April 14 (Bloomberg) -- President Barack Obama said today that his economic-stimulus package and plans to rescue banks and bolster housing are starting to “generate signs of economic progress,” while warning of “pitfalls” ahead.

Local and state governments along with construction companies are beginning to rehire workers, and credit markets are starting to thaw, Obama said in a speech at Georgetown University in Washington.

“This is all welcome and encouraging news,” Obama said. “It does not mean that hard times are over; 2009 will continue to be a difficult year for America’s economy.”

Twelve weeks into his presidency, Obama offered a summary of the roots of the economic crisis and his prescriptions for ending it. He sought to balance warnings that the recession will continue to ripple through the economy over the coming months with reassurances for consumers hit by job losses and tight credit that his policies are having an effect.

Obama is borrowing a tactic from President Franklin Roosevelt, telling Americans that he recognizes their distress and that he’s doing all he can to stoke growth, said Pete Davis, president of Davis Capital Investment Ideas in Washington.

Positive News

“He doesn’t want to oversell the little bits of positive information that are coming out, but he wants to get them out,” Davis said. “It’s not like, six months from now we’re going to plant the flag and say, ‘yeah, April 14 is when the economy turned around.’”

The president repeated the steps he has already outlined to stimulate the economy, including a $787 billion package of spending and tax cuts, as well as measures to assure long-term growth. Those include spending for education and alternative- energy production as well as “new rules for Wall Street that will reward drive and innovation.”

The current slump is different from past economic contractions, he said. It wasn’t caused by the normal churning in the business cycle but by a “perfect storm of irresponsibility and poor decision making” from Wall Street to Washington to Main Street, Obama told his audience.

“The severity of this recession will cause more job loss, more foreclosures, and more pain before it ends,” the president said. “Credit is still not flowing nearly as easily as it should.”

Still, he said, “for the first time, we are beginning to see glimmers of hope.”

Bernanke’s View

Obama spoke just hours before Federal Reserve Chairman Ben S. Bernanke said in a speech in Atlanta that there are signs the “sharp decline” in the U.S. economy is slowing, indicating a potential “first step” toward a recovery from the worst recession in at least a generation.

Bernanke said he is “fundamentally optimistic about our economy.”

Economists surveyed by Bloomberg News estimate that the pace of economic contraction eased in the first quarter of this year from the 6.3 percent annual rate in the final three months of 2008. To help end the recession, the Fed has committed to buy $1.45 trillion of housing debt and $300 billion of Treasuries after cutting the benchmark interest rate almost to zero.

Economic Signs

There are other signs the recession may be reaching bottom: a 20 percent increase in government-backed loans in the last month to small businesses, which account for more than two- thirds of all U.S. jobs; the lowest home-mortgage rates since 1971, and money flowing from the stimulus package.

Yet today’s report that retail sales fell 1.1 percent in March, after a 0.3 percent increase in February, suggests the recession may linger. And the unemployment rate, currently at 8.5 percent, is likely to climb further. Many economists say the economy must grow about 2.5 percent for the jobless rate to begin falling.

In responding to the president’s address, House Republican Leader John Boehner of Ohio focused on Obama’s stimulus package, his proposed $3.5 trillion budget for 2010 and the $410 billion spending bill enacted by the Democratic majority in Congress to fund the government through Sept. 30. All will add to the deficit, he said. The budget shortfall is projected by the Congressional Budget Office to hit $1.85 trillion this year.

“Instead of embracing tough decisions, Democrats have avoided them in favor of saddling our children and grandchildren with mountains of debt that we know they cannot afford,” Boehner said in a statement.

Facing Critics

Obama defended his economic plans against such criticism, saying a cutback in government spending in the middle of a recession would make matters worse because businesses and individuals are trimming their budgets.

“The government has to step in and temporarily boost spending in order to stimulate demand,” the president said. “And that’s exactly what we’re doing right now.”

Obama listed “five pillars” of his economic program, all of which he’s outlined in the past. The first is rewriting rules and regulations for financial markets. The current system is one “that allowed this crisis to happen in the first place,” he said.

He laid plans for administration actions in the weeks ahead, including “tough new rules” for Wall Street that he wants Congress to pass so they can be enacted before Dec. 31.

Punishing Abuses

These are rules, he said, that would “punish short-cuts and abuse; rules that tie someone’s pay to their actual job performance and rules that protect typical American families when they buy a home, get a credit card or invest in a 401(k).”

The other pillars are from his fiscal 2010 budget blueprint that includes bolstering public education, creating more investment and jobs in alternative energy and revamping the U.S. health-care system, beginning with the conversion of electronic records and extending insurance coverage to the millions who don’t have it. “We need to get health care reform done this year,” he said.

The final step is reducing the deficit and “restoring fiscal discipline” in the federal budget, Obama said.

“Since the problems we face are all working off each other to feed a vicious economic downturn, we’ve had no choice but to attack all fronts of our economic crisis at once,” he said.

Obama reaffirmed his administration’s “fervent hope” that Chrysler LLC will find a business partner and that General Motors Corp. will find a profitable path to recovery. He made no mention of automakers headed into potential bankruptcy.

Unfreezing Credit

Boosting the availability of credit is crucial to restoring economic growth, Obama said. While saying he didn’t agree with some of the ways the Bush administration managed the bank rescue fund, he endorsed the “broader rationale” that the U.S. must help provide the capital necessary to restart lending.

Obama said he refused to nationalize banks because such action probably would cost taxpayers more in the long run and, even worse, be “more likely to undermine than to create confidence” in the U.S. banking system.

A CNN/Opinion Research Corporation poll released today showed 58 percent of the public says Obama has a clear plan for solving the country’s economic problems, while 42 percent say he doesn’t. The survey of 1,023 adults taken April 3-5 has a margin of error of plus or minus 3 percentage points.

To contact the reporter on this story: Roger Runningen in Washington at rrunningen@bloomberg.net

Last Updated: April 14, 2009 14:52 EDT