Weak demand from battered consumers will be a “major constraint” on the US economy for the foreseeable future, a key White House adviser said on Monday, as the administration mulls over further ways to spur demand and create jobs.
Lawrence Summers, the director of the National Economic Council, has been banging the drum for the $787bn (€532bn, £499bn) stimulus package in the face of Republican criticism that it is not creating the jobs it promised.
With political pressure building as unemployment nears 10 per cent, the administration is looking for additional ways to mitigate the problem, though it insists there will be no “second stimulus”.
“It is not for me . . . to preview policies that President Obama will announce in coming weeks,” said Mr Summers in a speech to an economics conference on Monday. But he said that while the economy had improved substantially, people had to recognise that demand was hobbled and US consumers and exports should be supported.
“We need to recognise that lack of demand will be a major constraint on output and employment in the American economy for the foreseeable future,” he said at the National Association for Business Economics conference. “Direct public investment has a crucial role at a time like this.”
He also sent a rebuttal to John Boehner, Republican leader in the House and a fierce critic of the stimulus, arguing the package was working and many of the economy’s problems had built up during the previous administration.
His speech was made as a survey of 44 leading economists by the NABE showed many were worried about the effects of unemployment and the budget deficit on the US economy.
Four in every five said that the worst recession since the 1930s was over. But while they expected the stock market and corporate profits to rise next year, they saw unemployment hitting double digits and did not expect all the jobs that have been lost to return until 2012.
Wage growth will be only 1 per cent this year and 2.2 per cent next year: the slowest two-year period on record. That leaves the outlook for consumer spending, which typically accounts for two-thirds of gross domestic product, fairly bleak. Next year it will grow at an anaemic 1.6 per cent, the economists predict, while car sales will not bounce much from this year’s 40-year low.
“From a technical standpoint [the recession] is probably over, but that doesn’t mean in any way shape or form that it’s over from the point of view of an awful lot of people,” said Dr Tony Cherin, finance professor at San Diego State University.
But they upgraded their expectations for real gross domestic product growth, forecasting it to rise at a pace of 2.9 per cent in the second half of this year and 3 per cent next year. They think the housing market will recover enough in 2010 to contribute to overall growth for the first time in five years.
Business investment will also pick up next year, they reckon, while corporate profits will rise 11 per cent and the S&P 500 will add 7.5 per cent.
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