Romer says stimulus working despite job losses

WASHINGTON (Reuters) - White House economic adviser Christina Romer said on Thursday that the $787-billion U.S. stimulus program was stabilizing the economy despite unacceptably high job losses.

Romer, chairman of the Council of Economic Advisers, delivered a lengthy defense of the Obama administration’s stimulus program before the Economic Club of Washington, saying the spending impact will grow over time.

But she acknowledged that a report on July unemployment, to be issued by the Labor Department on Friday, was likely to show the economy continued to shed hundreds of thousands of jobs and a higher unemployment rate.

“It is unacceptable,” Romer said, but cautioned: “Unfortunately, even once GDP (gross domestic product) begins to grow, it will likely take still longer for employment to stop falling and begin to rise.”

Romer said that since the stimulus program was started, “an economy that was in freefall has stabilized substantially, and now looks as though it could begin to recover in the second half of the year.”

Deflecting criticism that the program has been ineffective, she likened the economy’s situation to a fever that spikes just after a patient begins taking antibiotics to battle an infection.

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“Do you decide that the medicine is useless? Do you conclude that the antibiotic caused the infection to get worse? Surely not,” she said. “You probably conclude that the illness was more serious than you and the doctor thought and are very glad you saw the doctor and started taking the medicine when you did.”


She said that spending under the stimulus program should be roughly $100 billion in each of the next five quarters and the effect in aiding recovery should rise.

However, Romer said that if the economy is not meeting the Obama administration’s expectations by the end of the year, it may need to consider additional stimulus.

Although many economists and policy-makers are debating when to begin unwinding stimulative actions, Romer said the United States was far from that point, adding, “You want to see serious, good strong growth before you think about an exit strategy.”

The economy will show positive growth before the end of this year, she said, but it needs to be growing at around 2.5 percent just to keep unemployment from rising.

She signaled little concern about inflation, adding that deflation was a greater worry, in her view.

“Inflation doesn’t just come from nowhere. It comes from an economy overheating,” Romer said. “And we are so far from overheating I think we have a long time before we really have to worry about inflation.”

The recovery is likely to be a long, hard process because it will take some time to get the unemployment rate down to normal levels, she said.

“The bottom line is that we are no doubt in for more turbulent times,” Romer said.

Editing by Andrea Ricci