Reuters
24 Aug 2009 12:20 AM ET
Nouriel Roubini, one of the few economists who accurately predicted the magnitude of theworld's recent financial troubles, sees a "big risk" of a double-dip recession, according to an opinion piece posted on the Financial Times' Web site on Sunday. Roubini, a professor at New York University's Stern School of Business, said it appears the global economy will bottom out in the second half of this year, and that U.S. and westernEuropean economies will likely experience "anemic" and "below trend" growth for at least a couple of years. Yet he warned that policymakers face a "damned if they do and damned if they don't" conundrum in trying to unwind their massive fiscal and monetary stimuli to keep the global economy from toppling into a depression. He said that if policymakers try to fight rising budget deficits by raising taxes and cutting spending, they could undermine any recovery. On the other hand, he said if they maintain large deficits, worries about excessive inflation will grow, causing bond yields and borrowing rates to rise and perhaps choking off economic growth. Roubini said another reason to worry is that energy, food and oil prices are rising faster than fundamentals warrant, and could be driven higher by speculation or if excessive liquiditycreates artificially high demand. He said the global economy "could not withstand another contractionary shock" if speculation drives oil rapidly toward $100 per barrel. U.S. crude oil futures traded Friday at about $73.83. Roubini said the anemic growth he expects would follow a couple of quarters of rapid growth, as inventories and production levels recover from near-depression levels.
Friday, August 28, 2009
Thursday, August 27, 2009
Can the souffle rise again?
Ambrose Evans-Pritchard
The Daily Telegraph, August 26, 2009
Ambrose Evans-Pritchard has covered world politics and economics for 25 years, based in Europe, the US, and Latin America. He joined the Telegraph in 1991, serving as Washington correspondent and later Europe correspondent in Brussels. He is now International Business Editor in London.
Two facts that should give pause for thought.
(1) Japanese data released on Thursday showed that exports fell yet again in July. They are down 39.5pc to the US, and 26.5pc to China. Japan is the world’s second biggest economy. It lives on exports. It is also a key part of the supply chain for the Chinese economy. How can this hard data be reconciled with the extreme V-shaped recovery already priced in by the markets?
By the way, Toyota is suspending a key production line at its Takaoka plant in central Japan. It is cutting global capacity by 1m vehicles.
(2) The Baltic Dry Index measuring freight rates for bulk goods and commodities has been falling almost continuously for eleven weeks, dropping from 4,290 to 2,778 on Thursday. Is this just a glut of ships or is this telling us what the Shanghai market is also telling us, that credit tightening by the Chinese government is pulling the rug from underneath the latest commodity bubble?
There is something wrong with the entire recovery tale, which ignores the fact that excess plant is still at the highest level since the Great Depression (capacity use is 70pc in Europe, 68pc in the US, 65pc in Japan, and as low as 50pc in some countries, according to the World Bank’s Justin Lin). Companies will have to cut jobs and investment. Soaring “confidence” indicators have decoupled from reality. The world economy is still prostrate. GDP has shrunk 4pc, 6pc, 8pc, even 12pc or more in a large group of countries. There it more or less sits, like a deflated soufflé. An end to technical recession in France, Germany, and Japan because Q2 ( and undoubtedly Q3 to come) ekes out a rise from a collapsed base does not mean anything – except that zero interest rates worldwide, and a massive fiscal stimulus that is pushing public debts towards 100pc across the OECD states (and cannot easily be repeated once the first sugar rush subsides), has mercifully prevented the Great Contraction from turning into an immediate catastrophe. As the Bank of England’s Governor Mervyn King puts it: “It’s the level, stupid”. The level of economic activity is years away from full recovery. The Bundesbank’s Axel Weber says it will take until 2013 for Germany to get back to where it was. He also warns, by the way, that there will be a second wave of the credit crisis as Germany’s home-grown troubles come to the fore. Round one was imported havoc from the US: round two will be rising defaults at home and a credit squeeze as ratings downgrades force banks to set aside fresh capital. (I enclose the Weber link for German readers http://www.sueddeutsche.de/finanzen/916/484353/text/) I have no idea when stock markets and commodities – especially base metals – will reflect the hard facts on the ground (ie, an end to the Chinese construction bubble). Timing is not my forte. Nor is the market. But I am absolutely convinced that those who think we can return to the status quo ante of the credit bubble as if nothing has happened are delusional. As almost every central banker in Jackson Hole reminded us over the weekend, it is going to be a very long hard slog.
