President Bush Extends Jobless Benefits as Falling Prices Fuel Deflation Fears

Rising unemployment and signs of deflation make an economic stimulus plan more urgent.

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Amid further bad news about the economy, President Bush made sure that unemployed Americans would keep getting jobless benefits through the holidays, signing a bill to extend benefits just before 8 a.m. this morning. He had expressed doubt about the efficacy of an extension earlier this year. But with yesterday's reports showing claims for unemployment benefits at a 16-year high, the president changed his mind.

The bill provides benefits for up to three months more for unemployed workers whose benefits have ended or are due to expire. The Senate passed it yesterday.

Although unemployment is one of the biggest worries in the recession, another, analysts are warning, is deflation. Oil prices fell below $50 a barrel yesterday, and demand for other goods, from steel to clothes, has declined. That might make consumers happy—for the moment. But in the long term, economists say, depressed prices are a very bad sign.

The last time the United States had a sustained period of deflation was in the Great Depression. Some analysts predict—and Federal Reserve Chairman Ben Bernanke has said—that the Fed is prepared to further lower interest rates to combat possible deflation. By making it cheaper for Americans to borrow to purchase homes and other goods, the government hopes the economy will get a kick-start. But, in a true deflationary period, lower interest rates can have less of an impact in stimulating spending and investment, since consumers and businesses are inclined to postpone spending and borrowing to wait for still lower prices. So, that is one of the big uncertainties now weighing on the economy.

The economic indicators are putting particular pressure on Washington for a new stimulus plan. Many worry that no real action will be taken until President-elect Barack Obama is inaugurated. Meanwhile, one bailout package seems to have entirely failed. The Big Three automakers, lambasted for arriving in Washington this week in corporate jets, didn't win over politicians on Capitol Hill. A vote on the $25 billion aid package was put off, with hearings scheduled instead the week of December 2 to consider new plans the automakers will put forward.

Amid all the bad economic news, though, one bright spot: Despite a nationwide tightening of belts, Americans are still giving to charities. In fact, one survey released this week shows that this Christmas could be even better for charities than past ones. While most adults say they'll spend less on holiday gifts this year, half also say they're more likely to give a charitable gift than a traditional one.