Even as President Barack Obama talked a good game on the United States’ economy, the U.S. Bureau of Economic Analysis revealed worrisome figures showing a deceleration in the ongoing economic recovery, with quarterly real gross domestic product growth rate dropping from 3.7 per cent to 2.4 per cent.
In a speech made during a visit to the General Motors’ factory in Detroit, President Obama hailed the successes of his administration’s actions in restructuring the auto industry and called upon Republican leaders to stop blocking aid for small businesses. He argued that as a result of the government’s decision to bail out GM and Chrysler they had emerged from the brink of bankruptcy and added 55,000 jobs – “the strongest period of job growth in more than ten years”.
Mr. Obama further noted that for the first time since 2004, all three U.S. automakers were operating at a profit and sales had begun to rebound. However, he conceded, “There is no doubt that we have a long way to go and a lot of work to do before folks here and across the country can feel whole again.”
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In this context, the President said it would be “commonsense” to give additional tax breaks and badly-needed lending assistance to America’s small business owners through the Small Business Jobs Act. Yet Republican leaders in the Senate “once again used parliamentary procedures to block it”, he said, calling upon them to set aside partisan manoeuvring and allow an up-or-down vote on the bill.
Heading back to large imbalances
Yet in a parallel development the BEA cast the effectiveness of such policies in doubt and underscored the weakness in the growth trend arguing, “The deceleration in real GDP in the second quarter primarily reflected acceleration in imports and deceleration in private inventory investment.”
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Experts also expressed concern over the deeper structural trends underpinning the growth figures with Barry Bosworth, Senior Fellow at the Brookings Institution, noting, “This year, everything is recovering, but imports are coming back a lot faster than our exports are... So we are headed back to the very same large imbalances that we had before the financial crisis occurred.”
Touching upon discussions in the U.S. Congress to end Bush-era tax cuts and sustain fiscal stimulus, Mr. Bosworth said, “The trouble is this is a short-run problem and what Congress is considering is a permanent action with respect to the tax policy. In the long run, the U.S. has a horrible fiscal problem and we simply cannot afford a tax cut.”
Mr. Bosworth also noted that the U.S. was serving as the “engine for growth for the all the rest of the world”, with other countries “exporting to the U.S. to sustain their economies”. He warned that the U.S. could not afford to go alone in this manner.