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The Obama administration on Thursday lashed out at a prominent critic of its Cash for Clunkers program, arguing that the popular trade-in initiative helped give the auto industry and the economy a much needed boost in the past few months.
In a blog post on whitehouse.gov, the administration argued that a report on Clunkers by automotive Web site Edmunds.com "doesn't withstand even basic scrutiny" and is based on "implausible assumptions."
On Wednesday, Edmunds.com released a study that argued Cash for Clunkers did not have a great impact on the auto industry. The report said that 690,000 new vehicles were sold under the program last summer, but that only 125,000 of them would not have been sold without the Clunkers rebates.
As a result, the report said, the administration's economic claims for the program "have been rendered quite weak."
The Clunkers program gave car buyers rebates of up to $4,500 if they traded in less fuel-efficient vehicles for new vehicles that met certain fuel economy requirements. A total of $3 billion was allotted for those rebates.
The Edmunds report also said that taxpayers shelled out an average of $24,000 per car sold as a result of the program.
Edmunds.com says Cash for Clunkers is a clunker
But the White House fired back, saying Thursday's Commerce Department report that showed auto sales contributed 1.7 percentage points to the economy's 3.5% growth rate in the third quarter is proof that Cash for Clunkers had a meaningful impact on both auto sales and the broad economy.
"Edmunds.com has released a faulty analysis," the blog post said. "This is the latest of several critical analyses of the Cash for Clunkers program from Edmunds.com, which appear designed to grab headlines and get coverage on cable TV."
The administration argued that Edmunds' conclusions were incorrect because the study assumes that the market for cars that didn't qualify for Clunkers was unaffected by the program.
"In other words, all the other cars were being sold on Mars," said the administration.
0:00 /3:06Better days ahead for autos
The administration's blog post argued that Clunkers helped to lower auto prices on the rest of the vehicle market as well, a fact the administration said Edmunds ignored. The White House also said that people were drawn into dealerships because of the program and ended up purchasing cars even if their trade-in didn't qualify for the program.
Cash for Clunkers will have a long-term impact on the overall economy, since automakers increased their production through the end of the year to meet demand created by the program, the administration said.
Finally, the administration said the Edmunds' report flies in the face of independent analyses, and the administration's Council of Economic Advisers. The blog urged readers to "put on your space suit and compare the two approaches yourself."
Edmunds stands by its report: In response, Edmunds.com said Thursday that its figures were correct, and that the growth in GDP had more to do with naturally recovering auto sales and not with incentive programs.
The company also said that there was no hard evidence of consumers buying cars after discovering they didn't qualify for the rebate.
"It does, after all, seem a bit odd that masses of consumers would elect to buy a vehicle because of a program for which they don't qualify -- doubly so when you add in the fact that prices shot up during Cash for Clunkers, creating a disincentive to buy," Edmunds said in a statement.
In the end, Edmunds said the report actually shows that there is some good news about the auto industry -- the recovering economy is helping boost auto sales even without the help of Clunkers.
"With all respect to the White House, Edmunds.com thinks that instead of shooting the messenger, government officials should take heart from the core message of the analysis: the fundamentals of the auto marketplace are improving faster than the current sales numbers suggest."
U.S. stocks looked set for a strong open Thursday, following a report that domestic product growth jumped higher than expected in the third quarter.
S&P 500, Nasdaq-100 and Dow Jones industrial average futures were higher, with their gains increasing after the GDP report.
Futures measure current index values against their perceived future performance and offer an indication of how markets may open when trading begins.
"Really good news," said Dan Cook, senior market analyst at IG Markets, in an e-mail to CNNMoney.com. "After putting trillions into quantitative easing and stimulus we had to see a number like this. I am very glad it came out positive and I think the markets should really be optimistic today and could reverse some of the losses we have seen lately."
Investors appeared ready to dip back into the market after Wednesday's slump. The Dow finished the session down 1.2% and the Nasdaq tumbled 2.7% amid worries about the strength of the economic recovery.
Economy: Thursday's GDP report showed a third-quarter annual gain of 3.5%.
