Lawmakers seek strategies to spark the economy
Lawmakers are sparring about proposals for new spending or tax cuts to stimulate growth, and House Speaker Nancy Pelosi, D-Calif., holds a forum Friday with noted economists and financial analysts to discuss possible moves.
The heightened concern comes amid mixed data on businesses and consumers. A private report on Wednesday showed the massive services sector slowed in November, with businesses paying sharply higher prices for energy and other goods. At the same time, the government said factory orders rose a bit in October, though the improvement was due to the energy sector. And the Labor Department said productivity, a key measure of output per worker, surged at a 6.3 percent annual rate in the third quarter of the year.
But even positive numbers are being overshadowed by a freefall in the housing market and credit crunch in financial market.
Top Federal Reserve officials have hinted they may have to cut interest rate targets again when they meet next week to keep the economy moving. The Fed has cut a key rate target from 5.25 percent to 4.5 percent since September.
"If all these reports (Wednesday) came out in the absence of all the credit market gyrations that are occurring, you would probably conclude that the economy is doing 'pretty darn good,' " said Ken Mayland of ClearView Economics.
At a House Budget Committee hearing Wednesday, the debate was whether a recession was in the offing. Harvard economist Martin Feldstein suggested that Congress prepare a targeted tax cut to kick in if employment declined by a set amount.
Feldstein also said the Fed might have to cut rates to 3 percent if the economy continues to slow.
"If the economy is continuing to weaken over the next 12 months, that (3 percent interest rate) is a reasonable thing to do," Feldstein said, noting that the risks of slower growth outweigh possible threats of higher inflation.
The hearing made it clear that Democrats and Republicans are sharply divided on tax cuts. Democrats have proposed that additional tax cuts be offset with cuts in spending, for example.
Also Wednesday, the UCLA/Anderson Forecast issued a new outlook that predicts the economy will slow to a tepid 1.9 percent pace in 2008, but should avoid a recession.
The key reason that the nation will sidestep a serious downturn is that factory employment is not predicted to decline significantly - in part because the manufacturing sector never gained back the jobs it lost in the 2001 downturn.
"The bad news is that we lost three million manufacturing jobs in 2000/2001, but the good news is that there aren't many more to lose," the forecast said. "How can we lose jobs that we never found?
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