Economy Watch: Spain Set to Ask for Bailout; L-T Unemployment Down; Stimulus Debated
Late last week word broke that Spain was going to formally request what the country has so far only informally requested: financial assistance from the EU for its sickly banking sector (a bailout, to use a term that no one involved wants to use). The total might be as much as 100 billion euros ($125 billion), coming ahead of an EU summit that’s slated to convene on Thursday.
The idea was broached by the Spanish government a few weeks ago, but instead of calming investors (as might have been the intention), the effect was to spur investors to do what they usually do in the face of uncertainty–that is, become nervous. Yields on Spanish sovereign debt have been uncomfortably high ever since.
Perhaps investors are justified in being nervous about whether Spain’s banks, which have been crushed by bad real estate debt since the late 2000s, will ever get out from under their debts. The details of what Spain will ask for on Monday aren’t clear yet, and neither is the EU’s reaction. But it seems likely that other euro-zone member states are going to want to restructure the Spanish financial services sector in return for the bailout, something along the lines of the Irish bailout, though larger.
Long-Term Unemployment Edges Down
U.S. employment numbers have been discouraging during the last few months, though there have been a few nuggets of (possible) encouragement in the Bureau of Labor Statistics reports. In particular, the number of long-term unemployed is actually shrinking.
The BLS defines long-term unemployment as people out of work for 27 weeks or more, and during May they accounted for 42.8 percent of the entire pool of unemployed (with an important caveat: the government only counts those still looking for work as unemployed). The percentage of long-term unemployed has dropped during the recovery from a recent high of 48.1 percent in April 2010. But the current totals are still considerably higher than during pervious decades, when the long-term unemployed were typically in the low 20s as a percentage of unemployed.
About 5.4 million people fit into the long-term unemployed category in May, down about 13 percent from a year earlier, when the total was 6.2 million, reports the BLS. Some of the drop was probably people retiring for good or returning to school, but not all of it, according to economists. In some ways, the return of any of the long-term unemployed into the workforce is a better indicator of recovery than the weekly or monthly churn of employment numbers, since the longer people are out of work, the harder it is for them to return to the workforce.
FOMC Member Lacker Disagrees on Stimulus
Not all of the members of the Federal Open Market Committee are on board with more stimulus from the central bank–or, for that matter, the mild stimulus announced last week (the “Twist”). In a statement released on Friday, Richmond Fed President Jeffrey Lacker said that the maturity extension program (the Twist) wouldn’t do the economy much good without goading the inflation monster, which he believes is otherwise in check and shouldn’t be goaded.
I dissented on this decision because I do not believe that further monetary stimulus would make a substantial difference for economic growth and employment without increasing inflation by more than would be desirable,” Lacker said. “While the outlook for economic growth has clearly weakened in recent weeks, the impediments to stronger growth appear to be beyond the capacity of monetary policy to offset. Inflation is currently close to 2 percent, which the committee has identified as its inflation goal.”
On Friday, Wall Street, which had had a nervous week, bounced back a bit from the sharp declines of earlier in the week. The Dow Jones Industrial Average gained 67.21 points, or 0.53 percent, while the S&P 500 was up 0.72 percent and the Nasdaq advanced 1.17 percent.