer spending that accounts for around 70 percent of U.S. output. The banking system is still under pressure from loan losses, and credit remains tight.
“We have to think about our exit policy and are looking at it very carefully, but at the moment, that’s not our first order of concern. At the moment, it’s policy accommodation,” Chicago Federal Reserve Bank President Charles Evans, a voter on the Fed’s policy-setting panel, said on October 22.
Telecom products maker Cisco Systems has entered a deal to buy wireless Internet infrastructure company Starent Networks for $2.9 billion, Cisco announced Tuesday.
Cisco will pay $35 per share for each share of the nine-year old Tewksbury, Mass.-based company, equal to about a 21% premium over Starent’s closing stock price of $29.03 on Monday.
Starent makes equipment for wireless providers such as AT&T (T, Fortune 500) and Verizon (VZ, Fortune 500) to send large amounts of data to cell phones, smartphones and computers with mobile broadband modems.
"We are very pleased that Starent Networks will be joining the Cisco team," said John Chambers, Cisco’s chief executive, in a statement. "We believe their products and engineering talent will greatly benefit our service provider customers as they build out their mobile Internet offerings."
The company said the acquisition, which expected to be completed by June 2010, won’t yield any profit until 2012 and will actually dig into its earnings through 2011. But Cisco said the deal was important for the future of the company, as it expects global mobile data traffic to more than double every year through 2013. Both companies’ boards approved the deal.
Starent Networks is a nine-year old company with about 1,000 employees worldwide. Last year, the company reported revenue of $254.1 million, which was up 74% from the previous year. Starent went public in 2007.
"This is a great move for Cisco," said Zeus Kerravala, analyst at Yankee Group. "When you look at the broader networking landscape, it’s in wireless. Until now Cisco could talk a big wireless game, but couldn’t back it up."
Cisco is the world’s largest telecommunications equipment maker. But it has been losing market share in recent months to Alcatel Lucent (ALU), which analysts say was better positioned for wireless networking than Cisco.
Juniper Networks (JNPR), another telecom infrastructure competitor, was widely rumored to be bidding for Starent as well.
"This is an offensive and a defensive move for Cisco: it helps Cisco compete with Alcatel for wireless and keep a competitor away in Juniper," said Kerravala. "Now the question is what does Juniper do? There are no other big, independent wireless infrastructure companies left."
Tech industry wheelings and dealings have been heating up in the past two months, including several high-profile multi-billion acquisitions for major companies. Xerox (XRX, Fortune 500) bought Affiliated Computer Services (ACS, Fortune 500) for $5.7 billion in late September, Dell (DELL, Fortune 500) bought Perot Systems (PER) late last month for $3.9 billion, and Adobe (ADBE) purchased Omniture (OMTR) last month for $1.8 billion.
Cisco’s announcement on Tuesday also follows a separate $3 billion acquisition of Norwegian videoconferencing company Tandberg earlier this month.
Despite two back-to-back big acquisitions, Cisco said it is still looking to make more deals.
"We will continue to be aggressive driving acquisitions," said Ned Hooper, Cisco’s chief strategy officer, on a conference call with investors. "These deals tend to lump together … but we still feel that our cash level allows us to be very flexible."
Shares of Cisco (CSCO, Fortune 500) rose less than 1%. Shares of Starent (STAR) shot up 17%.
Vikram Pandit’s stewardship of Citigroup just received the equivalent of a triple-A rating.
Egon Zehnder, the recruitment consultancy Citi (C, Fortune 500) paid to conduct a review of its top brass at the behest of regulators, gave the chief high marks — though a few of his deputies didn’t fare so well. But to call this a complete vindication for Pandit would be a mistake.
Like the top grades complex securities garnered from rating agencies selected and in effect paid by the securities’ designers, it’s hard to take Egon Zehnder’s plaudits at face value. Recruitment consultants are known for not biting the hand that feeds them.
That being said, Citi’s board should keep Pandit in place for the moment. Though the former Morgan Stanley executive took longer than he should have done to make up his mind, Citi is now pursuing a sensible strategy of focusing on its role as a global provider of financial infrastructure to big corporate clients.