GDP was expected to have grown at a 3.2% annualized rate in the third quarter after shrinking at an 0.7% annualized rate in the second quarter.
While a bounce seems impressive, it wouldn't necessarily signal a robust recovery for the economy.
The government also released its weekly figures on initial jobless claims.
For the week ended Oct. 24, jobless claims totaled 530,000, down 1,000 from the prior week's unrevised 531,000.
0:00 /3:44GDP turnaround unstable
Earnings: Exxon Mobil (XOM, Fortune 500) said its earnings plunged to 98 cents per share in the third quarter, compared to the year-ago EPS of $2.85 per share. Revenues totaled $82.26 billion in the third quarter, the oil company said.
Procter & Gamble (PG, Fortune 500) reported a 3% gain in third-quarter diluted net earnings per share, to $1.06, but a 6% decline in net revenue, to $19.8 billion, compared to the year-ago quarter. The company stock edged up in pre-market trading.
Companies on tap to report results include Sprint Nextel (S, Fortune 500).
World markets: Economic worries weighed on stocks in Asia and Europe. Japan's Nikkei shed 1.8% and major European indexes were lower in midday trading.
Money and oil: The dollar was lower versus the euro and the pound, but rose against the yen. The price of oil rose 14 cents to $77.60 a barrel.
Initial construction of U.S. homes rose far less than predicted in September, according to a government report released Tuesday.
Housing starts increased to a seasonally-adjusted annual rate of 590,000 last month, up 0.5% above a revised 587,000 in October, the Commerce Department said.
Economists were expecting housing starts to jump to 610,000, according to consensus estimates compiled by Briefing.com. Starts are down 28.2% from September 2008.
0:00 /2:24'Beautiful' homes for under $20K
New construction of single-family homes, the key sector of the housing market, increased 3.9% to an annual rate of 501,000 versus 482,000 in August.
"The rebound following the post-Lehman panic seems to be over," wrote Ian Shepherdson, analyst at High-Frequency Economics, in a research note.
Shepherdson added that uncertainty about a possible extension and expansion of the $8,000 tax credit for first-time homebuyers "is making builders understandably nervous about the near-term outlook."
The credit now can be claimed by anyone buying a home who has not owned one for three years and who closes the deal by Nov. 30. Congress is considering extending the deadline and expanding it to all but the wealthiest homebuyers.
Despite the overall housing starts drop, multi-family homes increased. New construction of buildings with 5 or more units increased to an annual rate of 104,000, up 7.2% from 97,000 in August.
Applications for building permits, which are a gauge of future construction activity, also missed predictions. Permit applications fell 1.2% to a seasonally adjusted annual rate of 573,000. Economists were expecting permits to rise to 595,000.
"Permits were weaker than starts, suggesting the latter will dip in October," Shepherdson wrote. "We remain optimistic for 2010 but the next couple of months will be tricky."
Regional: New home construction was flat in the Northeast, holding at a 62,000 unit rate, and in the Midwest at 100,000 units. Starts fell by 1.7% in both the South and the West.
The nation's armed services wrapped up a record year for recruiting as a withering job market and bigger bonuses trumped two unpopular wars.
The Department of Defense said it met or exceeded recruitment goals for all branches of the armed services for fiscal year 2009, which ended Sept. 30, for the first time since 1973, when the draft ended and U.S. forces withdrew from Vietnam.
"We're pleased to report that for the first time since the advent of the all-volunteer force, all of the military components, active and reserve, meet their number as well as their quality goals," said Bill Carr, deputy undersecretary of Defense for Military Personnel Policy, at a Pentagon press conference on Tuesday.
The active-duty Air Force, Marine Corps and Navy all met their goals, as measured by the number of fresh recruits, while the Army achieved 108% of its recruitment goals, the DOD said. The Reserves for each branch exceeded their goals for recruitment numbers, and the National Guard matched its goal.
0:00 /3:11Average Bob sees no jobs
The Pentagon also exceeded its quality goals, as 96% of the active-duty recruits were high-school graduates, surpassing a 90% benchmark.
Carr acknowledged that the high level of unemployment in the civilian job market was helping the military draw recruits, and the earning power of recruits puts them in the top 10% of workers of commensurate age, education and experience.
