White House Sees Slow Growth in '08, But Not a Recession
Tuesday, February 12, 2008
The economy may grow slowly the first half of this year, the Bush administration said yesterday, but it is not in recession.
The economic stimulus bill that President Bush plans to sign this week, combined with interest rate cuts by the Federal Reserve, will result in stronger growth in the second half of the year, according to the annual Economic Report of the President.
"I don't think that we are in a recession right now, and we are not forecasting a recession," said Edward P. Lazear, chairman of the president's Council of Economic Advisers, in a briefing with reporters. "We are forecasting slower growth."
Many leading private-sector forecasters do think the nation is, or soon will be, in a recession, including economists at Wall Street firms Goldman Sachs, Merrill Lynch and Morgan Stanley. The Bush administration's sunnier expectations are consistent with those of private economists surveyed by Bloomberg News, who forecast an annualized 0.5 percent growth in the first three months of 2008 but a solid 2.7 percent growth rate in the fourth quarter.
The administration and Democrats in Congress were able to find common ground on a bill to stimulate the slumping economy, which Bush plans to sign tomorrow. But Bush has signaled reluctance to take further action of the sort being discussed on Capitol Hill, such as extending unemployment insurance benefits or creating a government entity to buy up subprime mortgage securities.
Democrats say Bush is ignoring evidence of a slowing economy. "Despite agreeing to a much-needed economic stimulus package, the president still seems to be looking at our economy with rose-colored glasses," said Sen. Charles E. Schumer (D-N.Y.), chairman of the Joint Economic Committee. "The administration needs to recalibrate its overly optimistic economic assumptions in order to seriously address the declining fortunes of the middle-class families."
Lazear said yesterday that when the government has extended unemployment insurance in the past, the jobless rate has been 5.7 percent or more. It was 4.9 percent in January.
"It would be unprecedented to extend unemployment benefits at a time the unemployment rate is 4.9 percent," he said. He said that the stimulus bill passed last week will create a half-million more jobs than would have been created otherwise.
In a discussion of the problems in financial markets, which now appear to be bleeding into the broader economy, the president's report argues that imbalances in such markets need to be allowed to work themselves out, suggesting that there will be no major government intervention in the troubled markets for complicated forms of debt.
Aside from narrow, targeted government actions, "the best course of action is often to simply allow markets to adjust," the report said. "Markets naturally self-correct, rewarding good strategies and punishing bad ones . . . any government actions mitigating the outcomes of risky behavior may create perverse incentives for reckless decisions by borrowers and investors who may come to rely on government interventions."
The Bush administration projected in November that the economy would grow 2.7 percent in 2008 and that the unemployment rate would edge up to 4.9 percent. Since then, economic news has pointed to much slower growth; joblessness was 5 percent in December before falling to 4.9 in January.
Although he did not issue specific projections, Lazear appeared to back away from the November forecast yesterday, noting that private economists have become less optimistic since then.
The 354-page report emphasized gains that the United States is experiencing from rising exports, reflecting a dollar that has fallen in recent years. It acknowledged, however, that the strain in credit markets "raises the possibility that spending by businesses and consumers could be restrained in the future."