US may be on cusp of recovery as stimulus plan takes hold, says key Obama adviser

THE US economy may be on the cusp of a recovery and the impact of the stimulus plan should increase this quarter, according to Laura Tyson, an adviser to President Barack Obama.

“We may have hit stability, we may be in the beginning of an upturn,” said Mr Tyson, a member of the White House’s Economic Recovery Advisory Board, said yesterday. “The consensus is for a slow recovery, with risks around the downside.”

There’s no reason for a second stimulus package now, Mr Tyson said in an interview in Kuala Lumpur yesterday.

The pace of US job losses slowed in July and the unemployment rate dropped for the first time in more than a year, to 9.4 per cent, a labour department report showed last week.

President Obama said the unemployment numbers indicate “the worst may be behind us”, and economist Paul Krugman, a winner of the Nobel Prize, said yesterday the economy is stabilising.

“It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, maybe September,” Krugman said from Kuala Lumpur. “My guess is that we’ve bottomed out now, that August was probably the trough month.”

The commerce department reported on July 31st that US gross domestic product shrank at a better-than-forecast 1 per cent annual pace in the second quarter after a 6.4 per cent drop in the prior three months.

Mr Krugman and Mr Tyson are in Kuala Lumpur for the world capital markets symposium, which starts today.

Mr Krugman said the US government’s stimulus plan probably saved one million jobs, adding that a second stimulus package is still needed and should be directed at state and local governments as well as infrastructure spending.

Mr Krugman also said Federal Reserve chairman Ben Bernanke should be given a second term in charge of the regulator.

“I think Bernanke has done a really good job when all is said and done,” Mr Krugman said. “He’s earned the right to a second term. He turned the Fed into the financial intermediary of last resort. When the banking system failed to deliver capital where it was needed, he put the Fed into the markets. That was critically important at that stage.” – (Bloomberg)