Recruits typically earn $1,399.50 a month as they undergo basic training during their first few months in the military, according to the DOD. Most enlisted personnel can expect to earn $1,568.70 a month by the end of their first year, which translates into an annual salary of $18,824.40.
Carr also attributed recruiting success to new attitudes among young adults that make them more eager to serve, regardless of the state of economy. He said the generation born between 1978 and 1996 "witnessed 9/11" and is "more inclined toward service to society" than other generations.
The only real disadvantage to recent recruiting, said Carr, is a decline in medical eligibility from the growing prevalence of obesity in the U.S. population. One in 20 Americans aged 17 to 24 were considered obese in the 1980s, he said, compared to one in four today.
An Army of One, and a bonus of $18,000
According to Beth Asch, military recruiting expert for the Rand Corporation, a non-profit think tank based in Santa Monica, Calif., economic incentives are the most important factor in drawing recruits. She said the Army dramatically increased its recruitment bonuses since the start of the Iraq war, to an average of $18,000 for the 70% who are eligible.
"The effect of Iraq has had a negative impact on recruiting," said Asch. "[The military] responded with a dramatic increase in recruiting resources. In the case of the Army, the average bonuses tripled."
For the military overall, 40% of recruits in 2009 received a sign-on bonus that averaged $14,000, according to the DOD. Bonuses are provided to recruits for a variety of factors, including $5,000 for having a college degree. Military personnel also received a 3.9% pay raise in fiscal year 2009, following a rise of 3.5% the prior year.
Members of the military also receive free healthcare. Once the recruits move out of the barracks, they become eligible for a monthly food allowance of $323.87 and a monthly housing allowance that averages $952 nationwide -- or more, if they have dependents. In addition, they are not required to pay taxes while serving in a combat zone.
Asch said the pay, bonuses and other benefits are strong enticements to young people trying to make their way in a civilian job market where unemployment is at a 26-year high of 9.8%.
"Had there been no change in recruiting resources, had there been no change in the economy, there would have been a significant drop off in recruiting," she said. "All our research show that recruits respond to recruiting resources. The military got lucky in the sense that when the economy worsens, recruitment improves."
Pentagon spokesman Lt. Col. Les' Melnyk of the Army said the ongoing wars in Iraq and Afghanistan have not dissuaded people from joining the military.
"A lot of people say the wars are hurting recruiting, but the numbers don't back that up," he said. "The expectation there is that you're going to go to war. This is not a surprise to anybody, and it has not affected recruitment."
Is the largest one-time economic recovery effort in U.S. history creating jobs?
According to new reports from governors across the country, it is. Republicans in Congress say it's not, and the debate is getting louder.
States and other recipients of stimulus funding have handed in their first assessments of the $787 billion recovery act in recent days. While the Obama administration plans to make these reports public by month's end, some governors have released their initial evaluations.
In California, stimulus funds have created or saved more than 100,000 jobs through the end of September, according to Gov. Arnold Schwarzenegger. The nation's most populous state -- the world's eighth largest economy -- has been awarded $12.7 billion in recovery money and has spent $5.3 billion so far.
"The funding will not only save and create jobs, but it will also help stimulate our overall economy, improve our transportation infrastructure and help us reach our environmental goals," said Schwarzenegger, adding that the state submitted 5,747 reports from agencies and others who received funds from the state.
Minnesota said that 11,800 jobs -- including 5,900 in education, 1,200 in public safety and 900 in transportation -- were created or saved. The state has spent more than $1.6 billion in stimulus funds so far.
In Tennessee, which has spent $215 million, the tally is more than 7,700 jobs.
And in Oregon, more than 8,000 jobs have been saved or created. The recovery act provided the state "a much needed parachute for what was a free falling economy," said Gov. Ted Kulongoski, adding that the state has spent $1 billion of its stimulus funds.
Overall, the federal government has so far made available $256.3 billion, while $110.7 billion has been spent.
Exact job creation numbers elusive
Exactly how many jobs are being created or saved with stimulus funds is a difficult figure to pin down, however.
