Nobel Prize-winning economist Joseph E. Stiglitz said the U.S. economy faces an “anemic recovery” and the government will need to enact another round of “better designed” stimulus measures.
The Obama administration took “a big gamble and it doesn’t look like it’s paying off,” Stiglitz told Bloomberg TV in an interview in Sydney yesterday. “The recovery is so weak that it is not strong enough to generate new jobs for the new entrants in the labor force, let alone to find jobs for the 15 million Americans who would like a job and can’t get one.”
The ex-World Bank chief economist spoke as Mohamed A. El-Erian, chief executive officer at Pacific Investment Management Co., estimated the possibility of deflation and a double-dip recession in America at 25 percent. The U.S. lost 65,000 jobs last month, according to a median forecast of 81 economists in a Bloomberg News survey before the Labor Department report today. The unemployment rate climbed to 9.6 percent from 9.5 percent, the survey showed.
Labor Department data yesterday also showed more Americans than projected filed for unemployment insurance, indicating employers are still cutting staff. Initial jobless claims climbed by 19,000 to 479,000 in the week ended July 31, the most since April, according to the data.
“It’s absolutely clear that you need a second round of stimulus,” Stiglitz said. “It needs to be better designed. It needs to be focused more on returns on investment, education, infrastructure, technology. And if you do those kinds of high- powered investments, the long-term national debt will be actually lower and the growth in the future will be higher.”
U.S. Growth Slows
U.S. economic growth slowed to 2.4 percent in the second quarter from 3.7 percent in the first. It will average 2.8 percent in the last six months of the year, according to the median forecast of 52 economists in the most recent Bloomberg survey.
The Federal Reserve has kept its target for overnight bank lending in a range of zero to 0.25 percent since December 2008 to foster the economic expansion. General Motors Co. and Ford Motor Co. reported this week U.S. sales that trailed analysts’ estimates.
“This is an anemic recovery,” Stiglitz said, “and is likely to remain anemic.
“Unfortunately, with savings going up to 5, 6, 7 percent, aggregate demand is going to be weak,” he said. “The only thing to fill it is government.”
Data from the Commerce Department on Aug. 3 showed consumer spending and personal income were unchanged in June, further evidence the weak jobs recovery is hurting demand. Household purchases grew at a 1.6 percent rate in the second quarter. The savings rate for American households rose to 6.4 percent in June, the highest level in a year, the data showed.
Pimco’s El-Erian told reporters in Tokyo yesterday that as U.S. companies accumulate cash and individuals save, it is tougher to counter deflation, or a protracted drop in prices that hurts the economy. The cooling in private-sector spending makes government policies to stimulate growth less effective, he said.
“I do not think the deflation and double-dip is the baseline scenario, but I think it’s the risk scenario,” El-Erian said. U.S. unemployment will probably stay unusually high, he said.
Even so, Fed Chairman Ben S. Bernanke this week gave an upbeat assessment on the outlook for consumers, projecting spending would climb as wages rose.
While the U.S. has “a considerable way to go” for a full recovery, “the economy seems to have stabilized and is expanding again,” Bernanke said in a speech to lawmakers in Charleston, South Carolina.