Wednesday, August 26, 2009
Meltdown 101: Unemployment by State rising
WASHINGTON (AP) - Texas added the third-highest number of jobs among the states last month—but its unemployment rate still jumped because thousands of jobless people streamed into the work force. That's typical of the Labor Department's July state employment report, which includes a wealth of good news and bad news—often from the same state. Another example from the July report, released Friday: Michigan added 38,100 jobs, just ahead of Texas but behind New York, and its unemployment rate fell. That's clearly good news, but its jobless rate is still a sky-high 15 percent. That's bad news. Overall, 17 states and the District of Columbia reported lower unemployment rates in July—a significant improvement from June, when only 5 states experienced drops. But in the bad news category, 26 states saw their jobless rates rise. Fifteen states and the district have unemployment rates above 10 percent. Good news: Twenty-one states and the district added jobs last month, compared to only 10 in June. Bad news: Twenty-nine states still lost jobs. These and other tidbits can be found in the Regional and State Employment and Unemployment report. Here are some other interesting details, by the numbers.
STATES OF PAIN
15 percent: Michigan's unemployment rate, the nation's highest
12.7 percent: Rhode Island's unemployment rate, the second highest
12.5 percent: Nevada's rate
11.9 percent: California's rate
11.9 percent: Oregon's rate
STATES OF CONTENTMENT
4.2 percent: North Dakota's unemployment rate, the nation's lowest
4.9 percent: Nebraska's rate, the second lowest
4.9 percent: South Dakota's rate
6 percent: Utah's rate
6.5 percent: Wyoming's rate
6.5 percent: Oklahoma's rate
JOB GAINERS
62,100: Jobs added in New York in July
38,100: Jobs added in Michigan
37,900: Jobs added in Texas
15,600: Jobs added in Tennessee
13,200: Jobs added in District of Columbia
JOB LOSERS
35,800: Jobs lost in California
26,400: Jobs lost in North Carolina
25,200: Jobs lost in Florida
13,000: Jobs lost in Illinois
WESTERN WOES
10.5 percent: Unemployment in the Western region
10.2 percent: Unemployment in the Midwest
9.3 percent: Unemployment in the South
8.7 percent: Unemployment in the Northeast Copyright 2009
The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
STATES OF PAIN
15 percent: Michigan's unemployment rate, the nation's highest
12.7 percent: Rhode Island's unemployment rate, the second highest
12.5 percent: Nevada's rate
11.9 percent: California's rate
11.9 percent: Oregon's rate
STATES OF CONTENTMENT
4.2 percent: North Dakota's unemployment rate, the nation's lowest
4.9 percent: Nebraska's rate, the second lowest
4.9 percent: South Dakota's rate
6 percent: Utah's rate
6.5 percent: Wyoming's rate
6.5 percent: Oklahoma's rate
JOB GAINERS
62,100: Jobs added in New York in July
38,100: Jobs added in Michigan
37,900: Jobs added in Texas
15,600: Jobs added in Tennessee
13,200: Jobs added in District of Columbia
JOB LOSERS
35,800: Jobs lost in California
26,400: Jobs lost in North Carolina
25,200: Jobs lost in Florida
13,000: Jobs lost in Illinois
WESTERN WOES
10.5 percent: Unemployment in the Western region
10.2 percent: Unemployment in the Midwest
9.3 percent: Unemployment in the South
8.7 percent: Unemployment in the Northeast Copyright 2009
The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.