The White House last month said the recovery act is responsible for more than 1 million jobs. This estimate includes jobs funded directly with stimulus money, as well as those that exist indirectly, such as the deli workers who supply lunch to contractors on stimulus construction jobs.
The states' reports, however, include only direct jobs, so the figures are likely to be even smaller.
On top of that, governors are required to report jobs by hours of employment rather than by the number of people working. So someone hired for a short-term gig might only be counted as a fraction of a job.
Pennsylvania officials, meanwhile, say that more than 7,000 people are working on transportation and water infrastructure projects funded by stimulus dollars. But under the federal rules, the state will report that 1,000 jobs were created, said Gov. Edward Rendell.
Also, the impact of tax incentives, increased unemployment benefits and funding for programs such as Medicaid are not included in the assessments.
Still, the recently filed reports -- which also include data from companies, organizations, cities and counties -- will offer the first hard figures of jobs created. They will likely be scrutinized by both sides of the political aisle.
'Where are the jobs?'
House Republican leaders last week stepped up their attacks on the administration, claiming its stimulus initiative has been a failure. Instead of creating jobs, they contend, the nation has lost nearly 3 million private-sector positions and the unemployment rate is nearing 10%.
0:00 /2:46Saving classroom jobs
"It is now evident that the massive 'stimulus' spending bill enacted months ago has been unsuccessful," GOP leaders wrote to the White House. "The American people are right to ask: Where are the jobs?"
The rising unemployment rate has prompted calls for the Obama administration to do more to encourage businesses to step up their hiring. The Republicans want to stimulate small business job creation with a variety of measures, including allowing firms to take a tax deduction equal to 20% of their income.
Republicans are not alone in their call to do more to promote job creation. The Economic Policy Institute, a labor-oriented research group, last week called on the administration to institute a refundable tax credit for employers of up to 15% of wages for each new hire over the next two years. The organization also called for pumping more money into states to create jobs.
The White House, however, maintains that the stimulus package has stopped the hemorrhaging of jobs and has turned around the economy's direction.
Last month, the president's top economic advisers said the recovery act helped turn around the economy. They pointed to the fact that the number of jobs lost in the third quarter averaged 256,000 per month, two-thirds less than the country sustained at the beginning of the year.
"Thanks largely to the Recovery Act ... we have walked a substantial distance back from the economic abyss and are on the path toward economic recovery," Larry Summers, director of the National Economic Council, wrote Monday in response to the Republican leaders' letter. "Most importantly, we have seen a substantial change in the trend of job loss."
The nation's service sector expanded in September for the first time in more than a year, according to a report from a purchasing managers' group released Monday.
The Institute for Supply Management's non-manufacturing index rose to 50.9 last month from 48.4 in August. Economists surveyed by Briefing.com had expected a reading of 50, which is the point at which the index reflects expansion.
It was the second consecutive month of improvement in the index, which last indicated expansion in August 2008.
The services sector, which includes businesses such as banks, airlines and restaurants, makes up the bulk of economic activity in the United States.
The ISM's new orders index, which measures requests for services such as construction labor, rose 4.3 points to 54.2. The business activity index added 3.8 points to 55.1 last month.
Both measures are now at their highest levels since before the recession began, according to Tim Quinlan, an economic analyst at Wells Fargo.
Those gains "suggest that businesses outside of manufacturing are transitioning from recession to recovery," Quinlan wrote in a research report.
The index that measures employment in the sector edged up less than one point to 44.3, but it remains well below the level indicating job growth in the sector.
"Jobs are still a major concern," said Ryan Sweet, senior economist at Moody's Economy.com. "The employment index is weak and points toward a very slow improvement in the labor market."
Still, the larger-than-expected rise in the overall number could mean that U.S. gross domestic product will come in at a 3% annual rate of growth during the third quarter, according to Sweet.
Prices paid by service sector firms fell sharply in September. The prices index sank 14.3 points to 48.8, indicating a significant reversal and decrease in prices paid from August, according to the report.
The ISM said 15 of the 18 service sectors in the survey expect to derive some benefit from the government's economic stabilization program.
