Tags: Roubini | Recovery | economy | us

Roubini: Don't Get Excited About Recovery, 'There's Still Softness'

Tuesday, 13 Mar 2012 07:09 AM

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Economist Nouriel Roubini says that while the data for the last 2 to 3 months were consistently surprising on the upside, recent figures urge caution in assuming economic recovery.

"For example, real consumption spending has been flat for three months in a row," Roubini tells foreignpolicy.com. "Durable goods orders — a proxy for capital spending by the corporate sector — are sharply down in January after the tax advantages expired at the end of last year."

"So if you look at the macro supply data it looks better. But the demand data, whether it's consumption or residential or net exports, suggests there's still softness."

Editor's Note:Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

Roubini believes economic growth is going to be soft, anemic, and below-trend.

“I think the tail risk of an outright recession conditional on external shock, like eurozone turmoil or oil or China is a small risk right now compared to six months ago,” he says. “But I think the data is not consistent with the views that we are going to start growing at 3 percent plus in the next 12 months.”

Growth for this year is going to be maybe 2 percent, says Roubini. And by next year, what's going to happen is that — regardless of whether Obama is reelected or not, there will be a meaningful fiscal drag, because mandated spending cuts start to be triggered unless Congress refuses to do draconian spending cuts on defense or discretionary funds.

“All the tax cuts — dividends, capital gains, estate, income taxes — expire and not all of them are going to be fully renewed,” Roubini says. “The payroll tax cut is also supposed to be one year, now it's two years, but we cannot have it forever. And discretionary transfer payments are going to be reduced and government spending is on the way down,” he said.

“So you have a fiscal drag.”

Bloomberg Business Week reports that business-backed efforts to extend dozens of expired U.S. tax breaks including those for corporate research, teachers’ out-of-pocket expenses and energy-efficient appliances probably won’t be considered until a post-election session of Congress, according to lawmakers and lobbyists.

Economist and former Secretary of Labor Robert Reich says that while the February jobs report may give President Barack Obama a boost, the jobs aren't coming back nearly fast enough to significantly reduce the nation’s backlog of 10 million jobs.

"That backlog consists of 5.3 million lost during the recession and another 4.7 million that needed to have been added just to keep up with the growth of the working-age population since the recession began," Reich writes in his blog.

"If the American economy continues to produce jobs at the good rate it’s maintained over the last three months, averaging 245,000 per month, the backlog won’t be whittled down for another five years — long after Barack Obama finishes his second term, should voters grant him another."

Editor's Note:Wall Street Whistleblower Warns of Meltdown, See His Uncensored Interview

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