The bank is cutting back in retail banking where it has few economies of scale; it is deciding how best to get out of the controversial Phibro energy trading business; it has put its retail brokerage on a long-term exit path; and it has shunted most of its uncollateralized lending operations into Citi Holdings, a de facto way-station for assets that are on the block cheap pay day loans.
Anyway, Pandit’s powers have been circumscribed to placate regulators. Relations with the government are now in the hands of the chairman, Dick Parsons. Citi’s interface with investors and regulators was forcibly changed as well. Even if Pandit were to make bad decisions, his power to execute them would be limited.
But Citi directors shouldn’t let Egon Zehnder’s report stop them considering who might replace Pandit, either. Though he has embarked on a reasonable course, he has yet to deliver. Failure to do so would necessitate a change of captain. Without a Plan B, Citi’s board could face a succession mess like the one now afflicting Bank of America (BAC, Fortune 500).
BofA’s board failed to prepare for the departure of chief executive Ken Lewis, despite calls to replace him and the possibility that looming legal battles could make his position untenable. The infighting at BofA, which is now considering hiring an emergency CEO, is more instructive for Citi’s board than anything a consultant might prepare.
Prince Alwaleed bin Talal, a big investor in Citigroup, urged the U.S. government to sell its stake in the bank as soon as this year to boost investor confidence, Emerging Markets magazine reported.
“The earlier the U.S. government exits its investments in those companies, the better,” as long as the withdrawal is not done in a way that hurts the prices of U.S. banking stocks, the Saudi billionaire was quoted as saying in an interview published on Sunday.
“We need to give confidence back to the shareholders and investors that these companies are moving along without government support.”
A series of bailouts during the financial crisis has left the U.S. government with a 34 percent stake in Citigroup, after the bank obtained $45 billion from the government’s Troubled Asset Relief Program.
Sources told Reuters last month that Citigroup was talking to U.S. officials about how the government should shed its 7.7 billion shares in the bank.
Alwaleed, who owns part of Citigroup through his investment firm Kingdom Holding Co, has said little in recent months about the stake. Kingdom owned 3.6 percent of the bank in July 2007 and five months later Alwaleed said he was among investors who agreed to put more money into the bank.
OPERATING PROFIT
Citigroup is expected to return to the black on an operating basis next year at the earliest, Alwaleed was quoted as saying in the interview no teletrack payday loans.
“Citigroup has learned a huge lesson. The worst is behind them right now,” Alwaleed said, adding that the bank’s $100 billion of tangible common equity, “the highest in the industry,” and the large scope of its operations meant its future was “very bright.”
The bank has been profitable on a net basis in each of the last two quarters because of one-time gains and accounting items, but has not posted a quarterly profit from its main operations since 2007.
In the wake of the financial crisis, U.S. regulators have been discussing the problem of banks becoming “too big too fail” — since the collapse of a big institution could undermine the entire banking system, governments can find themselves forced to spend huge sums supporting debt-ridden and unprofitable banks.
But Alwaleed said the solution to this problem was not breaking up big banks, and that he did not expect the U.S. government to decide to do this.
“Any failure of a broken-up bank is still going to impact the whole system. You need to fix the problem, not a symptom of the problem,” he was quoted as saying.
(Reporting by Andrew Torchia)
General Electric Co. is holding talks to sell 51% of NBC Universal to Comcast Corp., which would pay up to $7 billion in cash and contribute some programming assets to the new, jointly owned company, according to a person familiar with the matter.
GE (GE, Fortune 500), which owns 80% of NBC Universal, is considering a host of proposals for NBC Universal as partner Vivendi SA explores whether to sell its 20% stake.
At the moment, however, a deal with Comcast (CMCSA, Fortune 500) appears to be the most likely outcome, though the source said discussions are still in the early stages and could fall apart.
Under the plan, GE would buy Vivendi’s stake, and put the borrowings that fund that deal on NBC Universal’s balance sheet. Other debt would also be added to the balance sheet of what would essentially be a new, stand-alone company.
Comcast would take a 51% stake in that company by contributing a combination of about $6-$7 billion in cash and some of its own programming assets, the source said.
Over time, Comcast could increase its ownership stake, most likely funding it from cash generated by the new NBC Universal, according to CNBC, which first reported the news.
The structure would allow Comcast to acquire the cable assets it has long coveted, without taking on any new debt or issuing equity.
