Despite Obama's optimism, economic outlook remains grim

McClatchy NewspapersMay 27, 2009 

WASHINGTON — "Only a small part" of the nation's $787 billion economic stimulus had been spent through the end of last month, according to congressional analysts, despite the Obama administration's boasts Wednesday that the plan is a big success.

"One hundred days later, we are already seeing results," President Barack Obama said during a visit to Nellis Air Force Base in Nevada.

"Across America, recovery is under way," Vice President Joe Biden said in a statement accompanying a 28-page progress report.

However, Douglas Elmendorf, the director of the nonpartisan Congressional Budget Office, was more cautious in his "State of the Economy" review to the House Budget Committee last week.

"The economy will stop contracting and resume growing during the second half of this year," he said, "but the hardships caused by the recession will persist for some time."

The CBO report found that through April only about $19 billion in stimulus funds has been spent.

In addition, Elmendorf predicted, unemployment is expected to peak at 10.5 percent in the second half of next year. Last month's rate was 8.9 percent, up from 8.1 percent in February, when the stimulus became law. The number of unemployed increased by 1.26 million during the past two months to 13.7 million.

The administration's report Wednesday was nonetheless upbeat, maintaining that in the past 100 days, "We have obligated more than $112 billion, created more than 150,000 jobs and helped communities and tribes in every state and territory."

Without the stimulus, said Jared Bernstein, Biden's chief economic adviser, those jobs wouldn't have been available.

Moreover, Biden said, recovery is "more than just a compilation of statistics; it's the return of hope and optimism about the future that comes with making life better for communities and families across the country."

The CBO report said the $19 billion in stimulus funds spent was part of a $380 billion stimulus package authorized for this fiscal year, which ends on Sept. 30.

Independent economic analysts largely expected the initially slow pace of spending, as much of the money so far has gone for tax breaks, health care and other immediate needs.

The biggest chunk of stimulus spending involves infrastructure, energy, education and other projects that take time to develop, and are described in the administration report.

Bernstein said there was a "tradeoff" between getting the money out quickly and getting it out correctly. "Our focus is on trying to get as much money out the door as quickly as humanly possible, while ensuring that there isn't waste," White House Press Secretary Robert Gibbs said.

In fact, the CBO found that the stimulus should boost economic growth between 1.4 percent and 3.8 percent for 2009. "The peak effect of the stimulus on GDP is the end of this year," Elmendorf said.

However, 2010 poses potential problems. In its March forecast, the CBO saw joblessness peaking around 9.5 percent early next year.

Now, Elmendorf said, the economy has weakened to the point that, "If we were writing down a new forecast today, we would go off that peak and we would raise it. Currently, we expect the unemployment rate might peak around 10.5 percent in the second half of next year."

Worse, he warned, "The recovery will falter in 2010 if private sector demand for goods and services doesn't accelerate to offset the diminishing federal stimulus."

The administration's report doesn't specifically address next year. "You know as we do that the road to full recovery will be long and not always smooth," Biden said.

The CBO review, which will be an important resource for lawmakers who're expected to begin debating budget legislation when they return from their Memorial Day recess on June 1, served to reinforce how the stimulus remains a political and economic gamble. At the same time, it's reinforcing long-held views on both sides of the debate.

Private forecasters have been revising their economic projections downward for some time, so it's no surprise that the CBO has done so too, said Scott Lilly, a senior fellow at the liberal Center for American Progress, which generally supports Obama's positions.

The stimulus, he said, is working. "It's very good that they did this very early and made it as big as they did," said Lilly, formerly a congressional Joint Economic Committee executive director.

Others were unconvinced. "The economy should begin to show positive growth in the fall, but it won't be because of the stimulus," said Brian Riedl, a budget analyst at the conservative Heritage Foundation.

"So far the results have not been all that promising," added Rep. Scott Garrett, R-N.J., at a committee hearing.

Elmendorf replied, "Everything about this sort of picture is uncertain . . . . We don't know what would have happened without the legislation."

He, too, had reason for concern: The CBO estimates that about three-fourths of the stimulus money will have been spent by the end of next year.

"The effect on the level of GDP is (that it) sort of goes up this year," Elmendorf said, "and then it starts to come down after next year and then wanes after that."

Even that forecast is shaky.

Uncertainty about the stimulus' effect through 2010 is "greater than normal . . . because the stimulus was enacted during a period of unprecedented financial turmoil and was significantly larger than such efforts in the past."

Among the risks: "how much further (the stock of housing and goods) must fall to encourage a rebound in production."

(Steven Thomma contributed to this article.)

ON THE WEB

CBO March 2 report on the stimulus

New CBO report on the state of the economy

Obama administration stimulus updates

April unemployment report

White House report on the stimulus' first 100 days

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