Martin Feldstein’s Take on the U.S. Economic Recovery

President of the National Bureau for Economic Research, Martin Feldstein, in his latest article poses the question if a U.S. economic recovery has indeed begun. Here are a few excerpts from his piece:

From SFBG:  [M]y reading of the evidence does not agree with that of those who claim that the economy is actually improving, and that a sustained cyclical recovery is likely to begin within the next few months…
…
But, although the recent news is not as encouraging as some have claimed, I expect that the next few months will see some real improvements that will reduce the rate of overall economic decline, or even produce a temporary rise in the GDP growth rate, owing to the….administration’s fiscal stimulus measures.
…
But the key thing to bear in mind is that the stimulus effect is a one-time rise in the level of activity, not an ongoing change in the rate of growth….,there is nothing to make that higher growth rate continue in the following quarters. So, by the end of the year, we will see a slightly improved level of GDP, but the rate of GDP growth is likely to return to negative territory.

The positive effect of the stimulus package is simply not large enough to offset the negative impact of dramatically lower household wealth, declines in residential construction, a dysfunctional banking system that does not increase credit creation, and the downward spiral of house prices. The…..administration has developed policies to counter these negative effects, but, in my judgment, they are not adequate to turn the economy around and produce a sustained recovery.

Having said that, these policies are still works in progress. If they are strengthened in the months ahead – to increase demand, fix the banking system, and stop the fall in house prices – we can hope to see a sustained recovery start in 2010. If not, we will just have to keep waiting and hoping.

So far, several reports and economic indicators have offered some grounds for cautious optimism, suggesting the U.S. economy could return to growth by mid or end of this year. One however, can see Feldstein’s skepticism on the growth front as he rightly underscores the fact that although economic recovery in the U.S. will likely resume in the next or the following quarter, the pace of it [the recovery] –based on the current economic numbers that remain still recessionary — is going to be slow and challenging.

• Create Content With AI
• Become A Funded Futures Trader