Fed offical admits US unemployment rate is actually 16%
The real US unemployment rate is 16 percent if persons who have dropped out of the labor pool and those working less than they would like are counted, a Federal Reserve official said Wednesday. "If one considers the people who would like a job but have stopped looking -- so-called discouraged workers -- and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart. He underscored that he was expressing his own views, which did "do not necessarily reflect those of my colleagues on the Federal Open Market Committee," the policy-setting body of the central bank. Lockhart pointed out in a speech to a chamber of commerce in Chattanooga, Tennessee that those two categories of people are not taken into account in the Labor Department's monthly report on the unemployment rate. The official July jobless rate was 9.4 percent. Lockhart, who heads the Atlanta, Georgia, division of the Fed, is the first central bank official to acknowledge the depth of unemployment amid the worst US recession since the Great Depression. Lockhart said the US economy was improving but "still fragile," and the beginning stages of a sluggish recovery were underway. "My forecast for a slow recovery implies a protracted period of high unemployment," he said, adding that it would be difficult to stimulate jobs through additional public spending.
"Further fiscal stimulus has been mentioned, but the full effects of the first stimulus package are not yet clear, and the concern over adding to the federal deficit and the resulting national debt is warranted," he said. President Barack Obama's administration has resisted calls for more public spending, arguing that the 787-billion-dollar stimulus passed in February needs time to work its way through the economy. Lockhart noted that construction and manufacturing had been particularly hard hit in the recession that began in December 2007 and predicted some jobs were gone for good. Prior to the recession, he said, construction and manufacturing combined accounted for slightly more than 15 percent of employment. But during the recession, their job losses made up more than 40 percent of all US job losses. "In my view, it is unlikely that we will see a return of jobs lost in certain sectors, such as manufacturing," he said. "In a similar vein, the recession has been so deep in construction that a reallocation of workers is likely to happen -- even if not permanent." Payroll employment has fallen by 6.7 million since the recession began.
"Further fiscal stimulus has been mentioned, but the full effects of the first stimulus package are not yet clear, and the concern over adding to the federal deficit and the resulting national debt is warranted," he said. President Barack Obama's administration has resisted calls for more public spending, arguing that the 787-billion-dollar stimulus passed in February needs time to work its way through the economy. Lockhart noted that construction and manufacturing had been particularly hard hit in the recession that began in December 2007 and predicted some jobs were gone for good. Prior to the recession, he said, construction and manufacturing combined accounted for slightly more than 15 percent of employment. But during the recession, their job losses made up more than 40 percent of all US job losses. "In my view, it is unlikely that we will see a return of jobs lost in certain sectors, such as manufacturing," he said. "In a similar vein, the recession has been so deep in construction that a reallocation of workers is likely to happen -- even if not permanent." Payroll employment has fallen by 6.7 million since the recession began.
Tuesday, August 25, 2009
White House, CBO debt forecasts challenge Obama
Tue Aug 25, 2009 12:49pm EDT
*White House sees 10-year deficit at $9 trillion
*Grim news for Obama's healthcare push
*Slow recovery seen hurting tax revenues as spending soars (Recasts, adds reaction)
By Alister Bull and Andy Sullivan
WASHINGTON, Aug 25 (Reuters) - The U.S. national debt will nearly double over the next 10 years, government forecasts showed on Tuesday, challenging President Barack Obama's economic and healthcare overhaul agenda. The White House midsession budget forecast and the non-partisan Congressional Budget Office both forecast that government revenues will be crimped by a slow recovery from the worst recession since the 1930s Great Depression, while spending on retirement and medical benefits soars. The White House projected a cumulative $9 trillion deficit between 2010 and 2019, while the CBO took a more optimistic view, pegging the deficit at $7.1 trillion because it assumed higher revenues as tax cuts expire. [ID:nN25198577]
The spending blitz could push the national debt, now more than $11 trillion, to close to $20 trillion. The debt is the sum the government owes, while the deficit is the yearly gap between revenues and spending. "The alarm bells on our nation's fiscal condition have now become a siren," said Senator Mitch McConnell, the Republican leader in the Senate. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone," McConnell said, adding that economic stimulus funds should be diverted to pay down U.S. debt. However, both the White House and CBO estimates anticipate that the deficit, now at its highest level as a percent of economic output since World War Two, will decline relatively swiftly in the next three years as growth resumes and federal bailout programs shrink. White House budget director Peter Orszag said the deficit was too high and cited this as a reason to pass Obama's healthcare overhaul plan, which is in trouble with lawmakers while opinion polls show it losing popular support. "I know that there will be some who say this report proves that we cannot afford health reform. I think that has it backward," Orszag told reporters on a conference call.
