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Sunday, April 26, 2009

Summers: Expect "sharp declines in employment"

by Calculated Risk on 4/26/2009 07:47:00 PM

From Bloomberg: Summers Says U.S. Economy to Decline ‘For Some Time’

“I expect the economy will continue to decline,” with “sharp declines in employment for quite some time this year,” Summers said today on “Fox News Sunday.”
Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. “These imbalances can’t continue forever,” he said. “When they are repaired they will be a source of impetus for the economy.”
Summers said the Obama administration is “on a path toward containment and toward building a path toward expansion,” he said, adding that “even sharp plans take time” to work, perhaps six months or more.
Reuters has more quotes: Summers says no unremitting freefall in US economy
“Six or eight weeks ago, there were no positive statistics to be found anywhere. The economy felt like it was falling vertically. Today, the picture is much more mixed,” Summers said.

“There are some negative indicators, to be sure. There are also some positive indicators. And no one knows what the next turn will be,” he said. “But I think that sense of unremitting freefall that we had a month or two ago is not present today. And that’s something we can take some encouragement from.”
The "unremitting freefall" might be ending, but what will be the source of growth? Usually residential investment (RI) and personal consumption lead the economy out of a recession - and both remain severely impaired this time. There is too much excess inventory for any meaningful recovery in RI, and the process of repairing household balance sheets has just begun (I expect the savings rate to continue to rise for some time).

Krugman spoke about this in Cincinnati:
"I'm in the camp that really worries about the L-shaped recession. We level off but we don't get the recovery. We hope it isn't, but it has all the markings of it. This looks like the kind of slump that has all the markings of where normal recovery forces are very, very weak.

It's hard to see where recovery comes from."