Shares of Comcast dropped 6 payday loans.6% on Nasdaq. GE shares were down 2.2% the New York Stock Exchange at mid-afternoon.
Other sources said GE has also studied several additional options should Vivendi drop its stake in NBC Universal, which owns the NBC broadcast network plus theme parks, a movie studio and cable channels like Bravo, USA and CNBC.
Among those options, GE could find another buyer for NBC Universal or look to sell part of the media company through an initial public offering.
Vivendi, NBC Universal, Comcast and GE have declined to comment on any talks.
Time Warner Co. (TWX, Fortune 500) ,, the parent company of CNNMoney.com, is another company often linked to interest in NBC Universal. But another source said the company would rather avoid the burden of acquiring the poorly performing NBC broadcast TV network, even if it is attracted to the possibility of adding more cable channels to a current lineup that includes TBS, CNN, and HBO, among others.
Vivendi has the right to exercise its sell option in NBC Universal each fall until 2016, but is thought likely to do so this year to fund businesses that it finds more essential.
Web TV firm Joost, owned by the founders of Skype, removed its high-profile chairman Mike Volpi by shareholder vote, it said in a statement late on Friday.
Volpi, who continued as Joost chairman after leaving the chief executive role at end-June, then joined the venture firm Index Ventures, which was part of consortium bidding $1.9 billion to Internet auction house EBay Inc for 65 percent stake of Skype.
Skype co-founders Niklas Zennstrom and Janus Friis had contacted several private equity firms in an effort to launch a bid to buy back their old business, sources have said.
“Mr. Volpi was removed from the Board of Directors and from his position as Chairman of Joost by shareholder vote,” Joost said in a statement.
“The company and its Board of Directors is conducting an investigation into Mr. Volpi’s actions during his tenure as CEO and as Chairman.”
Volpi, when contacted by Reuters on Saturday, said by email: “I am no longer associated with Joost.”
On June 30 Joost, an early pioneer in bringing popular TV shows and movies to the Web, said it was dropping its consumer service, cutting jobs and losing its chief executive Volpi as it struggles to find revenue to survive.
Joost has programing deals with CBS Corp, Viacom Inc and Warner Bros among others.
Joost launched with much fanfare in 2007 as the latest venture of Skype founders Friis and Zennstrom. Before Skype, the Scandinavian entrepreneurs founded KaZaa, a file-sharing service popular with music and entertainment fans for sharing songs and video clips.
Volpi, a former rising star within Cisco Systems Inc joined Joost soon after.
Skype is facing next year a key court case against Joltid, a company controlled by Zennstrom and Friis, which controls key technology behind Skype. (Reporting by Tarmo Virki; Editing by Andy Bruce)
A key bank-to-bank lending rate fell to its lowest point on record Wednesday, signaling continued easing of the once-frozen credit markets.
Three-month Libor fell below 0.30% (0.269869%) for the first time since the British Bankers’ Association started keeping records in 1986. That’s a far cry from where rates sat just one year ago, when the 3-month rate peaked above 4.8% on Oct. 10.
After brokerage firm Lehman Brothers collapsed on Sept. 15, market volatility headed off the charts and banks quickly slammed their lending doors shut. The resulting credit crunch has been a hallmark of the recession.
The London Interbank Offered Rate — or Libor — is a daily average of rates that 16 different banks charge each other to lend money. A higher Libor rate indicates tighter credit, and lower rates can free up a choked market. More than $350 trillion in assets are tied to Libor, including many school, auto and home loans. The overnight Libor rate held steady Wednesday at 0.22%.
The Fed has been on a campaign to ease the credit crunch by slashing its interest rate, and by buying up long-term bonds to seed the financial system with money.
Three-month Libor is tied to the Federal Reserve’s benchmark interest rate, making it a barometer of the central bank’s monetary policy.
The Fed has held the interest rate at a range between 0% and 0.25% for the past six policymaking meetings.
"We’re at an awakening point," said William Larkin, analyst at Cabot Money Management. "When you’re this close to zero, people react."
A new normal. "What we’re seeing is a new normal," Larkin said. "And we don’t know what’s to come — how do we go from pouring money into the economy to pulling back and being more restrictive?"
The Fed may remain cautious even as recovery signs pile up, said Action Economics analyst Kim Rupert.
