By Matthew Benjamin and Alison Fitzgerald
July 13 (Bloomberg) -- David Oneglia was looking at the likelihood of layoffs at his construction company. Then he landed a contract funded by the federal stimulus program to repair roads and bridges on Connecticut’s Merritt Parkway.
The $67 million job and the 80 workers it employs has allowed Oneglia to maintain his current payroll. It doesn’t permit him to expand it.
“The work we’re getting is just keeping the people we have on our workforce day-to-day going,” said Oneglia, president of Torrington, Connecticut-based O&G Industries Inc. “It won’t add anything.”
Even as money begins flowing to projects across the U.S. from the stimulus President Barack Obama signed in February, some lawmakers are questioning its value.
Bigger-than-forecast job losses pushed the June unemployment rate to a 26-year high of 9.5 percent after Obama promised to create or save 3.5 million jobs over two years. Republicans say that is proof the $787 billion measure isn’t working, while Democrats debate whether a second shot of spending is needed to pull out of a recession.
The rising unemployment rate has triggered concerns of a slower-than-anticipated recovery and driven stock prices and bond yields lower.
The Standard & Poor’s 500 dropped 1.9 percent last week to 879.13, the lowest level since May 1. The measure has now retreated 7.1 percent since June 12.
Bond Yields Fall
Yields on 10-year Treasury notes touched the lowest level in seven weeks as concern about a slow recovery drove investors toward the safety of U.S. debt. The benchmark 10-year note yield fell 20 basis points on the week, or 0.20 percentage point, to 3.30 percent, according to BGCantor Market Data. It was at 3.261 on July 10, the lowest since May 21.
Economists say it isn’t realistic to expect stimulus spending and tax cuts to revive the labor market and restore economic good times in just five months.
“Everyone always expects fiscal stimulus to immediately help out, but it never does,” said Allen Sinai, chief economist at New York’s Decision Economics Inc. “The bulk of the effects will come in 2010.”
So far, about $60 billion in spending and $43 billion in tax relief has hit the streets, accounting for 13 percent of the plan’s total. An additional $175 billion has been committed to specific uses.
Every state met the administration’s June 29 target for obligating at least half its highway money, said Elizabeth Oxhorn, a spokeswoman for Vice President Joe Biden. A report last week by the Government Accountability Office, Congress’s investigative arm, said the government is ahead of schedule in distributing stimulus money to the states.
Other Benefits
While attention focuses on infrastructure jobs, other stimulus steps, such as increased unemployment benefits, are pumping money into the economy. Food-stamp use jumped by $725 million to a record $4.5 billion in April, fueled by a $20 billion, five-year funding increase.
By design, much stimulus spending won’t happen for six to nine months, with many road and bridge projects expected to begin late this year or next. The Congressional Budget Office said 70 percent of the money will be spent by September 2010.
“The stimulus was backloaded, so there are a number of features that won’t kick in until next year,” said Richard Berner, co-head of global economics at Morgan Stanley in New York.
‘Bit Too Small’
With unemployment rising, calls are starting for another spurt of stimulus spending. Obama, who says the jobless rate will exceed 10 percent before turning for the better, has neither endorsed nor ruled out additional action.
Laura Tyson, an outside economic adviser to the White House, said last week an additional stimulus should be considered because the first one was “a bit too small.” Billionaire investor Warren Buffett told ABC News in a July 9 interview that more stimulus “may well be called for.”
Biden defended the program on July 9 in Ohio, expressing frustration with criticism that progress has been too slow.
“Remember, we’re only 140 days into this deal -- it’s supposed to take 18 months,” Biden said. The stimulus is saving thousands of jobs each day, he said.
Still, Biden said on July 5 that the administration “misread the economy” in initial forecasts that underestimated the depth of the recession and overestimated the stimulus package’s impact.
It would be hard to move more quickly, said former House and Senate budget analyst Stan Collender.
‘Throwing $100 Bills’
“Short of standing on top of the Empire State Building throwing $100 bills out, I don’t know what they could do to get money out there faster than what they’re doing,” said Collender, managing director of Qorvis Communications in Washington.
The stimulus should be judged by how much money has been committed to projects because economic benefits start to appear as work begins, House Transportation Committee Chairman James Oberstar, a Minnesota Democrat, said on June 25.
In April, almost $61 million from the stimulus was designated to help pay for a $95 million laboratory building at the Energy Department’s Oak Ridge National Laboratory in Tennessee.
That let St. Louis-based McCarthy Building Cos. start work at least six months earlier than anticipated, Oak Ridge spokesman Michael Bradley said. While only $2.4 million has been paid through June, about 150 people are at work on the project, which is scheduled for completion in 2011, he said.
Savings Rate Rose
While stimulus tax cuts began showing up in paychecks across the country in April in the form of reduced withholding, the economic impact may be muted as consumers save more money. The personal savings rate in May rose to 6.9 percent, the highest since December 1993.
If spending eventually picks up, “reductions in withholding normally have a lag of two to four quarters before any of it begins to be spent in any clear way,” Sinai said.
Instead of focusing on unemployment to gauge the stimulus’s initial benefits, Moody’s Economy.com chief economist Mark Zandi said he will watch retail sales and initial unemployment claims, which he expects to improve in the next three months.
The unemployment rate isn’t the best measuring stick because “it significantly lags what’s going on in the economy,” said Zandi, who expects the jobless rate to peak at about 10.5 percent next spring.
Judging Effectiveness
Even some of the critics who say the stimulus was poorly designed, such as Douglas Holtz-Eakin, an adviser in Arizona Senator John McCain’s 2008 Republican presidential campaign, say unemployment isn’t the best way to judge its effectiveness now.
The stimulus’s biggest weakness is that it “won’t affect the economy’s primary problems, which are falling values of assets like homes and stocks,” Holtz-Eakin said.
Statements by economists that job growth may be slow to arrive hasn’t lessened public concern -- or attacks by Republicans. The stimulus bill passed in February over unanimous opposition by House Republicans and got only three Republican votes in the Senate.
“People want their jobs,” House Republican Leader John Boehner of Ohio said on July 9. “They want to see the economy moving again, and they don’t see anything happening.”
Faster Recovery Sought
That’s the case for John da Silva, 33, an unemployed heavy- equipment operator in Litchfield, Connecticut.
Out of work since December, when he lost his $76,000-a-year job with Blue Bell, Pennsylvania-based Henkels and McCoy Inc., da Silva supports a stay-at-home wife and a daughter with respiratory ailments who requires frequent medical treatment.
“I felt that it would have funneled down a lot quicker than it has,” da Silva said of the recovery funds. “We need stimulus money for new big super-projects that are going to have guys working for a year or two. That’s not happening right now.”
The $150-a-week union check that supplemented da Silva’s unemployment benefits stopped coming on June 1. If not for union medical benefits, he said, “I would have been another statistic, with a foreclosure and a bankruptcy.”
Those benefits end in October. “Instead of getting better,” da Silva said, “it looks like things are getting worse.”
To contact the reporters on this story: Matthew Benjamin in Washington at Mbenjamin2@bloomberg.netAlison Fitzgerald in Washington at afitzgerald2@bloomberg.net
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