Not time to panic, Obama says
Slow economic recovery concerns president, but Fed, lawmakers unlikely to take action
WASHINGTON – With few options at hand and his poll numbers sagging, President Barack Obama expressed concern Tuesday about the sudden slowdown in the economy but said he is not worried about a second recession and the nation should “not panic.”
The president spoke about the new economic trouble in detail for the first time since a report late last week showed job growth had slowed sharply in May. He tried to reassure Americans worried about high unemployment and expensive gas that the nation is on a slow, if not steady, path to recovery.
“I am concerned about the fact that the recovery that we’re on is not producing jobs as quickly as I want it to happen,” Obama said at an appearance with visiting German Chancellor Angela Merkel. “We don’t yet know whether this is a one-month episode or a longer trend.”
Either way, there appears to be little Washington can do about it.
Federal Reserve chief Ben Bernanke, speaking in Atlanta on Tuesday, acknowledged the economy has lost momentum but said nothing to suggest the Fed was about to take any bold new action to further shore it up.
And with lawmakers fighting over the nation’s budget deficit and long-term debt, there is no political appetite for a second major federal stimulus bill like the one passed by Congress in 2009.
At the same time, the president is confronted with a slate of figures presenting challenges to both the economic recovery and his own re-election prospects. Just as the field of Republican challengers begins to take shape, a Washington Post-ABC News survey found that public disapproval of Obama’s handling of the economy has reached a record-high 59 percent.
The poll found that Obama and former Massachusetts Gov. Mitt Romney are tied among all Americans in a hypothetical race for president. It gave Romney a slight edge, less than the margin of error, among registered voters.
Seventeen months before the election, unemployment is 9.1 percent. When Obama took office, it was 7.8 percent. Most economists think the rate will be above 8 percent at election time next year. Since World War II, no president has been re-elected with unemployment higher than 7.2 percent.
The day brought the latest in a stream of downbeat economic news: a government report that said businesses advertised fewer job openings in April than in March. There were 4.6 unemployed people, on average, for each available job in April. In a healthy economy, the ratio is more like 2-to-1.
Even if all the open positions were filled, 10.7 million people would still be unemployed. That compares with 7.7 million who were unemployed when the recession began in December 2007. The recession ended in June 2009.
Obama’s early Republican presidential challengers have seized on the economy to try to take advantage. One of them, former Minnesota Gov. Tim Pawlenty, accused Obama on Tuesday of being satisfied with a second-rate economy “produced by his third-rate policies.”
The former Minnesota governor proposed cutting taxes on business by more than half and simplifying the tax code to just three tiers, with a top marginal rate for individuals of 25 percent. The top marginal rate now is 35 percent. Pawlenty would also eliminate taxes on capital gains.
Obama and his advisers have mainly played down the souring economic news. Recoveries are often uneven, they note, especially after severe downturns like the Great Recession. The president noted that hiring had been robust for three straight months before the bleak jobs report for May.
He promoted steps the administration has already taken, such as tax breaks for business investment, and a long-term agenda of debt reduction and spending on education, infrastructure and energy research.
At a time of high public concern about the economy, discouraging data can make people wonder, “Well, are we going to go back to this terrible crisis?” Obama said. “And that affects consumer confidence, and it affects business confidence, it affects the capital market. And so our task is to not panic.”
The CEO of General Motors added to the concern, suggesting Tuesday that the government stabilize the economy by coming up with a 10-year plan to handle the nation’s almost $14 trillion debt. He said he was worried about what he called a jobless economic recovery, and said the nation is still paying for easy credit from the mid-1990s to 2007.
“I think it’s going to take a while to shake out and wring out the excesses,” CEO Dan Akerson said.
At the Atlanta speech, Bernanke stuck to his assertion that the economy’s toughest challenges, notably high gas prices that have squeezed family budgets, are probably temporary. He noted that households are struggling with higher food and energy prices, falling home prices, tighter lending rules and high unemployment.
But he said gas prices should ease in coming months, along with the economic effects of the Japan earthquake and nuclear crisis. Once they do, growth is likely to pick up somewhat in the second half of the year, he said.
“There is not much evidence that inflation is becoming broad-based or ingrained in our economy,” Bernanke said.
The Fed is about to end its $600 billion program to keep interest rates low by buying federal bonds. Bernanke’s remarks were an acknowledgment that there isn’t much more the Fed can or will do in the near future.
“We are at a crossroads in terms of Fed policy,” said David Jones, president of DMJ Advisors, a Denver-based consulting firm and the author of books on the Federal Reserve. “The Fed can do very little in addition to what they have already done in terms of boosting growth. The trade-off for any minimal help in reducing unemployment would be far out-weighed by increased risks to inflation.”
The economy slowed to a weak 1.8 percent annual growth rate in the first quarter. Jones said he thinks growth is strengthening only slightly in the current quarter, to about 2.25 percent. He said he expects growth for the full year to be around 3 percent, about the same as last year. That’s far less than what’s needed to drive the unemployment rate down more quickly.
The Fed’s actions in the near future will resemble what happens when an individual bank CD matures, and the person holding it rolls the money into a new CD – even if he or she doesn’t spend additional money on a new one. That could help keep interest rates low.
If the economic growth stopped completely, there are more drastic steps the Fed and Congress could take to forestall a second recession, said Mark Zandi, chief economist at Moody’s Analytics. Among those options, he said, would be extending this year’s Social Security tax cut, which is giving most households $1,000 to $2,000, extending unemployment insurance and extending a business tax break for investment.
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