Economy

Christina Romer also defended the stimulus in her final speech as chairwoman of the Council of Economic Advisers.

General Motors sales fell 25 percent last month compared with August 2009 and were down 7 percent from July as consumers held back on big-ticket purchases in the shaky economy. 

Deliveries fell to 185,176 from 246,479 last August, more than expected, when the federal government’s “cash for clunkers” program provided a boost in sales to the struggling auto industry. 

Overall, that automaker's sales decreased 11 percent on its four remaining brands although sales for Buick, GMC and Cadillac were up 37 percent for the month compared with a year ago. 

Manufacturing expanded faster than expected in August, the 13th straight month of growth as the sector continues to lead the nation's economic recovery. 

The manufacturing index increased to 56.3 last month from 55.5 in July as manufacturers showed a strong desire to hire workers, the Institute for Supply Management said in a report on Wednesday.

Any reading above 50 indicates expansion, and economists had expected a figure closer to that level. The sector accounts for about 11 percent of the economy and has been a driving force of the recovery as consumer spending — 70 percent of the economy — has faltered. 

During the past several months, the manufacturing sector has bolstered the economic recovery as the job market has struggled to expand. 

The ISM survey showed that the desire to hire is up, increasing to 60.4 from 58.6 — a nine-month positive trend, and the strongest showing since December 1983. 

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Private sector employers unexpectedly shed 10,000 jobs in August according to a report by payrolls processor ADP.

Christina Romer says the stimulus "made the difference between a second Great Depression and a slow but genuine recovery."

MORE SUPPORT FOR TAX CUTS AS STIMULUS ... BUT WHICH ONES?

The Obama administration is mulling the idea that any new stimulus may have to be in the form of tax cuts in order to pass Congress.

TOP STORY — WSJ: “Tax Cuts Weighed to Spur Economy” http://bit.ly/9ElmD7

“On the list of possible actions: additional tax cuts for small businesses beyond those included in a $30 billion small-business lending bill before the Senate. It's not clear what those tax breaks would target or how much they might cost in lost revenue to the government....

“Also in the mix: a possible payroll tax cut for businesses and individuals, as well as other business tax breaks, according to people familiar with the discussions.”

ICYMI: President Obama said Tuesday night in his Oval Office address on Iraq that fixing the economy will be his “central mission” and “central responsibility.” http://bit.ly/ce5q2v

FLASHBACK: McCain-turned-Dem adviser Mark Zandi last week backed an extension of all Bush-era tax breaks because the fragile economic recovery might not be able to handle higher taxes. http://bit.ly/cJBkJh

More center-left pundits backed tax breaks Tuesday.

NYT’s David Leonhardt: “The best hope for a short-term economic plan that can win bipartisan support is a tax cut — and not the permanent extension [of the Bush cuts] ... the most effective tax cut for putting people back to work quickly is one that businesses and households get only if they spend money.” http://nyti.ms/byJYik

Tax Policy Center’s Howard Gleckman suggests a scaled-down version of Obama’s Making Work Pay tax credit or expanding the Earned Income Tax Credit, either of which would benefit people more likely to spend extra cash than the wealthy.

Gleckman on the political reality of tax cuts: “Republicans could say they extended all of the Bush tax cuts (at least in magnitude, if not in specifics). And Democrats could take credit for retargeting those upper-bracket dollars.” http://bit.ly/aDwDkF 

And/but... WH economist Jason Furman warns that a temporary tax-cut extension for the rich would be a “foot in the door” for permanency. http://bit.ly/d2RFp3

Meanwhile... The estate tax needs to come back, say Bob Rubin and Julian Robertson. http://bit.ly/dtQ63s

POISON PORK: Sen. Lisa Murkowski concedes her GOP primary race in Alaska to Joe Miller, becoming the latest appropriator to lose this year. http://bit.ly/akJAdf

List of appropriators losing primaries in 2010: Sen. Arlen Specter (D-Pa.), Sen. Bob Bennett (R-Utah), Rep. Alan Mollohan (D-W.Va.), Rep. Todd Tiahrt (R-Kan., running for Senate), Sen. Kay Bailey Hutchison (R-Texas, ran for governor), Rep. Zamp Wamp (R-Tenn., ran for governor) and Rep. Carolyn Kilpatrick (D-Mich.).