"The size of the fiscal gap is precisely why we must enact well-designed and fiscally responsible health reform now. Obama's healthcare plan, his policy priority, has run into opposition from critics who complain its $1 trillion price tag is too high and who worry it will limit consumer choice. The debate is gaining steam as Republicans seek momentum for next year's mid-term elections, where they hope to chip away the dominant position Obama's Democrats enjoy in both the House of Representatives and the Senate.
The White House forecasts a record $1.58 trillion deficit in fiscal 2009, matching the numbers of the CBO, while it shows the deficit at $1.5 trillion in 2010, a touch higher than the $1.48 trillion projected by CBO. But both estimates show annual deficits staying above $500 billion every year until 2019, compared with a then-record $459 billion last year. The White House shows the gap averaging 5.1 percent through 2019, compared with 3.2 percent last year.
By 2019, it estimates that the ratio of national debt to gross domestic products will rise to 69 percent from 48 percent in 2009. "The administration has always said that you have to get deficits under 3 percent of GDP to be safe. They now admit that they will not in the next 10 years," said Douglas Holtz-Eakin, a CBO director under Bush and chief economic adviser to Republican Senator John McCain for his 2008 presidential bid. The budget news was overshadowed by Obama's surprise announcement on Tuesday to renominate Ben Bernanke to a second four-year term as Federal Reserve chairman, a move seen as aiming for continuity at the central bank during a tentative stage of recovery. "I'm stunned at how hard they have worked to bury this", Holtz-Eakin said of the White House's budget estimate timing.
DIFFERING ASSUMPTIONS
One reason CBO and OMB can end up with different numbers is technical. The CBO employs a baseline method which only takes into account policies that have already become law. On the other hand, the administration's forecasts can reflect the economic impact of policies it hopes to implement, even if they have not yet been approved by lawmakers. For example, the CBO assumes the there would be no "patch" for the Alternative Minimum Tax, meaning millions more Americans would have to pay higher taxes, even though Congress has agreed to a temporary reprieve every year to prevent this happening. In addition, CBO assumes the tax cuts delivered by former President George W. Bush will expire at the end of 2010. Orszag said that the White House numbers also assumed that some of the Bush tax cuts would be extended. Obama has pledged not to raise taxes on U.S. households earning less than $250,000 a year. (Writing by David Lawder, Editing by Vicki Allen)
*White House sees 10-year deficit at $9 trillion
*Grim news for Obama's healthcare push
*Slow recovery seen hurting tax revenues as spending soars (Recasts, adds reaction)
By Alister Bull and Andy Sullivan
WASHINGTON, Aug 25 (Reuters) - The U.S. national debt will nearly double over the next 10 years, government forecasts showed on Tuesday, challenging President Barack Obama's economic and healthcare overhaul agenda. The White House midsession budget forecast and the non-partisan Congressional Budget Office both forecast that government revenues will be crimped by a slow recovery from the worst recession since the 1930s Great Depression, while spending on retirement and medical benefits soars. The White House projected a cumulative $9 trillion deficit between 2010 and 2019, while the CBO took a more optimistic view, pegging the deficit at $7.1 trillion because it assumed higher revenues as tax cuts expire. [ID:nN25198577]
The spending blitz could push the national debt, now more than $11 trillion, to close to $20 trillion. The debt is the sum the government owes, while the deficit is the yearly gap between revenues and spending. "The alarm bells on our nation's fiscal condition have now become a siren," said Senator Mitch McConnell, the Republican leader in the Senate. "If anyone had any doubts that this burden on future generations is unsustainable, they're gone," McConnell said, adding that economic stimulus funds should be diverted to pay down U.S. debt. However, both the White House and CBO estimates anticipate that the deficit, now at its highest level as a percent of economic output since World War Two, will decline relatively swiftly in the next three years as growth resumes and federal bailout programs shrink. White House budget director Peter Orszag said the deficit was too high and cited this as a reason to pass Obama's healthcare overhaul plan, which is in trouble with lawmakers while opinion polls show it losing popular support. "I know that there will be some who say this report proves that we cannot afford health reform. I think that has it backward," Orszag told reporters on a conference call.
