WASHINGTON (Reuters) - One of U.S. President Barack Obama’s top advisers said on Thursday she saw glimmers of hope that the economy was stabilizing, but it was still “hard to know” if a recovery would start this year as hoped.
“We expect the economy to level out in the second half of the year and then begin to recover,” Christina Romer, chairwoman of the White House Council of Economic Advisers, said in prepared remarks.
“Whether the recovery begins later this year, as most private forecasters predict, or takes a bit longer is hard to know,” she said in testimony prepared for delivery to the Joint Economic Committee of the U.S. Congress.
The U.S. economy contracted at a faster-than-expected annualized pace of 6.1 percent in the first quarter of 2009 as the worst recession in a generation hit jobs and spending.
The downturn has already cost more than 5 million jobs since it began in late 2007. Romer said unemployment will continue to rise in the months ahead.
SOME ‘HOPE’ IN JOBS AND HOUSING
But it was not all bad news.
She told reporters after the hearing that she was encouraged by weekly jobless data on Thursday that showed new claims unexpectedly declining and a closely watched four-week average of fresh applications for jobless benefits drop for the third straight week.
Weekly claims fell 14,000 to 631,000 in the week ending April 25 while the four-week average shrank to 637,250 from 648,000 the week before, the Labor Department said.
Romer said that while it was premature to take the jobless numbers as strong evidence that the worst was over for the labor market, they did point toward a less severe monthly payroll report in April than the 663,000 jobs lost in March. The April payroll report will be released on May 8.
“Already, we are beginning to see ‘glimmers of hope’ that the economy is stabilizing. The housing sector has shown some tentative signs of finding a bottom,” she told the JEC.
“We currently expect the pace of the overall decline in the economy to moderate sharply over the next several months. This is consistent with the Blue Chip consensus forecast, which shows a rate of decline in GDP (gross domestic product) of 2.1 percent in the second quarter,” she said.
A key factor for the U.S. recovery will be the success of the Obama team’s efforts in fixing the financial system, which has suffered massive losses on risky bets made on U.S. subprime mortgages that soured when the housing boom collapsed.
On Thursday, the Financial Times reported that the International Monetary Fund estimates the cost to U.S. taxpayers for the cleanup could be as high as $1.9 trillion over the next five years. But Romer said it was unlikely the IMF really knew what it was talking about.
“The IMF ... they are a very fine organization. But whether they have really good estimates of exactly what the cost is going to be, I think is highly questionable,” she told the JEC in response to a question.
“I think the real thing is that there is just a tremendous amount of uncertainty. And that was why the president put the placeholder in the budget ... in case we needed more,” she said.
Obama’s 2010 budget contains a “placeholder” provision that envisages up to $750 billion in new aid to banks if necessary.
Reporting by Alister Bull; Editing by Jan Paschal