Asia-Pacific

US economy begins to recover but jobless rate still high

By Xin Zhiming (China Daily)
Updated: 2010-01-19 09:16

One year after US President Barack Obama was sworn in, the world's largest economy has shown encouraging signs of recovery, a sharp contrast from what the president described in his inaugural speech last January.

"Homes have been lost, jobs shed, businesses shuttered," he said then.

Despite the weakening job figures - unemployment in the US is roughly 10 percent - American GDP growth is expected to stabilize this year and the worst is past, some analysts said.

"This recession is very likely to have concluded in the third quarter of 2009 although it is up to the US National Bureau of Economic Research to decided when the economy has bottomed out," said investment bank Nomura International in a recent report.

Peter Cardillo, chief market economist at Avalon Partners, said recently that US GDP growth could reach 3 percent this year. Many other economists forecast that it would be about 2.5 percent year-on-year.

Obama has claimed credit for this improvement, arguing that his $787 billion stimulus package helped right the economy.

"We can see clearly now that the steps my administration is taking are making a difference, blunting the worst of this recession and helping to bring about its conclusion", Obama said in late October.

But significant challenges remain, and not all economists are convinced that Obama's efforts have helped.

The stimulus policies have resulted in "higher government debt, heightened uncertainties, and lost opportunities", said JD Foster, Norman B. Ture Senior Fellow of the conservative Washington-based Heritage Foundation. "Repeated suggestions by the Obama Administration that the stimulus has created millions of new jobs even as the unemployment rate remains twice that of full employment are simply not credible."

"The underlying trajectory of the economy for 2010 suggest an anemic recovery, with real growth likely about 2 percent," Foster said in an email interview with China Daily.

Nomura also predicts that unemployment will remain high through this year. Weak auto and real estate sectors will keep unemployment at "far above 9 percent" and at least until the third quarter of 2011, it said.

The high unemployment rate, along with increasing household debt, could disrupt the expected recovery in real estate and consumption, it warned.

Economists also expressed concern about inflation. Low interest rates, ample liquidity in the financial system could raise the consumer price index, analysts said.

America's soaring fiscal deficit is another challenge. With the stimulus and the cost of wars in Iraq and Afghanistan, the deficit reached $1.42 trillion in 2009, accounting for about 10 percent of its GDP. That is the highest level since World War II.

The possibility of a double-dip recession - that is, a return to negative growth after just one or two quarters of positive growth - was low, but still significant, economists said. The IMF has recently warned that unless countries continue their stimulus packages, such a recession could be likely.

"We think there would not be another financial crisis, because the US and Europe are not Japan in the mid-1990s," Nomura said, arguing that the US and Europe have learned lessons from Japan's financial problems during the so-called "lost decade." Timely, forceful and all-round measures must be taken to combat a major crisis, the bank said.

But Foster argued that more sustainable growth required less intervention, not more.

"This government must recognize, and demonstrate that it understands that economic growth is strongest when interference from government is least," he said.