Economists Differ on US Economic Recovery

Nobel laureates Paul Krugman and Joseph Stiglitz along with economics professor Martin Feldstein of Harvard University sounded the alarm at the annual meeting of the American Economic Association in Atlanta that the US economy could slip back to recession once again. This forecast comes after last month’s optimistic statements by Dean Maki, chief US economist at Barclays Capital, Neal Soss, chief economist at Credit Suisse in New York and Robert MacIntosh, chief economist at Boston-based Eaton Vance Management.

Krugman said he envisaged 30-40 percent chance of the US recession in 2010 as inventory bounce, which was driving things right now, would fade out as inventory bounces did. Similarly, Stiglitz, a former White House economic adviser under President Bill Clinton was skeptical about job creation because the real-estate and finance industries created jobs during the housing boom, a non-entity now.

Feldstein, a former president of the National Bureau of Economic Research said there was reluctance in spending, and thrift in the long run was a very good thing, but increasing thrift as you come out of a recession was going to be a drag. Federal Reserve Vice Chairman Donald Kohn during the same meet opined Banks’ hesitation to ramp up lending would restrain the recovery.

Krugman and Feldstein further argued that there would be a fade-out effect on the $787 billion stimulus program with unlikely additional economic boosters. However, the low crude prices which factored in minimizing the impact on downturn did not feature in any of the economists’ comments while the world is in for another round of crude price rise in the coming months.

On the other hand, Maki, the most-accurate forecaster in a Bloomberg News survey had stated last month that the world's largest economy would expand 3.5 percent in 2010. He predicts the unemployment rate to reach about 9 percent by the end of 2010 triggering consumer demand.

Similarly, Soss, the second most-accurate forecaster of GDP over the first three quarters of 2009 projects the economy will grow 3.3 percent in 2010. And MacIntosh agrees with Maki that the economy will rebound in 2010, forecasting growth of 3.5 percent, and that the jobless rate will average 9.5 percent.

The figures from the manufacturing sphere, one of the key drivers that pulled the world out of 1930’s depression substantiate the optimistic economists. Manufacturing expanded in the US during December at the fastest pace in more than three years. The complementary economies of the US such as Europe and the Asian emerging economies including, China and India showed promise with similar uptrend in manufacturing sector.

By Jose Roy