McCain's Presidential Campaign Economic Adviser: Risks Are Rising
Economy.com
U.S. Macro Outlook: Risks Are Rising
By Mark Zandi in West Chester
July 12, 2010
The economic recovery is losing momentum. Retailing, housing, manufacturing, and most importantly the job market have weakened in recent weeks. Real GDP, which grew 4% annualized during the second half of 2009, has slowed to nearly 3% during the first half of this year and is expected to approach 2.5% during the second half. This rate is below the economy’s potential, and unemployment is expected to drift back up into the double digits. With unemployment so high and policymakers increasingly perplexed over how to respond, the risks to the recovery are rising again. The odds of a double-dip recession in the next six to 12 months remain well less than even but are uncomfortably high.
Stimulus set to fade
The fading fiscal stimulus, the end of the manufacturing inventory swing, and the fallout from the European debt crisis are impeding growth. Fiscal policymakers have provided an enormous stimulus throughout the Great Recession and current recovery. From the tax rebate checks that were mailed in the spring of 2008 to the early 2009 Recovery Act to the current job tax credit, almost $1 trillion has been provided. This sum equals nearly 7% of GDP, well more than double that provided during the very severe downturns of the early 1980s.
The stimulus was instrumental in ending the recession and jump-starting the recovery-it's no coincidence the recovery began a year ago when the Recovery Act was providing its maximum benefit-but its boost is waning. The principal link between the stimulus and economic growth is the spendout rate-the change in temporary spending increases and tax cuts. There was very little spendout from the Recovery Act in the first quarter of 2009, but by the second quarter, the spendout had surged to nearly $80 billion. By the third quarter, the economy was in a recovery.
The spendout is set to decline sharply beginning this quarter and largely wind down by this time next year. To forestall the economic drag this withdrawal implies, policymakers have been stimulating growth in smaller ways such as extending the housing tax credit, setting higher conforming loan limits, and cutting some business taxes. A tax break for firms that hire unemployed workers before the end of the year has also been added. Policymakers are balking at any additional measures, however, and without further action, fiscal policy will become a modest drag on growth by the fourth quarter and a significant one in early 2011...
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Related:
Mark Zandi:
Congress Should Quit Its Deficit Dithering Unless It Wants Another Recession
Mark Zandi, chief economist with Moody's Economy.com and a former adviser to Sen. John McCain (R-Ariz.), said Friday that Congress needs to hurry up and reauthorize expired jobless aid or risk derailing the nascent economic recovery.
"The odds that the economy will slip back into the recession are still well below even," Zandi said during a conference call with reporters. "But if Congress is unable to provide this help, those odds will rise and become uncomfortably high...
U.S. Macro Outlook: Risks Are Rising
By Mark Zandi in West Chester
July 12, 2010
The economic recovery is losing momentum. Retailing, housing, manufacturing, and most importantly the job market have weakened in recent weeks. Real GDP, which grew 4% annualized during the second half of 2009, has slowed to nearly 3% during the first half of this year and is expected to approach 2.5% during the second half. This rate is below the economy’s potential, and unemployment is expected to drift back up into the double digits. With unemployment so high and policymakers increasingly perplexed over how to respond, the risks to the recovery are rising again. The odds of a double-dip recession in the next six to 12 months remain well less than even but are uncomfortably high.
Stimulus set to fade
The fading fiscal stimulus, the end of the manufacturing inventory swing, and the fallout from the European debt crisis are impeding growth. Fiscal policymakers have provided an enormous stimulus throughout the Great Recession and current recovery. From the tax rebate checks that were mailed in the spring of 2008 to the early 2009 Recovery Act to the current job tax credit, almost $1 trillion has been provided. This sum equals nearly 7% of GDP, well more than double that provided during the very severe downturns of the early 1980s.
The stimulus was instrumental in ending the recession and jump-starting the recovery-it's no coincidence the recovery began a year ago when the Recovery Act was providing its maximum benefit-but its boost is waning. The principal link between the stimulus and economic growth is the spendout rate-the change in temporary spending increases and tax cuts. There was very little spendout from the Recovery Act in the first quarter of 2009, but by the second quarter, the spendout had surged to nearly $80 billion. By the third quarter, the economy was in a recovery.
The spendout is set to decline sharply beginning this quarter and largely wind down by this time next year. To forestall the economic drag this withdrawal implies, policymakers have been stimulating growth in smaller ways such as extending the housing tax credit, setting higher conforming loan limits, and cutting some business taxes. A tax break for firms that hire unemployed workers before the end of the year has also been added. Policymakers are balking at any additional measures, however, and without further action, fiscal policy will become a modest drag on growth by the fourth quarter and a significant one in early 2011...
...
Related:
Mark Zandi:
Congress Should Quit Its Deficit Dithering Unless It Wants Another Recession
Mark Zandi, chief economist with Moody's Economy.com and a former adviser to Sen. John McCain (R-Ariz.), said Friday that Congress needs to hurry up and reauthorize expired jobless aid or risk derailing the nascent economic recovery.
"The odds that the economy will slip back into the recession are still well below even," Zandi said during a conference call with reporters. "But if Congress is unable to provide this help, those odds will rise and become uncomfortably high...