"We’ve been seeing evidence that a recovery is at hand, but they’re nervous about removing support prematurely," Rupert said. "That will keep Libor headed south."
Larkin said the credit market will likely see stability in the short term, helping market participants to diversify their investments.
In this decade so far, the 3-month Libor has averaged 3.31% on a weekly basis, Larkin said. But without "current distortions" and lows after the 2001 terrorist attacks, the average is about 4%, he said.
Still, defining a "normal" range for the key rate is difficult, he said.
"In our current situation, low is good," Larkin said. "In a negative-growth economy, you want something stimulative."
Rupert disagreed. "These rates are a little bit nervewracking," she said. "We’re not seeing any sign of resistance from policymakers, which shows economic conditions are still not strong enough to overcome their nervousness over the recovery."
Banks are the driving force. The borrowers who have gained access to capital are seen as the ones who deserve the credit, Larkin said, adding that banks will likely "step up the due diligence" when reviewing future loan applications. While many consumers may not feel the easing yet, credit has loosened, he said.
"The system is working," Larkin said. "The money is flowing into the higher parts of the marketplace. But [the government] has the gas all the way to the floor — they can’t really do anything else."
The Fed would prefer to deal with inflation rather than a double-dip recession, Larkin said, and that bias is probably already built into the credit system.
"They’re looking at the 1930s and saying, ‘We don’t want a repeat of that,’" Larkin said. "That will be the question throughout 2010: How do we get such a fragile economy into a normal monetary policy? We can’t stay at 0% forever."
Bonds slip. The credit crisis has also impacted government debt.
For example, in 2008, the 30-year note gained 41% in 2008, said Larkin. So far in 2009, it’s lost 20% with its yield has skyrocketing 40% year-to-date, he added.
On Wednesday, the 30-year long bond fell 21/32 to 102-12/32 and yielded 4.36%. Bond prices and yields move in opposite directions.
The benchmark 10-year bond slipped 8/32 to 100-30/32, and its yield rose to 3.51% from 3.54% late Tuesday. The 2-year note ticked down less than 1/32 to 100-3/32 and its yield rose to 0.95%.
The 3-month yield, which is an indication of appetite for short-term bonds, rose to 0.14%.
Chinese stocks sank 6% to a three-month low on Monday, weighing on Asian stocks and sapping investor willingness to put money at risk.
Meanwhile the yen rose sharply after Japanese voters swept the opposition into power.
The election results, while widely anticipated, sparked some short-term buying of yen on hopes that new policies will support consumer spending in an economy trapped in deflation and haunted by a weak growth outlook, though domestic stocks slipped on exporter weakness.
Major European stock futures fell 0.9%, following commodity prices lower, in trade thinned by a holiday in London. U.S. stock futures fell 0.6% and U.S. Treasury futures were up 0.2%.
Outside of Japan, volatility in Shanghai, a market largely closed to foreigners, has curbed risk taking and has been weighing on the Australian dollar, which is a common target for investors searching for bigger returns because of its relatively high yields.
Shanghai-listed shares dropped 6.2% on the day, on track to post losses of 21 percent in August, only the second month that the composite index has fallen more than 20% in the last 15 years.
The index also crucially dropped below the 125-day moving average, what is viewed by many domestic investors as the threshold for bear and bull markets.
Fears that banks will rein in their lending after a torrid first six months of the year and an abundant supply of expected new shares have been knocking Chinese shares lower for the last month, often weighing on global investor sentiment about holding riskier assets.
Shares of Bank of China, the country’s biggest foreign exchange lender, were down 3.9% in Shanghai and the top drag on the market. Hong Kong’s Hang Seng dropped 1.8% to a one-month low in sympathy with Shanghai.
Tokyo’s Nikkei share average fell 0.4%. Large exporters Canon Inc (CAJ) and Honda Motor Corp (HMC) were among the biggest drags on the Nikkei, losing around 3.3% and 1.8%, respectively, on the stronger yen.
Australian stocks also performed relatively well, falling only 0.2%. Shares of Australia and New Zealand Banking Group Ltd jumped 4.1% after the country’s fourth-largest lender said it was starting to see bad debt provisions bottom out.
The MSCI index of Asia Pacific stocks traded outside Japan slid 1 best payday loan.3%. The selling was widespread, hitting the consumer discretionary, energy, telecommunications and materials sectors.
