Bloomberg News

Obama’s Economist Expects Housing ‘Tailwind’ to Economy

March 15, 2013

President Barack Obama’s chief economist said he expects a “tailwind” from housing construction to help propel economic growth this year.

Alan Krueger, chairman of the White House Council of Economic Advisers, also said in a Bloomberg Television interview today that a shift by congressional Republican leaders to de- emphasize the threat of a U.S. debt default has helped support the surge in U.S. stocks, letting investors focus on an improving economy.

“Some of the extreme risk which I think was affecting financial markets, weighing on investors, has been removed,” Krueger said, citing a congressional vote to extend the U.S. legal debt ceiling until later in the year. That has ratcheted down the threat of a default, he said.

The Standard & Poor’s 500 index has climbed 9.4 percent so far this year, approaching a record, and the Dow Jones Industrial Average hit new highs in nine of the past 10 days.

Krueger said he expected U.S. economic growth in the range of 2 percent to 3 percent this year. Housing may contribute between 0.4 and 0.5 percentage points of that growth, he said.

“Housing looks like it will be a tailwind, the wind at our back as opposed to a wind in our face,” Krueger said.

Still, he warned that a protracted standoff between Obama and Republican congressional leaders that continues the sequestration’s automatic spending cuts would cut economic growth by 0.6 percentage points. That would place growth at the bottom of the range he expects, he said.

Jobs Risk

The Congressional Budget Office projects the economy would lose 750,000 jobs this year if the automatic spending cuts stay in effect through the Sept. 30 end of the federal fiscal year.

Obama, in his annual economic message to Congress released earlier in the day, said the “top priority” of his second term is job creation, fueled by an effort to make the U.S. a magnet for manufacturing.

“After years of grueling recession, our businesses have created over six million jobs,” Obama said in the Economic Report of the President. The economy is adding jobs, he said, yet too many can’t find full-time employment.

“Our top priority must be to do everything we can to grow our economy and create good, middle-class jobs,” he said.

Delayed Forecast

The annual report typically offers a menu of economic growth forecasts for the current year and next, as well as the outlook for the unemployment rate and inflation. Those weren’t included today, delayed until Obama presents his fiscal 2014 budget proposal to Congress the week of April 8.

Instead, Obama previewed some of the priorities that will drive his budget. The report outlines plans for manufacturing hubs designed to foster technology jobs and says the tax code needs to be rewritten to make the U.S. more competitive in global markets. He will ask Congress to spend more on research and technology, as well as education and public works projects, such as roads and bridges. There were no details.

“These steps will help entrepreneurs and small business owners expand and create new jobs,” Obama said.

In a conference call with reporters before the Bloomberg Television interview, Krueger said the country is recovering “from the worst recession since the Great Depression,” with the economy expanding for 14 straight quarters and the addition of almost 6.4 million jobs over the last 36 months.

‘Right Direction’

“This is moving in the right direction, except it’s not enough,” Krueger said. The White House chief economist said “we have to be worried that misguided fiscal policy can cause some slippage in this progress.”

That was a reference to across-the-board budget cuts that started taking effect March 1 after the administration and congressional Republicans couldn’t agree on a deal to shrink the deficit.

The report only cited private forecasts that predict that the economy would grow about 2.4 percent this year.

The recovery is gaining traction, Krueger has said, even as the White House and Republicans in Congress are in a standoff over spending cuts, deficit reduction, revamping social programs and updating the U.S. tax code.

Earlier this week, House Budget Committee Chairman Paul Ryan, a Wisconsin Republican, proposed a budget that he said would eliminate the federal deficit within 10 years, making cuts in domestic spending that the White House said were unacceptable.

Obama Comments

“We can’t just cut our way to prosperity,” Obama said in his message to Congress. He said he opposed “harsh and arbitrary cuts” affecting the military, education and energy. “That’s not how you grow the economy.”

Gross domestic product grew at a 0.1 percent annual rate in the fourth quarter, revised figures from the Commerce Department showed Feb. 28. Growth in the economy was limited by a 22 percent reduction in military spending, on an annual basis, the biggest drop since 1972.

Krueger said the report also highlights the effect demographic changes will have on the economy, including an acceleration of growth in Americans age 65 and older over the next three decades, and the implications for higher government costs in Medicare and Social Security.

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

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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