"The size of the fiscal gap is precisely why we must enact well-designed and fiscally responsible health reform now. Obama's healthcare plan, his policy priority, has run into opposition from critics who complain its $1 trillion price tag is too high and who worry it will limit consumer choice. The debate is gaining steam as Republicans seek momentum for next year's mid-term elections, where they hope to chip away the dominant position Obama's Democrats enjoy in both the House of Representatives and the Senate.
The White House forecasts a record $1.58 trillion deficit in fiscal 2009, matching the numbers of the CBO, while it shows the deficit at $1.5 trillion in 2010, a touch higher than the $1.48 trillion projected by CBO. But both estimates show annual deficits staying above $500 billion every year until 2019, compared with a then-record $459 billion last year. The White House shows the gap averaging 5.1 percent through 2019, compared with 3.2 percent last year.
By 2019, it estimates that the ratio of national debt to gross domestic products will rise to 69 percent from 48 percent in 2009. "The administration has always said that you have to get deficits under 3 percent of GDP to be safe. They now admit that they will not in the next 10 years," said Douglas Holtz-Eakin, a CBO director under Bush and chief economic adviser to Republican Senator John McCain for his 2008 presidential bid. The budget news was overshadowed by Obama's surprise announcement on Tuesday to renominate Ben Bernanke to a second four-year term as Federal Reserve chairman, a move seen as aiming for continuity at the central bank during a tentative stage of recovery. "I'm stunned at how hard they have worked to bury this", Holtz-Eakin said of the White House's budget estimate timing.
DIFFERING ASSUMPTIONS
One reason CBO and OMB can end up with different numbers is technical. The CBO employs a baseline method which only takes into account policies that have already become law. On the other hand, the administration's forecasts can reflect the economic impact of policies it hopes to implement, even if they have not yet been approved by lawmakers. For example, the CBO assumes the there would be no "patch" for the Alternative Minimum Tax, meaning millions more Americans would have to pay higher taxes, even though Congress has agreed to a temporary reprieve every year to prevent this happening. In addition, CBO assumes the tax cuts delivered by former President George W. Bush will expire at the end of 2010. Orszag said that the White House numbers also assumed that some of the Bush tax cuts would be extended. Obama has pledged not to raise taxes on U.S. households earning less than $250,000 a year. (Writing by David Lawder, Editing by Vicki Allen)
Senator warns of hyperinflation rivaling the 1980s
August 25, 2009
Michael O'Brien
The Hill's Blog: Briefing Room
The economy could spiral into hyperinflation not seen since the early 1980s if the Federal Reserve does not tighten its monetary policy soon, Sen. Chuck Grassley (R-Iowa) warned Tuesday. Grassley, speaking about the renomination of Federal Reserve Chairman Ben Bernanke to a second term as head of the Fed, asserted that Bernanke's ability to hold down inflation would be the metric by which the Fed's success would be measured. "We won't know for a year if he's done a good job so far, because he shoveled money out of an airplane to save banks and the financial system," Grassley said in a conference call with Iowa reporters. "But shoveling money out of an airplane to solve problems can be inflationary — in this case, hyperinflationary — if he doesn't start mopping up some of the money that's out there." Grassley, the ranking member of the Senate Finance Committee, said that inflation as a result from government spending on bailouts could result in inflation rivaling rates in 1980, when it hit a peak of 13.5 percent. "The Fed has the ability to put money out, it's got the ability to take money back in, and if they don't do that, we will have hyperinflation worse than we had in 1980 and '81," Grassley said. "And I hope he demonstrates that ability." Grassley argued that while it would be a year until lawmakers will know whether Bernanke has been successful at bringing inflation under control, it would probably be best to keep the chairman on board for a second term as head of the Federal Reserve. "I would suggest that right now, when everybody's nervous about the economy, that you don't change horses in the middle of the stream, and consequently, it would probably be detrimental to not have him reappointed," he said.
