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US reached debt limit, unemployment rampant

by Associated Press/NY Times Thursday, Feb. 06, 2003 at 8:19 PM

US national debt nears .4 TRILLION limit, so the US Treasury Dept. asks for higher debt ceiling for the Fed Govt; U.S. Economy in Worst Hiring Slump in 20 Years...

FEBRUARY 05, 12:08 ET

U.S. to Hit Debt Ceiling in February


Associated Press Writer

WASHINGTON (AP) — The government is expected to hit the .4 trillion ceiling on the national debt around Feb. 20, the Treasury Department said Wednesday, renewing its call for Congress to boost the government's borrowing authority.

Treasury asked Congress late last year to increase the government's ability to borrow, setting the stage for a political fight in Congress. Treasury, however, hasn't said exactly how much of an increase in the current statutory debt ceiling it wants.

Late last year Treasury warned Congress the government would hit the debt ceiling in late February, but didn't specify a date.

Treasury's announcement comes as the government's financial situation is deteriorating, with considerably more red ink being projected for the next few years than the 8 billion deficit seen in the 2002 fiscal year, which ended Sept. 30.

President Bush's budget — which includes a bold tax-cut package — projects deficits of 7 billion this year and 4 billion next year — surpassing the record 0 billion deficit of 1992 under the first President Bush.

If Congress doesn't boost the government's borrowing authority, Treasury can juggle funds for a while at least to dodge a default on the national debt. Treasury moved billions of dollars around to do just that on two occasions last year.

``If the statutory debt ceiling is not raised, the Treasury will have to begin to use a number of stopgap devices — some costly — to manage debt subject to limit, which have been previously utilized under established legal authority,'' Treasury said Wednesday.

But such shifting of funds would allow the government to pay its bills through the beginning of April, the department said.

``Treasury will continue to work with Congress to ensure the government's ability to finance its operations,'' Treasury said.

Peter Fisher, Treasury's undersecretary for domestic finance, didn't believe the Feb. 20 and April timeframes would be changed by a war with Iraq or congressional passage of the president's new tax proposal.

``I doubt that any contingency is going to change this date much,'' Fisher said. ``I think we discussed last year at some length, the timing of these dates is really at this point driven by our cash flow.''

Last June, Congress boosted the old debt limit by 0 billion, from .95 trillion to the current .4 trillion. However, at that time, Treasury had sought a larger increase and warned that Congress would need to again increase the government's borrowing authority.

Boosting the debt limit is more a matter of politics than economics.

Economists and others doubt that Congress will not eventually raise the limit. A federal default is considered unimaginable because it would rattle the bond markets, force interest rates higher, weaken the world economy and deliver a jarring political blow to President Bush.

Currently, national debt subject to the .4 trillion debt limit stands at .3 trillion.

Democrats said the need for the government to borrow more reflects Bush's handling of the struggling economy and underscored how the 10-year, .35 trillion tax-cut that he engineered in 2001 forced the government back into the red.

Republicans blamed the 2001 recession and the costs of fighting terrorism for the need to extend the debt limit.

With the government squeezed for cash, Treasury said it would bring back 3-year notes, selling them on a quarterly basis beginning in May. The last time the government sold the 3-year note was in May 1998. Treasury also plans to sell 5-year notes more often each quarter.

Treasury also will auction billion in 5-year and 10-year notes next week.

It will sell billion worth of 5-year notes, maturing on Feb. 15, 2008, next Tuesday; and will sell billion worth of 10-year notes, maturing on Feb. 15, 2013, next Wednesday.

A committee of securities dealers that advises Treasury on financing matters in a meeting Tuesday discussed, among other things, bringing back the 30-year bond, the 52-week bill and the 7-year note, according to minutes of the meeting released Wednesday.

Treasury officials, however, said they don't foresee at this point resurrecting the 30-year bond, which the government stopped selling in 2001.


Treasury Department: http://www.ustreas.gov/


U.S. Economy in Worst Hiring Slump in 20 Years


New York Times Article 05 Feb 03

The American economy has fallen into its worst hiring slump in almost 20 years, and many business executives say they remain unsure when it will end.

