Geithner Says Economy Growing Faster Than Expected

Treasury Secretary Timothy Geithner said the economy is growing faster than the Obama administration expected.

He told NBC's "Meet the Press" that the country is on the way to sustained job creation. But he acknowledges that unemployment may remain high, close to 10 percent.

Geithner said there's more confidence in the business world, and he says the private sector is growing. He also said people are spending more.

He said he sees encouraging signs that should make Americans confident the country will emerge stronger.

NBC

Year-End Economic Growth Revised Lower

A 360 Degrees Perspective

The burst of energy the economy showed at the end of last year isn't likely to be repeated anytime soon. The Commerce Department reports today that the economy grew at a 5.6 percent pace in the October-to-December quarter in its third and final estimate of economic activity during the period.

Even though growth turned out to be a tad less than the government's prior two estimates for the quarter, the new reading still marked the strongest showing in six years. Many economists, however, think the economy has slowed in the current quarter to about half the pace seen at the end of last year.

Why won't the big growth spurt be repeated? Because the main force behind it is already ebbing.

Most of last quarter's growth came from a large bump up in manufacturing -- but not because consumer demand was especially strong. In fact, consumer spending weakened at the end of the year, even more than the government previously estimated, contributing to the slightly lower reading on overall economic growth.

Instead, factories were churning out goods for businesses that had let their stockpiles dwindle to save cash. If consumer spending remains lackluster as expected, that burst of manufacturing -- and its contribution to economic activity -- will fade.

Analysts predict the economy will expand at only a 3 percent pace in the first quarter of this year. The next two quarters should log similar growth, they say.

In normal times, such growth would be considered respectable. But the nation is emerging from the worst recession since the 1930s. Sizzling growth in the 5 percent range would be needed for an entire year to drive down the unemployment rate, now 9.7 percent, by just 1 percentage point.

Unlike past rebounds driven by the spending of shoppers, this one is hinging more on spending by businesses and foreigners.

Businesses in the fourth quarter boosted spending on equipment and software at a pace of 19 percent, the most in 11 years. Foreigners snapped up U.S.-made goods and services at a pace of 22.8 percent, which propelled exports to grow at the fastest pace since 1996. Both export growth and spending on equipment and software turned out to be stronger than the government's previous estimate last month.

The slower drawdown in businesses' stockpiles accounted for nearly 4 percentage points of the fourth-quarter's overall growth.

But consumers didn't spend as much.

They increased their spending at a pace of just 1.6 percent. That was weaker than the government's prior estimate and was down from a 2.8 percent growth rate in the third quarter.

Although consumer spending is shaping up to be somewhat better in the current quarter, Americans aren't in the mood to go on a spending spree, one of the reasons why the pace of the recovery will be more subdued than in the past. High unemployment, sluggish wage gains, hard to get credit and record-high home foreclosures are all expected to keep consumers relatively cautious.

The government first estimated that the economy grew at a 5.7 percent pace in the fourth quarter. Then last month it boosted that estimate to a 5.9 percent pace. On Friday it shaved it a bit, mostly reflecting slower consumer spending as well as more weakness in the commercial real-estate market.

Economists had expected that the fourth-quarter reading would stay at 5.9 percent.

Still, the new reading of 5.6 percent growth marked a big improvement from the 2.2 percent growth rate logged in the third quarter. That's when the economy started growing again after a record fourth straight quarters of declines racked up from the recession.

As government stimulus wanes and Federal Reserve economic-support programs end, the economy - especially the fragile housing market - could suffer. Improvements in the housing market tailed off at the end of the year - despite massive government support. There are fears the housing recovery could stall out once a homebuyer tax credit ends in the spring and the Fed stops a mortgage-securities buying program at the end of this month that has lowered mortgage rates and boosted sales.

Today's report also showed a slowing in corporations' after-tax profits. Under one measure, after-tax profits rose at a rate of 6.5 percent in the fourth quarter, down from a 12.7 percent growth rate in the third quarter. Atlhough some companies are flush with cash, they are aren't inclined to ramp up hiring until the recovery is on firm footing.

The Commerce Dept.; The Fed Reserve; The Wall Street Journal; Reuters; AP.

Longer Unemployment Benefits Causing Longer Unemployment

Anyone ticking off the reasons long-term joblessness stands at its highest levels in decades needs to do a little arithmetic.

As of mid-2008, unemployment benefits ran out after 26 weeks. Under two presidential administrations and a more-than-willing Congress, however, they kept growing and growing. First, they expanded by 20 weeks, then another 13, then 20 more and then 13 more. One additional week got added to the first 13 to make 14. Finally, another six got tacked on.

Add it up, and that's 99 weeks of unemployment benefits available to residents who qualify - many states have different rules, but may also run to 99 weeks at the maximum.

Given the rotten economy, it's easy to imagine why politicians keep pumping quarters into the jukebox. It takes time to get a job, so the long duration of benefits is not a sign of deliberate malingering. But those government checks come with an unwanted side effect, especially for workers at the low end of the economic food chain.

They go a long way toward explaining why 40 percent of jobless Americans have been out of work for at least 27 weeks, the highest level since the government started keeping score in the 1940s.

"Those programs subsidize unemployment," explained Robert Shimer, economics professor at the University of Chicago. "There could be good reasons to do it, but we should be clear on the cost. It has a pretty substantial impact."

He reckons that the current level of benefits probably accounts for 1 to 1.5 percentage points of the 9.7 percent national unemployment rate.

Republican Sen. Jim Bunning of Kentucky became Capitol Hill's biggest grinch this week for single-handedly opposing another benefit renewal, before caving in Tuesday evening.

It certainly sounds like his heart's too small. After all, the typical check in many states averages only $315 a week, maxing out at $535 for a family with children, hardly megabucks. And economists understand that extended unemployment checks, to some small degree, can give the jobless more time to find a better position than they might otherwise settle for.

The reasons behind today's long-term unemployment rate obviously go way beyond benefit extensions. The depth of the recession is probably the biggest factor, and economic changes ranging from the advance of technology to the aging of the work force contribute as well.

The lack of credit has hampered small businesses that otherwise would have led the way with cautious hiring, some say. And unlike previous recessions, the housing market crash has made it especially difficult to move on.

When the unemployment checks finally stop, a reality check will arrive, said Shimer. The recovery will take root as people move to greener pastures, different occupations and in some cases, lower-paying jobs. As Shimer observed, "That's a very hard thing to do."