Obama's €567bn roll of the dice

Economists say there are signs of life in US economy, writes DENIS STAUNTON, Washington Correspondent

STANDING BEFORE 76,000 solar panels in the Nevada desert outside Las Vegas this week, President Barack Obama marked the first 100 days of the $787 billion (€567 billion) stimulus package aimed at kick-starting the American economy.

For the White House, the setting offered a picture-book example of the plan’s role in creating new jobs today, while building a more sustainable economy for the future.

However, to Mr Obama’s critics the choice of Las Vegas served as a reminder that the stimulus represents a massive gamble that, if it fails, could wreck the country’s public finances for a generation.

The president said the package of spending plans and tax cuts had already saved or created nearly 150,000 jobs and eased the pain of the recession for millions of Americans.

“They are the jobs of teachers and police officers and nurses. They are jobs fixing roads and bridges; jobs at start-ups and small businesses; and jobs that will put thousands of young Americans to work this summer,” he said.

“Ninety-five per cent of all working families saw their take-home pay increase because of the tax cut we provided. Fifty-four million seniors received $250 extra in their Social Security checks. Laid-off workers have received greater unemployment benefits and paid less for their health care.”

The White House says that $112 billion – about 14 per cent of the stimulus funds – has already been committed to projects across the country. The plan is funding everything from new libraries and improved school buildings to health centres and fire brigades.

Small businesses threatened with closure by the credit crunch are taking out cheap, government loans and home-owners are claiming tax credits for insulating their houses.

Republicans in Congress, who voted almost unanimously against the stimulus plan, say it has had less impact on the economy than the administration claims.

They point out that, although more than $100 billion has been “obligated” to projects, only about half that sum has actually been spent, mostly in the form of social service payments to the states.

Conservatives grumble that some of the money is being spent on projects that will have little immediate impact on the economy and that the stimulus package has done little more than swell the federal deficit and burden future generations with debt.

The 150,000 Americans whose jobs have been saved or created in the past three months have reason to welcome the stimulus plan, but more than a million other Americans have lost their jobs during that time.

The US economy is shedding jobs at a rate of more than half a million each month and the National Association for Business Economists (NABE) predicted this week that 4.5 million Americans will lose their jobs this year, bringing unemployment close to 10 per cent.

Jared Bernstein, chief economic adviser to vice-president Joe Biden, says the stimulus plan will create a further 600,000 jobs in the next 100 days and he claims that the plan has slowed the rate of job losses.

“The fact unemployment is going up, the fact we’re losing jobs, shouldn’t be taken as evidence that the plan is somewhat ineffective. Job losses would be deeper in the absence of the act,” he said.

“In every state across this country, people are at work who would not have been so but for the measures in this Act. That’s a tremendous dose of medicine into an economy that’s finally showing some signs of breaking its fever.”

Unemployment is what economists call a lagging indicator, which typically continues to rise for two years after a recession formally ends. Ninety per cent of top economic forecasters in the US believe the recession will end this year, according to a survey published this week by NABE.

About 74 per cent of the forecasters expect the recession to end in the third quarter of 2009, 19 per cent say the turning point will come in the last three months of the year, and seven per cent believe the recession will end in the first quarter of 2010.

“While the overall tone remains soft, there are emerging signs that the economy is stabilising,” said NABE president Chris Varvares.

“The economic recovery is likely to be considerably more moderate than those typically experienced following steep declines.”

The Federal Reserve also sees signs that the recession is loosening its grip of the US economy and predicts a modest recovery of business sales and factory production in the second half of this year.

The Fed has sought to blunt the impact of the recession by bringing interest rates close to zero and buying $1.2 trillion in government debt to help boost lending.

Confidence among US consumers jumped in May by the most in six years, according to the New York-based Conference Board, whose sentiment index rose to 54.9 from 40.8 last month.

Meanwhile, the National Association of Realtors reported this week that home resales in the US rose for the second time in three months amid signs that the housing market is bottoming out.

However, if economists agree that there are signs of life in the US economy, few can say to what extent Mr Obama’s stimulus plan is driving the recovery.

The president’s chief economic adviser, Cristina Romer, said this week that she was optimistic about improving economic indicators, but she acknowledged that the administration cannot claim success until unemployment starts to fall.

“The gold standard is going to be jobs numbers. And realistically, we’re not going to see us adding jobs for a while,” she said.