Summers: The Obama Economy Has Led To Stalled Growth, 1 In 3 Chance Of Another Recession

Posted by Brian Patrick on

Good afternoon, 

Today, former White House economist Larry Summers writes that “current policy” (the very policy he helped President Obama craft) will not create the amount of economic growth necessary to lower the unemployment rate to the level promised by the Administration’s more than $800 billion stimulus package. Mr. Summers adds that current indicators point to the economy having “at least a 1-in-3 chance of falling back into a recession.”

  • Larry Summers: On the current policy path, it would be surprising if growth were rapid enough to reduce unemployment even to 8.5 percent by the end of 2012. A substantial withdrawal of fiscal stimulus will occur when the payroll tax cuts expire at the end of the year. With growth at less than 1 percent in the first half of this year, the economy is effectively at a stall and facing the prospects of shocks from a European financial crisis that is decidedly not under control, spikes in oil prices and declines in business and household confidence. The indicators suggest that the economy has at least a 1-in-3 chance of falling back into recession if nothing new is done to raise demand and spur growth. (The Washington Post, 8/3/11)


Background: The Latest Results Of The Obama Economy

  • Manufacturing Growth Hits Lowest Level In Two Years, First Sign That Dismal Growth May Continue Into The 3rd Quarter. Manufacturers had their weakest growth in two years in July, a sign that the economy could weaken this summer. The Institute for Supply Management, a trade group of purchasing executives, said Monday that its index of manufacturing activity fell to 50.9 percent in July from 55.3 percent in June. The reading was the lowest since July 2009 -- one month after the recession officially ended. ... The disappointing report on manufacturing is the first major reading on how the economy performed in July. It suggests the dismal economic growth in the first half of the year could extend into the July-September quarter. "The ISM manufacturing report for July is a shocker and strongly suggests that the disappointing performance of the economy in the first half of the year was not just temporary," said Paul Dales, a senior U.S. economist for Capital Economics. (The Associated Press, 8/2/11)
  • Unexpected Drop In Consumer Spending Suggests Dismal Economic Growth In The Future. Consumer spending unexpectedly fell in June to post the first decline in nearly two years as incomes barely rose, a government report showed, suggesting economic growth could remain subdued in the third quarter. (Reuters, 8/2/11)
  • Service Sector Growth Slowest Since February 2010. The pace of growth in the services sector ticked down unexpectedly in July to the lowest level since February 2010 and the number of jobs created by the private sector also slowed, reports showed on Wednesday. (Reuters, 8/3/11)

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