The fact that the nation’s gross domestic economy grew in the third quarter is “incredibly important,” according to President Obama’s chief economist.
“It’s a wonderful milestone. But it’s just a milestone. There’s a long distance to go before we’re back to normal,” said Ms. Romer at a meeting for reporters hosted by The Christian Science Monitor.
Unemployment numbers for October will be released next week, and while they may report a decrease in lost jobs from September, they will still show an unemployment rate that is far too high, according to Romer.
The US unemployment rate hit a 26-year high of 9.8 percent last month.
“We’re still in for more bad news before we see positive [job] growth,” said Romer. The number of lost jobs is so great that it will take many months, if not years, to replace them.
Right now, most economic forecasters are predicting US GDP growth of 2.5 to 3 percent through most of next year. Since it takes 2.5 percent growth just to keep employment steady, such a growth level would not do much to shrink the unemployment numbers.
“You need four to five percent GDP growth to get job growth,” said Romer.
That means the current unemployment rate might remain near the current number as next year’s mid-term elections approach.
Right now, the government spending of the stimulus package is doing much of the heavy work of propping up the economy. Ideally, private sector activity will also now start picking up, with bank lending increasing, said the CEA chief.
If that does not happen, the administration will consider further measures, from rearranging the timing of spending on already-approved stimulus funds, to “other options,” in Romer’s words.
She neither called for nor ruled out a second stimulus package.
“The president has said he will do whatever it takes to get us through this,” said Romer.
Roughly half of the stimulus package passed by Congress in February is still to be spent, so there is a lot of government spending still to come.
Personal consumption spending was up in the third quarter, noted Romer, which is a good sign. Some of that was driven by the government’s cash-for-clunkers program. Some wasn’t.
“It may be a sign that consumers are starting to come back,” said Romer.
She said that she was heartened by seeing that business spending on equipment and software -- a key indicator of private sector investment -- rose in the third quarter. It had dropped by 39 percent in the first quarter.
Some of that was due to business tax incentives contained in the stimulus bill. But, as with consumer spending, some wasn’t driven by government actions.
“You don’t get that kind of movement just on business tax incentives,” said Romer.
Commenting on a Senate deal that would tentatively extend a tax credit for first-time homebuyers, while offering a next credit of up to $6,500 for some existing homeowners, Romer said it was good that the extension was limited to contracts struck before April 30.
“It’s important this not become permanent,” she said.
While the first-time buyer credit has brought new purchasers into the market, it has not had a huge effect, unlike cash-for-clunkers, according to Romer.
“A big part of a recovery in housing is going to be the recovery of the general economy,” she said.
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