PhillyDeals: Stimulus' downside: Rising jobless rate

They saved the banks.

Who cares . . . if people are still losing their jobs?

After bailing out AIG, Citi, GM and other big companies, the federal government put up $787 billion last winter for a two-year "stimulus" program to keep jobless workers, hospitals, and other troubled groups from running out of money until the heavier financial magic could raise us all.

That made it possible, for example, for the Pennsylvania Turnpike to borrow $275 million at a federally subsidized rate below 4 percent last week, to hire contractors who will widen the Northeast Extension near Lansdale, among other projects.

There are signs of financial recovery in the private sector, too.

Home lender PHH Corp., of Mount Laurel, has become more profitable since last year's credit crisis. That's because it can now raise funds cheaply, thanks to Federal Reserve easy-money policies, while charging consumers higher prices. That's because PHH faces "less competition" since rivals quit the business in last year's credit crisis, bank analyst Paul J. Miller at Friedman Billings Ramsey in Richmond, Va., told clients in a note Friday.

But unemployment is still going up, to nearly one in 10 U.S. workers in June, the U.S. Labor Department said last week. It's taking six months to find a job vs. the usual three-and-a-half.

"The alleged 'green shoots' " that Fed chairman Ben Bernanke said he was looking for in the dried-out economy in the spring "are mostly yellow weeds that may eventually turn into brown manure," New York University economist Nouriel Roubini jeered in his online column last week.

"Over 90 percent" of analysts who manage money for big investment firms say unemployment will top 10 percent, and half of those expect it will go above 11 percent, which means more loans won't get paid and banks won't be able to afford to finance more businesses, erasing the gains they have made since last year's meltdown, warned analyst Miller, citing a survey by his group.

Miller told clients to avoid higher-priced bank stocks such as Wells Fargo & Co. and PNC Financial Services Group, since the worst may be yet to come. Last week, Susquehanna Bancshares Inc. warned that late loan payments this spring were triple last year's levels.

So is another stimulus in the works?

"I'm predicting one. I'm not advocating it," Mark Zandi, chief economist at Moody's Economy.com in West Chester, told me Friday.

"State and local governments are in trouble. They need more help, or they'll raise taxes and cut jobs," Zandi said. Under pressure, Washington "might also expand the housing-tax credit, give employers a payroll-tax holiday for employees, and postpone, or phase in, the legislated tax increase for 2011," Zandi suggested.

"I think it's going to be needed," Mark Vitner, senior economist at Wells Fargo Securities L.L.C. in Charlotte, told me.

"Any economic stimulus plan is going to be part political, part economic."

Last winter's plan "was two parts political, loaded with projects for folks who'd missed out the past eight years," said Vitner. "If they're going to get another one through, it's going to have to help the folks who didn't support the first one."

That means more road and bridge projects, more aid to state and local governments, and maybe tax breaks for small business.

Vitner says two-thirds of economists think the recession - the shrinkage in the whole U.S. economy - will end this quarter. "The problem is unemployment will still rise for the next year," Vitner says.

Extending unemployment benefits eases the pain but doesn't solve the problem, Vitner said. He wishes more could be spent putting uneducated, unemployed people through school and job training. "Get a permanent solution to unemployment, instead of a temporary one," he urged.

In Pennsylvania's Clinton and Cameron Counties, one-third of the 1,500 people who worked last year in dozens of small powdered-metal-parts plants have lost their jobs as U.S. carmakers cut orders and managers canceled night shifts, said Rose M. Baker, who runs a "workforce outreach" program for Penn State.

But these plants aren't closing: They're hoping Chrysler and other automakers will have to restart production this fall, and place new orders, as they run out of inventory, said Baker's colleague, David L. Passmore.

Can the nation, like the parts-makers, afford to hold out on faith?

Not everyone agrees Stimulus II is required.

"I don't need immediate gratification," Joel Naroff, chief economist for TD Bank in Philadelphia, told me. "Let's wait a few more months to see how well the stimulus works. It has hardly started."