White House Discusses Nation’s Economy

Economic weatherman, Orszag, gives encouraging forecast

The nation’s economy grew during the months of July, August, and September, after a year of stagnation. The Commerce Department reported this week that U.S. GDP (the total value of all goods and services made within our borders) expanded at an annual rate of 3.5% in the third quarter, a major contrast from the 6.4% decline just two quarters ago. Peter Orszag, director of the White House Office of Management and Budget discussed how the nation’s economic picture might develop from here in an exclusive interview with Black Enterprise senior personal finance editor, John Simons.

Peter_R_Orszag_CBO_official_picture

Orszag

Black Enterprise: Americans are seeing a lot of headline-grabbing economic data these days. Some of it seems to be trending positive. Other data points are still gloomy or less conclusive. Can you be our economic weatherman? What’s the status of the economy right now?

Peter Orszag: Well, to go with your analogy, the hail has ended. We will not have full, sunny skies until the unemployment rate is down. So the clouds are clearing, but people are still very wet. What I mean by that is that while today’s report is encouraging in the sense of showing positive economic growth, as is normal in an economic cycle, the jobs market remains quite weak. What you typically see as economic activity starts to pick up, the first place you see it is in productivity growth. Firms are reluctant to even expand the number of existing hours for their existing workers. And so you have higher output, the same amount of hours being worked and therefore, growth in output per hour. That’s what you saw in the second quarter, and actually in the first quarter you saw productivity growth of about 6% a year which is quite high. The next stage is that firms start to expand the number of hours that workers are working. What we’ve seen on hours is that in the work week hours are essentially flat after declining throughout late last year and early this year. And then the final stage is that employment starts growing. We’re not yet there, although the rate of employment loss has slowed. So, again we are not yet at a place where the sun is out and everyone is where they want to be—until we see that positive employment growth and the unemployment rate coming down.

How much of the current growth in the third quarter is the result of stimulus-related activity spurred by the federal government?

Well, the overall growth rate was 3.5% and you can take a variety of models. For example, Goldman Sachs suggests that the Recovery Act added 3.3%. Mark Zandi [economist and co-founder of Moody’s Economy.com] says 3.6%. The President’s Council of Economic Advisors also says 3.6%. The Congressional Budget Office gives a range of between 2% and 5%. So, average that and call it 3.5%. Basically, they’re all in the 3% to 4% range. Therefore one could say that all the growth in the third quarter is attributable to the impact of the recovery act. Another way of putting is, without the recovery act—given these estimates of its impact—the economy would have been flat rather that growing during the third quarter.

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  • marcus

    Everyone is worried about jobs going overseas, but I think should they should be more optimistic. America is great for generating new jobs and dealing with change. My grandfather said railroads once lost a lot of business when electric companies switched from burning coal to nuclear power. Railroads also needed less workers when trains stopped using cabooses. Yet while some railroad jobs may have disappeared, new jobs like webpage designers and video store clerks have appeared. Horse buggy manufacturers became car manufacturers and typewriter companies now make computers. Many industries that were supposed to disappear like movie theatres due to VCR’s and accounting because of computers have never been stronger.

    While manufacturing jobs may go overseas to cheaper locations, the United States still manufactures more than any other country.

    http://investing.curiouscatblog.net/2009/10/13/data-on-the-largest-manufacturing-countries-in-2008/

    Even if more jobs go abroad, the USA will always have factories. I highly doubt that the United States will buy fighter jets from China. The price of labor may be cheaper in Asia now, but as oil and shipping prices rise, buying American products will not seem to be so expensive. Chinese products also have a reputation for poor quality and counterfeiting. BMW does not worry that Chinese car companies will steal their customers.

    Many jobs cannot be outsourced, either. You are not likely to call a doctor, lawyer, mechanic, mover, driver, barber, electrician, locksmith, real estate agent, or plumber in China to fix a problem you have in the USA. Are all the farms, mines, stores, hotels, museums, restaurants, churches, security guards, banks, government workers, schools, and athletes in the US going to be shipped overseas, too?

    Even if all the manufacturing jobs in the United States went to China, wouldn’t the Chinese need American skills? Americans are creative. Do you think China will be known as the new Disney and Hollywood? Will China become famous for apple pies, hamburgers, hot dogs, baseball, gun rights, democracy, free speech, and religious freedom?

    While change is sometimes scary and being cautious is good, hysteria is not. Think for yourself and don’t be a Chicken Little.

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