Michael O'Brien
The Hill's Blog: Briefing Room
The economy could spiral into hyperinflation not seen since the early 1980s if the Federal Reserve does not tighten its monetary policy soon, Sen. Chuck Grassley (R-Iowa) warned Tuesday. Grassley, speaking about the renomination of Federal Reserve Chairman Ben Bernanke to a second term as head of the Fed, asserted that Bernanke's ability to hold down inflation would be the metric by which the Fed's success would be measured. "We won't know for a year if he's done a good job so far, because he shoveled money out of an airplane to save banks and the financial system," Grassley said in a conference call with Iowa reporters. "But shoveling money out of an airplane to solve problems can be inflationary — in this case, hyperinflationary — if he doesn't start mopping up some of the money that's out there." Grassley, the ranking member of the Senate Finance Committee, said that inflation as a result from government spending on bailouts could result in inflation rivaling rates in 1980, when it hit a peak of 13.5 percent. "The Fed has the ability to put money out, it's got the ability to take money back in, and if they don't do that, we will have hyperinflation worse than we had in 1980 and '81," Grassley said. "And I hope he demonstrates that ability." Grassley argued that while it would be a year until lawmakers will know whether Bernanke has been successful at bringing inflation under control, it would probably be best to keep the chairman on board for a second term as head of the Federal Reserve. "I would suggest that right now, when everybody's nervous about the economy, that you don't change horses in the middle of the stream, and consequently, it would probably be detrimental to not have him reappointed," he said.
Obama Raises ‘10 Deficit Outlook 19% to $1.5 Trillion
By Roger Runningen and Brian Faler
Aug. 25 (Bloomberg) -- U.S. unemployment will surge to 10 percent this year and the budget deficit will be $1.5 trillion next year, both higher than previous Obama administration forecasts because of a recession that was deeper and longer than expected, White House budget chief Peter Orszag said. The Office of Management and Budget forecasts a weaker economic recovery than it saw in May, as the gross domestic product shrinks 2.8 percent this year before expanding 2 percent next year, according to the administration’s mid-year economic review issued today. The Congressional Budget Office, in a separate assessment, forecast the economy will grow 2.8 percent next year. Both see the GDP expanding 3.8 percent in 2011. “While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the White House report said. “The long-term deficit outlook remains daunting.” The budget shortfall for 2010 would mark the second straight year of trillion-dollar deficits. Along with the unemployment numbers, the deficit may weigh on President Barack Obama’s drive for his top domestic priority, overhauling the U.S. health care system. “It throws a wrench in health-care reforms,” Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said in an interview. “No matter the specific numbers, they’re a constant reminder that we’re in bad, bad shape.”
Spending Caps
House Republican Leader John Boehner of Ohio seized on the numbers to call for the Democrat-controlled Congress to impose “strict annual caps on federal spending.” The health-care overhaul “is just the latest in a long line of expensive Democratic experiments that will add to the deficit, raise taxes on families and small businesses and cost more American jobs,” Boehner said in a statement. The two budget agencies say the shortfall is being driven by the recession as outlays rise for unemployment compensation, food stamps or other programs meant to stabilize the economy rise and tax receipts fall. Administration and congressional budget officials expect the unemployment rate, which was 9.4 percent last month, to keep rising. White House officials said the rate likely will rise to 10 percent by the end of 2009, averaging 9.3 percent for the entire year. It will worsen to a 9.8 percent average in 2010, instead of the 7.9 percent estimate in May. The CBO report also estimates the 2009 jobless rate at 9.3 percent. It puts next year’s average at 10.2 percent.
