Recovery? What recovery?
U.S. Economy Still Mired in Recession, Feldstein Says
(Update3)
By Vincent Del Giudice and Thomas R. Keene
Dec. 17 (Bloomberg) -- The U.S. economy remains mired in a recession, the prospects for next year are weak and home prices may resume declines, Harvard University economics professor Martin Feldstein said.
“The recession isn’t over,” Feldstein said today in an interview on Bloomberg Radio in New York. “It will be a while before we have enough information to know if the recession ended.”
Feldstein is former president of the Cambridge, Massachusetts-based National Bureau of Economic Research, and a member of the NBER’s Business Cycle Dating Committee, the panel charged with determining when U.S. recessions begin and end. He was also chairman of the White House Council of Economic Advisers during the Reagan administration.
The recession is considered the deepest since the Great Depression of the 1930s.
The economy has lost more than 7 million jobs since the NBER announced the recession in December 2007, and it contracted for four consecutive quarters before expanding in the three months ended Sept. 30 by 2.8 percent at an annual rate.
The total number of workers collecting unemployment checks as well as those taking extended government benefits totals about 10 million, according to Labor Department statistics released today.
Housing Market
Restrained consumer spending suggests “2010 is going to be a very weak year,” Feldstein said. “Thrift in the long run is a very good thing, but increasing thrift as you come out of a recession is going to be a drag.”
Regarding the residential property market, where the recession initially emerged, Feldstein said the Obama administration’s effort to revive the housing market is a failure and home prices will continue to decline.
“It was just not well enough designed,” Feldstein said. “They ended up failing.” That suggests the housing slump will “continue to push down house prices,” he said.
“We saw a little pause in home-price declines in the summer but I think that was because of the first-time home buyers program,” Feldstein said. “We’re not going to get that boost.”
Danger Remains
The U.S. House voted Dec. 11 to tighten rules for derivatives and create powers to break apart healthy financial firms that pose a risk to the economy. The House rejected a “cram-down” amendment that would have given federal judges the power to lengthen mortgage terms, cut interest rates and reduce loan balances for homeowners in bankruptcy court.
Lenders permanently modified 31,382 of the 4 million mortgages targeted for loan relief under the Obama administration’s main foreclosure prevention plan through last month, the Treasury Department announced on Dec. 10.
Economic reports today suggested the government’s efforts to revive growth with fiscal stimulus may be working for now, Feldstein said in a separate interview on Bloomberg Television. “The danger is we will run out of steam,” he said.
The index of leading economic indicators rose for an eighth consecutive month in November, a sign growth will extend into the first half of 2010. The Conference Board’s gauge of the outlook for the next three to six months increased 0.9 percent after climbing 0.3 percent in October.
Additionally, manufacturing in the Philadelphia region expanded in December for the fifth month, led by sales and employment gains. The Federal Reserve Bank of Philadelphia’s general economic index climbed to 20.4 this month. Readings greater than zero signal growth. The bank’s district covers parts of Pennsylvania, New Jersey and all of Delaware.
(In the U.S., hear Bloomberg Radio on satellite radio: Sirius Channel 130 and XM Channel 129. In New York City, tune to WBBR 1130 on the AM dial.)
To contact the reporters on this story: Vincent Del Giudice in Washington vdelgiudice@bloomberg.net; Thomas R. Keene in New York tkeene@bloomberg.net.
Last Updated: December 17, 2009 12:03 EST
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