With economic growth having slowed to less than 1 percent in recent months, about one million people appear to have dropped out of the labor force, neither working nor looking for a job, according to government figures.

The surge in discouraged workers is the most significant since the months immediately following the Sept. 11 terrorist attacks, and it suggests that the pain of joblessness is worsening even though the nation's official unemployment rate, which counts only people looking for work, held steady at 6 percent in December.

The lack of jobs has also slowed wage growth, so that only workers in the most affluent group are still gaining ground on inflation, ending a six-year streak of increases in buying power across the board.

"Last year, I heard a lot of people say, `Come back after the first of the year; if the economy picks up, we might hire some people,' " said Tom Koehn, 50, who lost his job in May at a manufacturer of heavy machinery in South Bend, Ind. "But so far, I haven't found anybody who's hiring."

In the last two months of 2002, the employment decline became even worse than it had been at a comparable point in the so-called jobless recovery of the early 1990's, according to recently revised statistics from the Department of Labor. The economy has lost more than two million jobs, a drop of 1.5 percent, since the recent recession began in March 2001, as layoffs have continued despite the resumption of economic growth more than a year ago. The decline was 1.3 percent at the same point in the business cycle a decade ago.

Executives are now saying they have been disappointed too many times already by the halting growth of the past year to begin hiring workers in significant numbers. Although the government is likely to report on Friday that the economy added some jobs in January, many executives are still waiting to be convinced that business has regained a solid footing after the collapse of the late-90's economic bubble.

The possibility of a war in Iraq and an increase in oil prices offers another reason for hesitation, they say. Many companies have also used new technologies and management techniques to produce more with the same number of employees.

"This is what I call the new reality," said Robert M. Dutkowsky, the chief executive of J.D. Edwards, a software maker in Denver that has kept its work force at 5,000 people for the last few years. "The environment we're operating in is what it's going to be like for a while."

In his State of the Union address last week, President Bush called the improvement of the job market his "first goal" for the coming year and asked Congress to pass a 0 billion, 10-year tax cut.

"We must have an economy that grows fast enough to employ every man and woman who seeks a job," Mr. Bush said. "With unemployment rising, our nation needs more small businesses to open, more companies to invest and expand, more employers to put up the sign that says, `Help Wanted.' "

Most economists say the tax plan and another billion in help for the jobless would have only a small effect on the economy this year.

The number of companies cutting jobs has spiked since November, with AOL Time Warner, Boeing, Dow Jones, Eastman Kodak, Goodyear, J.C. Penney, McDonald's, Merrill Lynch, Sara Lee, and Verizon all announcing new layoffs. Barring a sustained rise in oil prices, however, the cuts appear likely to taper off in the coming months as the economy continues its slow recovery, most forecasters say.

The bigger problem seems to be companies' unwillingness to hire new workers. In December, the number of help-wanted advertisements in newspapers across the country fell to the lowest level in almost 40 years, according to the Conference Board, a research group in New York.

"There isn't the confidence level in business today that we need for growth," said Cinda Hallman, chief executive of the Spherion Corporation, a staffing company based in Fort Lauderdale, Fla., that places almost 400,000 people in jobs, down from 600,000 three years ago. "There's uncertainty. Companies are being much more cautious than they used to be."

The labor market began this recession tighter than it had been in 30 years, with the unemployment rate falling below 4 percent in late 2000. Even at 6 percent — its level in December, the most recent reading — the jobless rate remains lower than it was during the aftermath of most recent recessions.

But companies' reluctance to hire is causing pain in ways that the jobless rate does not measure.

U.S. Economy in Worst Hiring Slump in 20 Years

(Page 2 of 2)

An unusually large number of today's unemployed have been out of work for months, including Mr. Koehn, the South Bend manufacturing worker, who lost his job last spring. Almost 1.9 million people still looking for work have been unemployed for at least six months, triple the number of two years ago.

