Big Week Ahead for Federal Intervention

On Friday, the U.S. Department of Labor reported that nearly 600,000 people lost their jobs in January, the most since the slumping economy of 1974. That report is expected to give further impetus for federal invention in the economy, and this week’s events aren’t likely to disappoint in that regard. First, there’s TARP II: The Obama Administration’s Turn on the horizon, which has been in the works since the election. Official word on the direction of the second tier of last fall’s bailout package will come on Tuesday, and as ever, banks are hopeful that more money will come their way. More help for the businesses seen as responsible for the mess may sound disagreeable, but the more fundamental question is whether TARP II can unlock credit markets better than the original version. “To get the economy on a sustainable growth path, the new Obama administration must fix the banks…” said Peter Morici, professor at the Robert H. Smith School of Business University of Maryland, in his most recent newsletter. “Credit shortages and an increasing trade deficit will slow down the economy and cause renewed job losses as the effects of stimulus spending and tax rebates expire. Then the economy will require successively larger stimulus packages, and borrowing from China and other foreign governments, or it will slip back into recession.” Meanwhile, the U.S. Senate looks likely to vote on the stimulus package that the administration has been pushing for, now reported to total $827 billion, and that too could happen on Tuesday. The question is exactly what kind of grab-bag the bill will ultimately be, and who stands to benefit. While TARP and the stimulus will be getting a large measure of attention this week, a few other important economic numbers will be coming out this week as well. Government figures on retail sales will be out on February 12, with most economists expecting downward trends, especially when cars are included. Updated numbers on the U.S. trade deficit will be out mid-week. At the end of the week, the University of Michigan Consumer Sentiment index will be out. No one’s expecting bright sentiment, but if the index doesn’t go down that much, that might count as good news, especially for retailers. Investors at least seem to be anticipating a good week. On Friday, the Dow Jones Industrial Average surged 217.52 points, or 2.7 percent, while the S&P 500 was up 2.69 percent and the Nasdaq gained 2.94 percent. Last week’s gains mostly erased January’s losses for all of the indexes.