Stimulus cushioned contraction: Obama aide

August 6, 2009

, WASHINGTON, Aug 6 – A key aide to President Barack Obama said Thursday that a nearly 800 billion dollar stimulus plan had helped avert a more severe contraction of the US economy.

Stoutly defending the stimulus plan, Christina Romer, head of the Council of Economic Advisers, said the economy could have contracted by 3.3 percent in the second quarter instead of 1.0 percent as announced by the government recently.

She said based on studies, it was estimated that that the fiscal stimulus added up to three percentage points to real gross domestic growth in the second quarter.

"Private forecasters across the political and methodological spectrum attribute much of the unusual behavior of real GDP to the Recovery Act," she said, citing the legislation that authorized the multibillion dollar stimulus package.

Speaking at The Economic Club of Washington, she displayed a table showing that analysts estimate that the fiscal stimulus "added between two and three percentage points to real GDP growth in the second quarter."

"After we administered the medicine, an economy that was in free fall has stabilized substantially, and now looks as though it could begin to recover in the second half of the year," she said.

"The timing and strength of this change is highly suggestive that the stimulus has been important."

Obama has come under criticism over the stimulus package, with some groups saying it had failed to stem rising unemployment that threaten to thwart consumer spending highly critical for any US economic expansion.

His approval rating has slumped to 50 percent, the lowest since his inauguration in January, according to a poll released Thursday on the eve of his 200th day in office.

The poll blow was largely a reflection of growing unease over Obama\’s handling of the economy, which sank into a devastating recession in December 2007 prompting his administration to unleash the deficit-stretching stimulus package, and health care which faces a critical overhaul in Congress.

Most forecasters are now predicting that GDP growth is likely to turn positive by the end of the year.

Still, Romer said there was "substantial uncertainty" to the forecasts.

"There is even greater uncertainty about how strong the recovery is likely to be," she said, saying everything will depend on factors, including how fast the economies of US trading partners recover.

Although the economic decline slowed to 1.0 percent in the second quarter from 6.4 percent in the first quarter, Romer said, "the economy is far from healthy, and we obviously have a tremendous distance to go."

Even if GDP growth is relatively robust going forward, she said, it would take a substantial time to restore employment to normal and bring the unemployment rate back down to usual levels.

The Labor Department is due to publish July jobs data Friday that economists expect will show the unemployment rate rising from a 26-year high of 9.5 percent in June.

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