- Strong quake hits Japan, triggering tsunami
- Sniper heaven: Pentagon’s self-guided bullets leave enemies nowhere to hide
- Violent gang taking advantage of immigration crisis, using border as recruiting hub
- Medicaid enrollment continues to soar under Obamacare, administration says
- Michelle Obama to Latinos: ‘We cannot afford to wait on Congress’ for immigration
- White House urges GOP to act ‘urgently’ on $3.7 billion request for illegal immigrants
- Politicians, criminals using ‘right-to-be-forgotten’ law EU courts forced upon Google
- Combat fatigue: elite special forces troops are ‘fraying,’ Gen. Joseph Votel warns
- German foreign minister to meet Kerry to discuss spying claims
- Florida police spokesman tells citizens: ‘Get yourself some firearms’
Stimulus plan produces two bright spots
Question of the Day
As debate rages over the impact of the $787 billion stimulus bill, a pair of relatively inexpensive programs that passed more as afterthoughts than as stimulus are having the most immediate impact on the economy, contributing to an expected rebound in growth this summer.
While much attention has focused on the lion’s share of funding that was aimed at maintaining spending on education, health care and infrastructure by the states, the provision that has been most visibly helpful is the $8,000 homebuyer tax credit, an afterthought to the bill that has helped to steady the housing market by spurring sales of foreclosed and low-priced homes to first-time homebuyers.
Similarly, legislators who failed to include provisions to help the foundering U.S. auto industry in the original stimulus bill in February offered belated aid last month by passing a $1 billion “cash for clunkers” program that also is likely to provide a one-time boost to economic output this summer.
The combination of these two seemingly modest provisions has prompted some economists to project that the economy will enjoy at least one quarter of growth this summer.
“Housing and motor vehicles are showing a faint pulse,” said Richard Berner, chief economist at Morgan Stanley, adding that observers may be surprised at how strongly the two most depressed sectors of the economy spur statistical measures of growth in coming months. He sees the economy growing at a modest 1 percent annual rate in the summer quarter after falling by 1.5 percent in the spring quarter.
“Housing is getting support from the first-time-homebuyer tax credit, the lagged effects of lower mortgage rates, and home-price declines,” he said. Buyers with modest incomes, in particular, have been able to use the credit as a substitute for cash savings to cover down payments or closing costs because Congress made it so they can get a check from the Treasury even if they don’t pay taxes.
The National Association of Realtors also attributes the resurgence in home sales among modest-income and first-time buyers to the homeowner’s tax credit, which along with the plunging prices resulting from massive foreclosures has made homeownership affordable again for these groups.
Housing sales and construction starts have bottomed out since the homebuyer credit was enacted, and Mr. Berner said he expects “further small gains” in the months ahead.
The cash-for-clunkers bill, which provides people who buy a new car to replace a gas-guzzler with up to $4,500, will have a more limited effect, he said. But because the cash is available only between July 1 and Nov. 1, it likely will cause a temporary surge in auto sales during the summer as buyers respond to the “use it or lose it” incentive.
The rebound in sales will coincide with an expected rebound in production and employment at two of Detroit’s Big Three automakers — General Motors and Chrysler — which recently emerged from bankruptcy. That production rebound also is expected to contribute to a revival of growth in the summer.
Automakers are starting up production again not only because they are out of bankruptcy but because inventories of autos have been drawn down to the point that shortages of some popular models are emerging. That mirrors a trend in other sectors, where a long period of selling off bloated inventories of goods since last year has produced lean stocks that now must be replenished by starting up production again.
Harm Bandholz, economist at Unicredit Markets, said he expects the economy to post a 2 percent growth rate in the summer quarter, thanks to the rebound in inventories, the one-time boost from the clunkers program, and the beginning of effects from stimulus spending on infrastructure projects.
But he worries that these helpful elements will not last, and the economy will fall back toward anemic growth or recession again after a couple of quarters of growth. His principal concern is that consumers — who normally fuel 70 percent of economic growth — will not be able to sustain a recovery because they are still losing jobs and income despite a modest boost they received recently from federal tax cuts and income transfers in the stimulus bill.
The nearly 50 million consumers who received one-time $250 Social Security checks in May and June appear to have largely saved the money, economic reports show. And the $50 billion boost for middle-class taxpayers from President Obama’s Making Work Pay tax credit, which went into effect in April, has been largely offset by a comparable increase in gasoline prices during the same time, economists say.
The result is, despite some help from the stimulus, consumers have little power to overcome the effect of job losses and become the engine of growth in the economy again, Mr. Bandholz said.
About the Author
- Crude oil will head north of the border to Canada
- S&P: Boeing to suffer if Ex-Im Bank killed
- U.S. job gains, unemployment dip push markets into record territory
- Unemployment falls to 6.1 percent amid U.S. hiring surge
- Baffled by Belgium: Burst of U.S. bond-buying raised questions, eyebrows
Latest Blog Entries
TWT Video Picks
By Robert N. Tracci
Congress must use its appropriations power to secure the border
- Violent gang MS-13 taking advantage of immigration crisis, using border as recruiting hub
- Pentagon's self-guided bullets leave enemies nowhere to hide
- A 'new Cold War': China's top paper warns of 'slippery slope' towards conflict with U.S.
- Michelle Obama to Latinos: 'We cannot afford to wait on Congress' for immigration
- PRUDEN: 'Dirty Harry' Reids increasing eccentricity
- Obama calls GOP lawsuit over executive overreach a 'political stunt'
- Florida police spokesman tells citizens: 'Get yourself some firearms'
- Hamas orders civilians to die in Israeli airstrikes
- Veteran with concealed weapon turns tables on Chicago gunman
- New York City creates ID card so 500K illegal immigrants can get services
Obama's biggest White House 'fails'
Celebrities turned politicians
Athletes turned actors
20 gadgets that changed the world
Fighting in Iraq
World Cup's sexiest WAGs