Deficit Projections
The OMB raised its deficit projection for fiscal 2010, which begins Oct. 1, from the $1.26 trillion forecast in May, reflecting slower economic growth this year and next because of “the severity of the crisis in the U.S. and in our trading partners,” said Christina Romer, White House chief economist, who along with Orszag briefed reporters on the report. The median estimate of 31 economists in a Bloomberg News survey completed Aug. 21 was for a fiscal year 2010 deficit of $1.3 trillion. The outlook for the 2009 fiscal year is slightly better than the previous forecast. The government’s shortfall will peak this year at $1.58 trillion before narrowing over next decade. That is less than the $1.84 trillion projected in May because budget officials were able to delete hundreds of billions of dollars that had been set aside for bank bailouts. Last year’s deficit was $459 billion.
Bailout Money
“The Obama White House deserves some credit for managing the financial situation so that the additional bailout wasn’t necessary,” said Stan Collender, a former budget analyst for the House and Senate budget committees. Orszag said reining in the deficit is a “top priority” of the administration. He said the budget blueprint Obama submits to Congress in February will “include proposals to put the nation back on a fiscally sustainable path.” He declined to give specifics. The OMB added almost $2 trillion to the 10-year deficit from its May forecast, to $9.05 trillion. The nonpartisan CBO lowered its long-range projection to $7.14 trillion. “The market will view this as a very consensus-oriented forecast” and there won’t be any significant reaction, said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania.
Stimulus
Zandi predicted Congress will pass a second “mini” stimulus bill next year of about $250 billion to aid jobless workers, state governments and home buyers. “The economy will be growing at an uncomfortably slow rate, not enough to bring down unemployment, and of course it’s an election year” for Congress, he said. Orszag defended the trillion-dollar deficits during a recession and said they shouldn’t be used to block the administration’s health-care initiative. Revising the way the nation pays for medical care will help save money, he said. “I know there are going to be some who say this report proves we can’t afford health reform,” Orszag said. “I think that has it backwards,” because savings must be squeezed from the system. Even with economic conditions worse that originally forecast, Romer said “we do expect positive GDP growth by the end of this year” for the fourth quarter, as the economy reaches “a turning point.” “A return to employment growth will take longer,” Romer said, adding that the jobless rate likely will peak in the fourth quarter of this year.
Inflation
Romer said the economic stimulus package probably is adding “between 2 and 3 percentage points” to economic growth in the second quarter of this year, blunting conditions that would have been worse. A report on the effect of the stimulus program is due to Congress next month, she said. Inflation will remain subdued. Projections for the consumer price index show a contraction to 0.7 percent this year, rising to 1.4 percent next year and 1.5 percent in 2011, Romer said. The economic assumptions were compiled by the Council of Economic Advisers, Treasury Department and the Office of Management and Budget. The estimates reflect conditions as of early June.
To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.netBrian Faler in Washington at bfaler@bloomberg.net Last Updated: August 25, 2009 13:19 EDT
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Aug. 25 (Bloomberg) -- U.S. unemployment will surge to 10 percent this year and the budget deficit will be $1.5 trillion next year, both higher than previous Obama administration forecasts because of a recession that was deeper and longer than expected, White House budget chief Peter Orszag said. The Office of Management and Budget forecasts a weaker economic recovery than it saw in May, as the gross domestic product shrinks 2.8 percent this year before expanding 2 percent next year, according to the administration’s mid-year economic review issued today. The Congressional Budget Office, in a separate assessment, forecast the economy will grow 2.8 percent next year. Both see the GDP expanding 3.8 percent in 2011. “While the danger of the economy immediately falling into a deep recession has receded, the American economy is still in the midst of a serious economic downturn,” the White House report said. “The long-term deficit outlook remains daunting.” The budget shortfall for 2010 would mark the second straight year of trillion-dollar deficits. Along with the unemployment numbers, the deficit may weigh on President Barack Obama’s drive for his top domestic priority, overhauling the U.S. health care system. “It throws a wrench in health-care reforms,” Maya MacGuineas, president of the bipartisan Committee for a Responsible Federal Budget, said in an interview. “No matter the specific numbers, they’re a constant reminder that we’re in bad, bad shape.”
