Recovery of US Economy

By Cecilia A

U.S. economy has shown signs of recovery in recent months with four continual quarters of growth. However, it is only very minimal and the continual strong growth will not appear until mid-late 2011, a U.S. economist has said.

David Besanko, a professor with Northwestern University of the United States, made the prediction in a recent exclusive interview with Xinhua.

Besanko explained that this is due large part to the still high unemployment rate, and the lack of new government policies to stimulate growth.

Besanko has years of research experience in such areas as Macro and Micro-economics, and economics of regulation. He has had over 40 articles published in leading professional journals in economics and business, including the American Economic Review.

“Unemployment rate is still high at (nearly) 10 percent and I expect it to come down to about 8.25 percent only around late 2011, ” Besanko said, adding that the persistent high unemployment rate can be attributed to a mix of three factors including low consumer spending, firms still holding back on investing and banks not spending.

“There is still insufficient demand by consumers. What’s going on right now is that consumers are still deleveraging, cutting down debt that they had gotten themselves into back in 2007. Firms are sitting on cash meaning not hiring, not investing, because they don’t see enough demand. Banks are sitting on cash because firms are not investing. The combination of the three led to unemployment rate still at close to 10 percent,” he elaborated.

On the other hand, he said, “there really hasn’t been much done by the U.S. government to stimulate growth in the past few months. It is because it is very difficult for the Obama administration to get a victory with passing legislation (and hence policy) in the Congress.”

“I think growing the economy and cutting down unemployment rate is at the top of the Obama Administration’s agenda. They would like to do more of that, except that given the current congressional landscape, they have not been able to do as much as they would like to,” he said.

“In the Senate, any victory would need 60 votes and the Obama administration does not have 60 votes. They managed to get through a small couple of pieces of legislation, including a small businesses legislation that was signed this week, on tax cuts. This will help small businesses and in turn the economy. But there hasn’t been much else done over the past 6 months that will make a significant dent on unemployment rate,” Besanko said.

The Obama administration is looking for ways to stimulate the U. S. economy, but any significant policy change remains unlikely until next January due to the upcoming mid-term election, he predicted.

“There is usually a lag period of 6 months before any policy starts to show its impact on the economy. Effects of any new policy passed in January will not be obvious until mid-late 2011,” observed the economist. (PNA/Xinhua)

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