Stock valuations questioned
Asian stocks are trading at a price-to-book valuation of 1.1 times, above the 30-year average of 0.7 times and around the same level at the peak of the last bull market.
Investors since March had been justifying the premium based on the region’s growth prospects and its expected speedy recovery from the global downturn. Yet in August developed markets, such as the United States and Europe, have attracted investors away from emerging markets thanks to better economic data.
The Asian stock rally sputtered in July and August for two reasons, according to Mark Matthews, Asia Pacific strategist with Fox-Pitt Kelton in Hong Kong.
"The first is that the U.S. in particular and the developed world in general are experiencing economic recoveries that are more robust than previously expected. The second is that there is policy shift in China, and even the doves there are happy that asset prices are no longer rising quickly," he said in a note.
Yen for yen
In the currency market, the yen got an early boost on the clear-as-day election result, which eliminated any uncertainty about Japan’s political leadership. The sharp selloff in Shanghai equities also supported the yen as dealers sought a safe haven.
The U.S. dollar fell 0.7% to ¥92.75, the lowest since July 13, and the euro dropped 1% to ¥132.28.
The sharp decline in Chinese stocks "has muddied the picture as well as to whether it’s a reaction to the election victory or risk aversion. It’s probably a bit of a combination of both," said a dealer at a European bank in Hong Kong about the yen strength.
The Australian dollar was off 0.6% to $0.8373, though was largely unchanged in August.
The yield on the benchmark 10-year U.S. Treasury note slipped to 3.43%, down sharply since hitting 4 percent on June 10.
The creeping rise of risk aversion in markets pushed down oil prices, with U.S. crude for October delivery down 0.7% to $72.22 a barrel.
After the mad rush of car sales sparked by Cash for Clunkers, dealers will now find they have plenty of downtime to count their money.
The popular program, which ended Monday, will leave many showrooms without cars to sell or customers looking to buy them.
"We’re definitely going to have a hangover," said Edward Tonkin, vice president of the Ron Tonkin Family of dealerships in Portland, Oregon and vice chairman of the National Automobile Dealers Association.
As of Monday morning, dealers had submitted 625,000 Clunkers applications to the government seeking a total of $2.58 billion, according to the Department of Transportation.
The Department of Transportation said Monday that it would give dealers extra time to file their rebate applications after its Web site for handling the submissions was overwhelmed. The deadline for electronic paperwork submissions has now been set at 8 p.m. ET Tuesday night.
The department said the deadline for dealers would be extended beyond 12 noon Tuesday to make up for time that was lost while the system was down.
After the heady rush of Clunkers sales, the return to normal — especially in a market where "normal" means deeply depressed — may be difficult to deal with.
"I think you’re going to be able to shoot a cannon through here and not hurt anybody," Tonkin said.
In the short run, dealers will see sales drop precipitously, said Jeremy Anwyl, CEO of the auto Web site Edmunds.com.
"I think we’re going to see a decline of about 40% in the immediate aftermath," he said.
That would take sales down to where they were in May, lower than they were in the month or two just before the program started.
Much of the decline will be because dealers don’t have many cars left to sell and, as a result, prices are high.
"This is the first time in years that if someone came and said they were thinking about buying a car, I would tell them to wait," Anwyl said.
Before this, with dealers eager to unload unsold cars, car buyers were paying very low prices for cars, in many cases far below the so-called dealer cost of the car.
Dealers have been having a hard time lately finding cars even for their Clunker buyers to take.
"I am low on everything," said Caroll Smith, president of Monument Chevrolet of Pasadena, Texas.
Many buyers have been forced to take cars with colors and options they didn’t really want, Smith and other dealers said.
Is a brighter day dawning? Automakers have been restarting factories and adding extra shifts to build more cars to refill depleted dealers inventories.
Many analysts were expecting a gradual recovery in auto sales beginning this summer, even before the Cash for Clunkers plan was announced. Those expectations remain.
"Improved consumer confidence and credit availability during the past six months have combined with the CARS program to lift industry sales out of their slumping year-to-date levels, which have been down approximately 35% year-over-year," said Gary Dilts, senior vice president of global automotive operations at J.D. Power and Associates, in a statement.
