‘Road Trip’ Shows U.S. Stimulus Falls Short, ING Says
President Barack Obama’s $787 billion stimulus program will fall short of its jobs target, ING Financial Markets economist Rob Carnell said after a tour through the middle of the country.
On “a recent road trip going through the U.S. Midwest, there were a couple of things that made me think I don’t want to be revising up my forecasts any time soon,” Carnell, chief international economist at ING in London, said today on a conference call updating his economic projections. “We saw a lot of roads being repaired” under Obama’s recovery program, he said. “Major problem: There weren’t many people involved.”
The U.S. economy has lost more than 7 million jobs since the recession began in December 2007 and the unemployment rate rose to the highest since 1983 last month. Obama has projected that his stimulus package will create or save 3.5 million jobs by the end of September 2010.
“Obama may have overstepped the mark a little bit on that one,” said Carnell, who sees the U.S. economy expanding 2.1 percent next year. “I think it’s going to be rather less impressive.”
Carnell also said that more bank failures are likely, citing empty office and retail space he saw on his trip and the possible problems real-estate developers are going to face paying back borrowings.
‘More Bad Stuff’
“You got to be thinking someone out there, probably a small community or local bank, has the mortgage on this,” he said. “There is more bad stuff out there even if some aspects of the financial sector are getting better bad credit cash loan. That made me concerned.”
ING’s projection for 2010 U.S. growth compares with the 2.6 percent median forecast of 63 economists surveyed by Bloomberg News this month. While the U.S. economy, the world’s largest, returned to growth in the third quarter after a yearlong contraction, the recovery remains dependent on government incentives.
Residential construction in the U.S. unexpectedly dropped in October as unemployment increased and amid concern that a homebuyer tax credit would expire, a report showed today. The incentive has since been extended.
Carnell sees employment growth at “zero to a small positive” next year, low nominal wage increases and the savings rate rising, which will curtail consumer spending. While the payrolls data show the economy losing 200,000 jobs a month, the household survey on employment suggests job losses of about 585,000 a month, he said. The “truth is probably somewhere in the middle.”
‘Shovel-Ready Schemes’
On the U.S. road trip, Carnell saw “a lot of shovel-ready schemes that Obama is hoping will provide a boost to employment and incomes and growth,” he said on the call.
“You could drive a 15-mile stretch and see 15 earth-moving devices and only see 15 people in hard hats,” he said. “The hope was this would create 3.5 million jobs. I’m not sure.”
Filed under: economics by Wolf