Underemployment for August was 18.6 percent, up from 18.4 percent in July, according to Gallup. 

The measurement estimates the percentage of workers who are either unemployed or working part-time, but wanting full-time work. 

Underemployment peaked at 20.4 percent in April, and has yet to break below 18.3 percent for the year. 

BERNANKE TO FACE QUESTIONS OVER LEHMAN COLLAPSE

The Fed chairman testifies on Capitol Hill before the Financial Crisis Inquiry Commission on “too big to fail” starting at 9 a.m. He’s followed by FDIC chief Sheila Bair. AP: http://yhoo.it/9lPXeJ

Bernanke is expected to face questions about the collapse of Lehman Brothers. The commission’s chairman, Phil Angelides, said Wednesday it was a “conscious policy decision” to let the Wall Street firm fail, and that the decision might have worsened the crisis. WSJ: http://bit.ly/9wtoF4

Dick Fuld, the Lehman’s CEO when it collapsed, attacked the Fed for not bailing his firm out when it decided later to save others: “I submit, that had Lehman been granted that same access [to Fed credit] as its competitors ... Lehman would have had time for at least an orderly wind down or for an acquisition which would have alleviated the crisis that ensued.” FT: http://bit.ly/9pvNwP

The auto bailout is a different story ... Reuters headline: “GM roadshow to begin after elections: sources.”

“GM's roadshow is set to begin on November 3 and will last two weeks, the sources said. The IPO is expected to price on November 17 and debut on November 18, the sources said...

“The Obama administration is eager to cast the GM IPO as a success, but GM executives and government officials have repeatedly denied any political motivation in timing the IPO for the top U.S. automaker so close to the mid-term congressional elections.” http://bit.ly/9sP6zK

Gallup: Trust swings to GOP... On which party would do a better job handling on the economy, GOP led Dems 49-38; on jobs, GOP led 46-41. http://bit.ly/bZ4ent

NEW CW: NO DOUBLE DIP... BECAUSE IT CAN’T GET ANY WORSE

BLOOMBERG LEDE: “The U.S. economy is so bad that the chance of avoiding a double dip back into recession may actually be pretty good.

“The sectors of the economy that traditionally drive it into recession are already so depressed it’s difficult to see them getting a lot worse, said Ethan Harris, head of developed markets economics research at BofA Merrill Lynch Global Research in New York. Inventories are near record lows in proportion to sales, residential construction is less than half the level of the housing boom and vehicle sales are more than 40 percent below five years ago.” http://bit.ly/dlR2eV

The latest ADP payroll report — 10,000 private-sector jobs lost last month but fewer layoffs — shows the labor market has hit “rock bottom,” which means it can only get better, writes Motley Fool’s Morgan Housel. http://bit.ly/bP58c9

And maybe July wasn’t as bad as we thought... The Atlantic’s David Indiviglio: “July's indicators don't portray the road to double dip as much as they do a very slow, painful recovery. The economy is generally getting better, but barely. If this trend continues, and sentiment improves, then the recovery could gain speed.” http://bit.ly/dgIW0e

Yet, if it happens, don’t blame us... Double-dip threat isn’t the press’s fault, writes The Source. http://bit.ly/d3enEh

“The balance of positive to negative news stories about the U.S. economy in the U.S. press in August was the highest it has been since the recession started in December 2007, according to the latest monthly survey of media sentiment, the Dow Jones Economic Sentiment Indicator... Indeed, the indicator has been rising steadily since April, which marked the end of a broadly flat six-month period.”

Stocks had their best day in 8 weeks, due to U.S. and China manufacturing data. Dow was up 254.75. http://yhoo.it/a5JbzV

MORE STIMULUS DEBATE

Outgoing WH Council of Economic Advisers Chairwoman Christy Romer used her farewell speech on Wednesday to call for more stimulus.

"The only surefire ways for policymakers to substantially increase aggregate demand in the short run are for the government to spend more and tax less," Romer said. "The key is that we need to take action and we need to do it quickly." http://bit.ly/dqqHrl

But... Michael Boskin, who served in Romer’s post for President George H.W. Bush, says President Obama would have to cut spending and repeal healthcare reform to start boosting the economy the way Bill Clinton did. http://bit.ly/bLEOYF

And... Jimmy P. likes the payroll tax cut, but wants it coupled with long-term deficit reduction. http://bit.ly/aR3LpI

The Fed can’t agree over stimulus, either:

Philly Fed President Charles Plosser dismisses deflation threat, putting himself at odds with Bernanke’s push for monetary easing. http://bit.ly/b41Qy8

“If fears of deflation were to become real — and I don't think that is the risk — then we would need every ounce of credibility we can muster to convince markets we are not going to let deflation happen," Plosser said.

Dallas Fed President Richard Fisher says any new stimulus must focus on job-creation incentives. http://bit.ly/awtEgg

Also... Ken Rogoff: There’s no quick fixes for the economy, but Fed moves to allow some inflation would help. http://bit.ly/c9XWq2

DEBT THREAT: The IMF warns a slew of industrialized countries over risky debt but dismisses odds of Greek-style fiscal crisis. The U.S. isn’t in that group, but it’s not far behind. http://bit.ly/aBw6fw

The heads of firms that laid off the most workers during the recession earned nearly $12 million a year on average, 42 percent more than other chief executives at S&P 500 firms in 2009, according to a report released Wednesday.

CEOs of the 50 firms that laid off the most workers earned a combined $598 million in 2009, according to the 17th annual executive compensation survey produced by the left-leaning Institute for Policy Studies, a Washington think tank. 

A majority of firms leading in layoffs — 36 of the 50, or 72 percent — announced layoffs during a time of positive earnings reports, the report said. 

Two years into the recession, executive compensation is double the average pay in the 1990s and four times greater than the 1980s average, the report said. 

The World Bank will provide $1 billion in aid to Pakistan for recent catastrophic flooding, underscoring the country's dependence on foreign aid and need for economic reform.

World Bank Group President Robert Zoellick said Wednesday that the bank will raise its current fiscal-year flood-related commitment by $100 million, from $900 million to $1 billion.

"We need to respond strongly to the crisis at hand, but we need to do it without losing sight of important economic reforms," he said. 

Federal Reserve Governor Elizabeth Duke suggested Wednesday that banks should consider renting back to homeowners who've gone through foreclosure to help communities recover from the housing crash. 

"Homeownership, long promoted by federal policy and facilitated by local housing organizations, cannot and should not be the only alternative" for bank-owned property, Duke said Wednesday during a two-day summit on stabilizing the housing market. 

Some housing experts have suggested that banks could rent to homeowners struggling to make their rent payments, at market value, until they find new work or recover from an economic hardship and can restart paying their home loan.

Mortgage applications increased 2.7 percent last week as loan rates dropped to record lows. 

The refinance index increased 2.8 percent for the week that ended Aug. 27, up from 1.8 the previous week and the highest level since May 1, 2009, as homeowners opted to stay put as the housing market struggles, the Mortgage Bankers Association reported Wednesday. 

"Refinancing activity picked up again last week, reaching new 15-month highs, as borrowers took advantage of even lower mortgage rates," said Michael Fratantoni, MBA's vice president of research and economics, in a statement. 

Construction spending dropped 1 percent in July to an annual rate of $805.2 billion, as the housing market struggles to gain footing in the slowing economy. 

The drop was the third straight monthly decline, down from $813.1 billion in June, and the lowest level in 10 years, the Commerce Department said Wednesday. 

During the first seven months of this year, construction spending amounted to $460.3 billion, 11.8 percent below the $522 billion for the same period in 2009.

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.