Spending Caps
House Republican Leader John Boehner of Ohio seized on the numbers to call for the Democrat-controlled Congress to impose “strict annual caps on federal spending.” The health-care overhaul “is just the latest in a long line of expensive Democratic experiments that will add to the deficit, raise taxes on families and small businesses and cost more American jobs,” Boehner said in a statement. The two budget agencies say the shortfall is being driven by the recession as outlays rise for unemployment compensation, food stamps or other programs meant to stabilize the economy rise and tax receipts fall. Administration and congressional budget officials expect the unemployment rate, which was 9.4 percent last month, to keep rising. White House officials said the rate likely will rise to 10 percent by the end of 2009, averaging 9.3 percent for the entire year. It will worsen to a 9.8 percent average in 2010, instead of the 7.9 percent estimate in May. The CBO report also estimates the 2009 jobless rate at 9.3 percent. It puts next year’s average at 10.2 percent.
Deficit Projections
The OMB raised its deficit projection for fiscal 2010, which begins Oct. 1, from the $1.26 trillion forecast in May, reflecting slower economic growth this year and next because of “the severity of the crisis in the U.S. and in our trading partners,” said Christina Romer, White House chief economist, who along with Orszag briefed reporters on the report. The median estimate of 31 economists in a Bloomberg News survey completed Aug. 21 was for a fiscal year 2010 deficit of $1.3 trillion. The outlook for the 2009 fiscal year is slightly better than the previous forecast. The government’s shortfall will peak this year at $1.58 trillion before narrowing over next decade. That is less than the $1.84 trillion projected in May because budget officials were able to delete hundreds of billions of dollars that had been set aside for bank bailouts. Last year’s deficit was $459 billion.
Bailout Money
“The Obama White House deserves some credit for managing the financial situation so that the additional bailout wasn’t necessary,” said Stan Collender, a former budget analyst for the House and Senate budget committees. Orszag said reining in the deficit is a “top priority” of the administration. He said the budget blueprint Obama submits to Congress in February will “include proposals to put the nation back on a fiscally sustainable path.” He declined to give specifics. The OMB added almost $2 trillion to the 10-year deficit from its May forecast, to $9.05 trillion. The nonpartisan CBO lowered its long-range projection to $7.14 trillion. “The market will view this as a very consensus-oriented forecast” and there won’t be any significant reaction, said Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania.
Stimulus
Zandi predicted Congress will pass a second “mini” stimulus bill next year of about $250 billion to aid jobless workers, state governments and home buyers. “The economy will be growing at an uncomfortably slow rate, not enough to bring down unemployment, and of course it’s an election year” for Congress, he said. Orszag defended the trillion-dollar deficits during a recession and said they shouldn’t be used to block the administration’s health-care initiative. Revising the way the nation pays for medical care will help save money, he said. “I know there are going to be some who say this report proves we can’t afford health reform,” Orszag said. “I think that has it backwards,” because savings must be squeezed from the system. Even with economic conditions worse that originally forecast, Romer said “we do expect positive GDP growth by the end of this year” for the fourth quarter, as the economy reaches “a turning point.” “A return to employment growth will take longer,” Romer said, adding that the jobless rate likely will peak in the fourth quarter of this year.
Inflation
Romer said the economic stimulus package probably is adding “between 2 and 3 percentage points” to economic growth in the second quarter of this year, blunting conditions that would have been worse. A report on the effect of the stimulus program is due to Congress next month, she said. Inflation will remain subdued. Projections for the consumer price index show a contraction to 0.7 percent this year, rising to 1.4 percent next year and 1.5 percent in 2011, Romer said. The economic assumptions were compiled by the Council of Economic Advisers, Treasury Department and the Office of Management and Budget. The estimates reflect conditions as of early June.
To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.netBrian Faler in Washington at bfaler@bloomberg.net Last Updated: August 25, 2009 13:19 EDT
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