The U.S. unemployment rate may not peak until the second half of 2010, even as the broader economy shows signs of improvement, U.S. Treasury Secretary Timothy Geithner said.
Another extension in unemployment benefits “is something that the administration and Congress are going to look very carefully at as we get closer to the end of this year,” Geithner said in an interview yesterday on ABC’s “This Week” program.
The U.S. economy contracted at a better-than-forecast 1 percent annual pace in the second quarter, the Commerce Department reported July 31. Stabilization of housing markets and consumer spending, a lessening of financial turmoil and increased government spending all suggest the longest recession since the 1930s may be close to ending.
“There are signs the recession is easing,” Geithner said. “The broad consensus of private forecasters is that you are going to see positive growth in the second half of this year and expect that to continue.” It is “not clear yet” how strong growth will be, he said.
Geithner’s appraisal was backed by former Federal Reserve Chairman Alan Greenspan who said, “collapse, I think, is now off the table.
“I’m pretty sure we’ve already seen the bottom,” Greenspan said yesterday in an interview on “This Week.” “In fact, if you look at the weekly production figures for various different industries, it’s clear that we’ve turned, perhaps in the middle of last month, the middle of July.”
‘Serious’ Job Picture
Lawrence Summers, director of the White House National Economic Council, said that while the economy will resume growth in the second half of the year, the job picture “will be serious for some time to come.”
“We have walked back from what we were facing six month ago,” Summers said on NBC’s “Meet the Press” yesterday. “It’s going to take time before you see it in the unemployment rate.”
Summers said the Obama administration will work with Congress to “do what’s necessary to make sure appropriate unemployment benefits are available.”
Congressman Charles Rangel, chairman of the House Ways and Means Committee, said he supports extending unemployment insurance benefits for another 13 weeks.
“There’s no question, they deserve it,” he said on Fox News Sunday. “They are the true victims of this fiscal disaster.”
Support From DeMint
Senator Jim DeMint, a South Carolina Republican, said he’ll “definitely support” extending unemployment benefits.
Economic growth will average 1.5 percent in the July-to- December period, according to a Bloomberg News survey of economists in July.
“You are going to see the pace of job losses slow materially,” Geithner said. “Again most private forecasters, let’s use their judgment, suggest you’re going to see unemployment start to come down maybe beginning in the second half of next year.”
Much of the economic recovery will depend on the housing market, Greenspan said.
“I’m short-term optimistic, but with many caveats,” the former Fed chairman said. Housing markets have “stabilized temporarily” though it is “possible” the economy might relapse if there is a further slide in home prices of more than about 5 percent.
“I don’t think it’s going to happen, but I do think it is possible that we could get a second wave down,” Greenspan said. “But the important issue is that if we don’t, and I think the probability is that we won’t, that we are close to stabilization.”
Teachers, Police Officers
Summers said less than 10 percent of President Barack Obama’s economic stimulus plan goes to job creation in 2009, with most new jobs coming later. He said the administration still expects the stimulus to save or create at least 3 million jobs, and pointed to teachers and law enforcement officers who kept jobs because of the additional funding as proof the program is working.
The problem, he said, was that the economy was in worse shape last year than many economists thought.
“Unemployment increased more than almost anyone expected,” Summers said. “Businesses were more scared than we realized and were much quicker to lay people off.”
Bernanke’s Outlook
Fed Chairman Ben S. Bernanke predicted a week ago the U.S. unemployment rate will top 10 percent, up from 9.5 percent in June, even as the economy recovers from the worst recession in at least five decades. Growth of about 1 percent is likely in the second half of the year, Bernanke said at a town-hall-style meeting.
Geithner said once the recovery is established, the administration will focus on reducing government budget deficits.
“Recovery will not be strong enough to sustain unless we can convince the American people that we’re going to have the will to bring these deficits down once recovery is firmly established,” he said.
Greenspan also said there has been “a very significant improvement” in the financial sector, “and it’s been the financial system where the problems have been.”
Banks and financial institutions have reported more than $1.5 trillion in credit losses and writedowns worldwide since the global credit crisis began. Many of those losses stemmed from mortgage-related investments that declined with the collapse in the housing market.
The so-called Libor-OIS spread, a gauge of bank reluctance to lend, has narrowed to 28 basis points from 364 basis points on Oct. 10. Greenspan said in June 2008 that he wouldn’t consider credit markets back to “normal” until the Libor-OIS spread narrowed to 25 basis points.
Lawmakers and some economists have blamed Greenspan for helping to cause the financial crisis with lax oversight of the housing boom and derivatives markets, and by keeping interest rates too low in 2003 and 2004.
By Steve Matthews and Susan Decker – bloomberg.com
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