Does Murkowski’s loss change this next year?: Alaska gets the most fed dollars annually, according to a new Census report. http://nyti.ms/av06vY

Federal spending rose a record 16 percent last year. WaPo reports on Census report that found government spending to hit $3.2 trillion in 2009, “largely because of a boost in aid to the unemployed and the huge economic stimulus package enacted to rescue the sinking economy.” http://bit.ly/bm05Mm

JP Morgan's federal deficit chart (via Pethokoukis): Economic slump is biggest driver of current massive deficits, followed by mandatory spending, discretionary spending and tax cuts. http://bit.ly/dbKeFu

Tony Blair backs British PM David Cameron’s austerity program, slams former Prime Minister Gordon Brown for “state is back in fashion" thesis. Bloomberg: http://bit.ly/bc49HR

Tuesday's indicators not so bad:

Home prices up in 3.1 percent in 2Q of 2010 — but that probably won’t last. The rise was due largely to now-expired homebuyer tax credit. Newsweek: http://bit.ly/dc6dTK

Consumer confidence index went up slightly from July to August, but not enough to spur hiring, writes The Atlantic’s David Indiviglio. http://bit.ly/9hLdk6

One bright spot: Ag exports. Government estimates expect them to reach $107.5 billion in fiscal 2010, the second-highest total ever. http://nyti.ms/cjSmet

LINK OF THE WEEK — The cause of the next financial bubble: Human cloning?(!)

Time magazine's Curious Capitalist: “Clones will earn more and more money, and those of us who reproduce the old fashion way will likely have poorer and poorer offspring. Recently, Barbara Kiviat wrote two posts for this blog on how income inequality was a major contributor to the financial crisis. So you do the math. If cloning leads to income inequality and income inequality leads to financial crises, then we've got a problem.” http://bit.ly/9z9U1d

BLOGGERS DEBATE: Is high unemployment a structural problem?

Brad DeLong says no (h/t Ezra Klein): “What we have witnessed is not a shift in demand into sectors lacking an adequate number of qualified and productive workers, but rather a collapse in the level of aggregate demand.” http://bit.ly/cN0J0t

The Economist’s Free Exchange says yes: “Demand is weak, but not enough to account for so many jobless.” The way to fix it is by helping small biz, the author says. http://bit.ly/dtahar

Stan Collender sees “bitter GOP criticism” of the Fed over coming stimulus measures. http://bit.ly/dd0jX7

FDIC: More than one in 10 U.S. banks still at risk. Sheila Bair: "It hit the large banks first and then the community banks, so they will be lagging the larger banks in terms of coming out of this." http://bit.ly/9051QQ

But Bair doesn’t see a double-dip. http://bit.ly/dvEXFo

Small Business & Entrepreneurship Council President and CEO Karen Kerrigan on Tuesday urged Democratic leaders to stop pushing for passage of the small-business lending bill because it does not address the underlying reasons for why small-business expansion has stalled.

President Obama is expected to use his speech on Iraq for just that — Iraq. 

Despite the economy looking as if it could backslide into a recession, Obama will use tonight's address to mark the end of U.S. combat missions in Iraq. 

Consumer confidence increased more than expected in August, making a modest improvement that reflects broad concern about the lack of job growth in the economy. 

The Conference Board, a private research group, released a report Tuesday showing the index rose to 53.5 in August from a revised 51 in July, a five-month low, on par with expectations a year ago. 

Confidence in present conditions dropped to 24.9, from 26.4 last month, the lowest level since February. Meanwhile, consumers showed more positive expectations for the next six months with the gauge increasing to 72.5 in August from 67.5 in July. 

"Consumers’ expectations improved moderately in August, but overall, they remain pessimistic," the report said. 

Genzyme Corp. this week snubbed an $18.5 billion buyout bid by Sanofi-Aventis, arguing that the offer grossly undervalues the Cambridge, Mass.-based biotech company — one of the largest in the world.

“The Genzyme board is not prepared to engage in merger negotiations with Sanofi based upon an opportunistic proposal with an unrealistic starting price that dramatically undervalues our company," Genzyme CEO Henri Termeer wrote to Sanofi Monday.

The $18.5 billion offer breaks down to about $69 per share. Citibank analysts estimate that Sanofi-Aventis would have to hike its offer to as high as $77 per share to entice Genzyme shareholders to support the deal, Bloomberg reported Tuesday. 

—Cross-posted from Healthwatch.