Sinai sees weak recovery and deep economic trouble

The U.S. economic recovery is losing momentum in the face of a persistently high unemployment rate, anemic consumer spending, and a mounting federal deficit, according to Allen Sinai, the noted financial forecaster and chief economist at Decision Economics, the market information advisory firm.

In a Sept. 28 speech at Brandeis International Business School, Sinai said that the limitations of the federal government’s stimulus package are evident. That package -- President Obama's American Recovery and Reinvestment Act -- pumped more than $787 billion into the economy to fuel job creation, encourage growth, and provide money to cash-strapped state governments.

“Here we are at the end of the stimulus, and we’re sputtering,” said Sinai. “We have unemployment at 9.6 percent, a federal budget deficit that is 9 percent of gross domestic product, and an average rate of growth in consumer spending that for the past five years has been 1.5 percent. People can legitimately make the case that we’re in more trouble.”

Numerous data, such as a stronger equity market and positive monthly and quarterly numbers from the industrial and manufacturing sectors, that indicate the U.S.  economy is in recovery. But, Sinai said, the upturn is fragile “Statistically, we are in recovery but for most ordinary working Americans it doesn’t feel like one.”

A string of grim indicators over the past month and a half has intensified fears of a double-dip recession in the U.S. and Europe. Sinai pointed to the low level of activity in the housing market, the lingering and “sticky-high” unemployment rate, and the stubborn unwillingness among employers to hire new workers because of high labor costs.
“There are legions of people that have been displaced by companies…Businesses are spending on technology, and they’re not hiring people because people are expensive,” said Sinai, whose lecture was sponsored by the Rosenberg Institute of Global Finance, which convenes annual programs at the business school with leading economists.

“We are going to continue to have a jobless recovery. This is a huge public policy problem, but also a huge producer of company profits,” said Sinai, who consults with administrations of both the Democratic and Republican parties, and most recently advised the House Democratic leadership on the economy and financial crisis. He said policymakers’ goals going forward should be “to create macroeconomic policies that will grow the economy faster, create more jobs, and lower the unemployment rate.”

“The challenge is that we need to do this and reduce the federal budget deficit at the same time.”

That prescription led a distinguished looking gentleman in the audience -- which packed the business school's Lee Hall to overflowing  for Sinai's talk -- to quip "Good Luck!"

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