Finance & Business World

The U.S. economy shows early signs of emerging from the recession as $787 billion in stimulus lays a foundation for a sustained recovery, said Lawrence Summers, director of the White House’s National Economic Council.

“While employment continues to contract, the available indicators suggest that GDP is on close to a level path with prospects for positive growth to commence during this year,” he said in a speech today in Washington. “Confidence and hope are returning as a program of rebuilding the economy moves forward.”

Summers joined a chorus of Obama administration officials who have tried in recent weeks to counter calls for another round of fiscal stimulus. The former Treasury secretary and Harvard University president said the government is committed to keeping stimulus in place no longer than necessary to revive the economy.

In his speech, Summers predicted unemployment in the U.S. would likely keep rising in coming months, and he didn’t explicitly address the prospect of a second federal effort to stimulate economic growth. He cited an administration study that projected only 10 percent of the job impact from the current stimulus would occur in 2009.

Summers also declined to comment on Federal Reserve policy and he downplayed the near-term threat of inflation. He said the Obama administration would support measures that enhance the “transparency” of the Fed and oppose any effort in Congress to restrict the central bank’s independence.

Job Losses

In his review of the economy, Summers said the spread of joblessness “is obviously a major area of concern.”

“But contrary to a significant amount of commentary, this does not provide a basis for concluding that the Recovery Act is falling short of its goals,” he said. Given lags in spending and hiring, “the peak impact of the stimulus on jobs was expected to be achieved at the end of 2010.”

Jared Bernstein, Vice President Joe Biden’s chief economic adviser, yesterday said, “It’s a good thing that this recovery act is a two-year plan,” adding that this “is not a recession that’s going to be solved in weeks or months no fax needed payday loans.”

Treasury Secretary Timothy Geithner made similar remarks yesterday and said it’s too early to judge whether additional fiscal priming is needed.

Options Open

When asked yesterday about the potential for a second stimulus, White House Press Secretary Robert Gibbs said Obama is leaving his options open.

“He hasn’t ruled anything in, he hasn’t ruled anything out,” Gibbs said.

Summers pointed to progress in the American economy in the past six months, saying business and consumer sentiment has improved. The Reuters/University of Michigan preliminary index of consumer confidence last week fell more than forecast after four months of gains.

“We were at the brink of catastrophe at the beginning of the year but we have walked some substantial distance back from the abyss,” he said. “Substantial progress has been made in rescuing the economy from the risk of economic collapse that looked all too real six months ago.”

The future of U.S. growth will depend on a “more export- oriented and less consumption-oriented” economy, Summers said. U.S. exports in May rose the most since July 2008, while retail sales that same month increased the most since January.

Growth will average 1.5 percent in the July-to-December period, helped by stabilization in consumer spending, which accounts for about 70 percent of the economy, a Bloomberg News survey this month showed.

Nouriel Roubini, the New York University economist who predicted the financial crisis, said yesterday that the U.S. economy may pull out of the recession by the end of the year and a second stimulus would help broaden the recovery. Roubini said in a speech in New York that a spending package may be needed by late 2009 or 2010 totaling as much as $250 billion.

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