"There are a lot of people out there who aren't used to asking for help who need some help," said Mr. Koehn, who plans on applying to convenience stores if he has not found other work before his jobless benefits expire in mid-February. "It's a tough pill to swallow when people say, `Oh, you still haven't found work,' and you know you've been looking."

Many other people seem to have stopped looking. Since June, the number of adults not in the labor force has jumped by more than one million, to 72.4 million, according to the Labor Department. Many are retired, still in school or raising children, but the sharp change suggests that a growing number have become too frustrated to continue applying for jobs.

"I went out and pounded the pavement faithfully," said Theresa H. Washington, who lost her ,000-a-year electrician's job more than a year ago at a Cleveland steel mill closed by the LTV Corporation. "I did the whole nine yards in terms of looking for work, and I never had an interview."

"There is no job market right now," Ms. Washington, 47, added. She estimated that she had applied to more than 50 companies.

In May, she enrolled in a community college and is studying to become a counselor to people addicted to alcohol or drugs, a job that will pay about ,000 a year. Until she finishes the program in May 2004, she and her two children will rely on extended jobless benefits of about 0 a week, a local health-care clinic, a food bank and help from friends and family, she said.

"It's been a complete change in lifestyle," she said.

The prolonged jobs slump has also taken away much of the bargaining power that workers had in the 1990's.

Qualcomm Inc., the technology company based in San Diego, receives 200 resumés a day, up almost 25 percent from a year ago, and the applicants are generally more qualified than in the past, said Daniel Sullivan, executive vice president for human resources.

At 7-11 stores, employee turnover remains high, but it has fallen in the last year. "One of our biggest challenges was getting people," said James W. Keyes, 7-11's chief executive. Now, he said, "it's much, much easier to both recruit and retain employees."

With little need for companies to compete for workers, wage growth has ground almost to a halt, after inflation takes its bite, for people in the bottom of the income distribution. That is a sharp change from the late 90's, when low unemployment and increases in the minimum wage allowed low-income workers to receive bigger proportional raises than those in the middle.

Workers at the 20th percentile of earners made .31 an hour at the end of last year, up only 1.1 percent from a year earlier, according to an analysis of government data by the Economic Policy Institute, a liberal group in Washington. Over the same span, inflation was about 2.2 percent.

The median worker — the one falling squarely in the middle of the distribution — received a 2.1 percent raise over the same span, to .36 an hour. The top third of earners received increases of about 2.7 percent.

In the late 1990's and 2000, workers near the bottom were receiving annual raises of more than 4 percent, slightly better than the increases for those at the median or for most of those near the top.

The economy has shown signs of picking up in recent weeks, including a survey of service-sector managers released today that showed their business picking up in January. But the signs are difficult to distinguish from the hints of recovery that proved false in the last year or so, executives say. Many companies still have more stores and factories than they can profitably use, and little need to add new workers.

The effects of the late-90's bubble in the stock market and business investment will eventually wear off, but the recent increases in corporate efficiency appear to have created a long-term change in the level of economic growth needed for an improving job market. The economy advanced 2.8 percent from the end of 2001 to the end of last year, which was once a growth rate capable of generating demand for tens of thousands of new workers a month. Yet payrolls still declined significantly, as companies used both new technologies and strategies forced on them by an increasingly competitive economy to produce more goods and services with fewer people.

In the last few years, for example, Applebee's, the restaurant chain based in Overland Park, Kan., has centralized its purchasing of food to save costs and begun varying the pay of its workers more than it had been, in order to retain the most productive ones. The steps have allowed its sales to grow faster than its employment, said Lloyd L. Hill, the chief executive.

"It's not brain surgery," Mr. Hill said. "We just recognized we had to do better."

Meanwhile, BASF, the world's largest chemical company, spent billion investing in new plants and equipment in the United States in the last five years. Like many companies, it will turn to its new machines to increase its production before it turns to new workers.

"Now," said Klaus Peter Löbbe, who runs BASF's North American operations, "comes the time to make the assets sweat."



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