J.D. Power had been forecasting a late-year lift in sales and still predicts that now.
"Reduced inventories will likely hold back some of this momentum, but the automakers are moving quickly to ramp up production and rebuild stock," Dilts said.
AutoNation, the country’s largest auto dealership chain, also predicts a gradual recovery in sales and thinks the Clunkers program will help boost that recovery.
"We really think that this is just going to help the gradual recovery we’re going to have in the second half of the year," said AutoNation spokesman Mark Cannon.
Beyond the Monday night closing time, the program has still left consumers with the sense that "it’s OK to buy a car now," Cannon said.
"The main question now is ‘How fast can everybody restock their inventories?’" he said.
Once that happens, Anwyl of Edmunds.com said he expects car prices to fall quickly. Automakers will need to start adding incentives again to get people to buy all those newly minted cars. Anwyl expects incentives of about $3,000 on average.
"I would wait until probably November," Anwyl said.
Did buy a new car under the Cash for Clunkers program? Please share the details. What did you buy? What did you trade in? How much did you pay? We want to find out if people have gotten deals out of this program or not. E-mail your story to realstories@cnnmoney.com or send in an iReport and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
The nation’s economy is starting to rebound, but the Obama administration’s massive stimulus package had little to do with it.
The gross domestic product contracted at an annual rate of 1%, a significantly slower decline than the past two quarters. Economists had expected a drop of 1.5%.
While government spending at all levels increased in the second quarter, only a small amount of the $787 billion stimulus package had trickled out by June 30.
As of July 3, only $60.4 billion of recovery funds had been distributed, the largest chunk of which went to help states cope with rising Medicaid costs. Much of the $43 billion in stimulus tax relief — which includes the Making Work Pay tax credit for individuals – also kicked in during the quarter.
"I don’t think the effect of stimulus has been very large," said Edward Lazear, an economics professor at Stanford’s Graduate School of Business who advised former President George W. Bush. "Very little has gone out."
Non-defense federal government spending provided a 0.15 percentage point boost to GDP, while state and local government spending contributed 0.30 percentage points, according to the Commerce Department. Federal spending jumped nearly 11%, though much of it was in the defense arena, while state and local government outlays increased 2.4%.
To be sure, stimulus spending had some effect. Some of the early components of stimulus to be distributed have allowed people to spend more, said Dean Baker, co-director of the Center for Economic and Policy Research. Those who received the $25 increase in unemployment benefits have likely already put those funds into the economy.
And states did put the money they received to use, which contributed to the fastest growth in state and local government spending since the middle of 2007, according to Josh Bivens, an economist with the Economic Policy Institute.
Some economists say that the GDP numbers would have been worse without the stimulus funds. Bivens estimated the recovery act money may have contributed as much as 3 percentage points of annualized growth to the quarter free business cards.
But others expect the figures to be revised downward in the future. They point to an 8.9% contraction in business spending and a 7% decline in hours worked, which doesn’t mesh with a mere 1% decline in GDP.
The true test of the stimulus package will come in the fall, when the government reports economic activity for the third quarter. The administration is working to get the money out the door quicker, as complaints mount that stimulus is not having its promised effect.
"The third quarter will be a critical time period for assessing the stimulus package," said Mark Thoma, an economics professor at the University of Oregon.
Friday’s GDP report comes as some experts are calling for a second stimulus package to further juice the economy. They say the first was not enough to promote a recovery.
"It is preventing a collapse," said L. Randall Wray, senior scholar at the Levy Economics Institute of Bard College. "I wouldn’t say it is big enough to get us growing."
Others, however, say that more government funding will not address the key issues — such as the housing and financial markets turmoil — holding back the economy.
"You will feel better, but it won’t really get at the heart of the problems driving the crisis," said Philip Levy, a scholar at the American Enterprise Institute who worked in the Bush administration.
How has President Obama’s $787 billion stimulus program affected you or your community? Are you seeing a benefit from the Making Work Pay tax cuts or the additional $25 in unemployment benefits? Are you seeing construction jobs or other stimulus-funded work in your neighborhood? Do you still have a job because of stimulus funds? We want to hear your experiences. E-mail your story to realstories@cnnmoney.com or send in an iReport and you could be part of an upcoming article. For the CNNMoney.com Comment Policy, click here.
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