White House advisor says US economy still facing headwinds

14 July 2010 22:30  [Source: ICIS news]

WASHINGTON (ICIS news)--The US economy continues to face strong headwinds and a slowing recovery is not expected to reduce unemployment figures anytime soon, the top White House economist told Congress on Wednesday.

Christina Romer, chairwoman of the Council of Economic Advisers (CEA), told the House and Senate Joint Economic Committee that while the nation’s economy has improved since late last year, “it remains far from fully recovered” and recent indicators suggest that the recovery will fall short of expectations.

“The past few weeks have seen more mixed economic reports than we saw in the spring,” Romer said, referring to the more positive commercial data seen in the first quarter this year.

“Stock prices have declined noticeably and financial markets have been subject to greater volatility than we had seen for more than a year,” she said in testimony before the panel.

“Some measures of consumer confidence have fallen somewhat,” she added, noting too that “housing sales and building permits took a decided drop in May, suggesting that a self-sustaining recovery has not yet taken hold in the housing sector.”

The US housing industry is a crucial downstream consuming sector for chemicals and plastics and their derivative products. US new home sales fell by nearly 33% in May.

Romer said there were some positive indicators, including modest growth of consumer spending and a surge in industrial production in May compared with a year ago.

However, earlier on Wednesday the Commerce Department reported that US retail sales fell in June for the second consecutive month, indicating that consumers remain uneasy about the economy and spending.

“It is clear that the economy continues to face some strong headwinds,” Romer added, noting in particular that state governments were facing a “dire situation” in budget shortfalls.

Without additional federal emergency funding, she said, “state and local governments will continue to shed jobs and act as a contractionary force on overall economic activity”.

She noted too that private sector lending remained restricted and that “many borrowers, particularly small businesses, still find it difficult to get loans”.

“This obviously hinders small business growth and job creation,” she said.

On Monday, Federal Reserve Board Chairman Ben Bernanke said the recovery was threatened by the continuing credit crunch facing small businesses.

Romer also pointed to a continuing and “substantial oversupply of housing” with many home owners holding mortgage debt that exceeds the current market value of their residences.

“As a result, the prospects of a rapid growth in residential investment, as we have seen in previous recoveries, are slim,” she said.

Although she said she expected the US economy would continue to grow and the jobs picture would improve, both would be “at a somewhat more subdued pace than the robust growth that looked possible a few months ago”.

Without a further federal stimulus package - which faces strong opposition in Congress among those worried about mounting US debt - Romer said that “the rate of recovery will likely continue to fall short of the rapid expansion that is needed to bring the unemployment rate down quickly”.

To discuss issues facing the chemical industry go to ICIS connect
Paul Hodges studies key influencers shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
+1 713 525 2653

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly