WASHINGTON (Reuters) - President George W. Bush on Wednesday argued the “genius” of the U.S. economy is its ability to withstand financial shocks, as he signed a bill to put $152 billion in taxpayers’ hands in a bid to avoid a recession.
“I know a lot of Americans are concerned about our economic future,” Bush said during the ceremony at which he signed the $168 billion, two-year economic stimulus package into law. Of that total, $152 billion is earmarked for 2008.
“Our overall economy has grown for six straight years but that growth has clearly slowed,” he said, acknowledging the “rough patch” the financial system has experienced as failing home mortgage repayments fed a vicious cycle of credit pullbacks by lenders in recent months.
Bush said however that the U.S. economy had often overcome a wide range of adversities over the past several years including corporate scandals, war and recession.
“The genius of our system is that it can absorb such shocks and emerge even stronger,” he said.
U.S. economic growth slowed to only 0.6 percent at an annual rate in the fourth quarter of 2007. House prices have been falling, and in January the U.S. job market shrank for the first time in 53 months.
That has led many economists to forecast that the United States will slip into a recession, and some have said it may already be in one. The Bush administration has steadfastly denied that would happen.
To prevent one, the Democratic-led Congress and the Republican Bush administration forged rare bipartisan cooperation to hammer out the economic stimulus package, which includes billions of dollars in tax rebates due to be paid beginning in May, as well as incentives for businesses to buy new equipment.
The package includes tax rebates of up to $600 per individual earning $75,000 in adjusted gross income or less and $1,200 per couple plus $300 per child. Businesses would be able to deduct half the costs of purchases of new equipment.
In a swipe at Democrats, some of whom stood behind the president as he spoke, Bush praised Congress for not including other spending projects in the package.
“The members resisted the temptation to load up this bill with unrelated programs or unnecessary spending, and I appreciated that,” he said.
Democrats also did not mince words after the bill signing. Senate Majority Leader Harry Reid of Nevada said they would seek to do more to help middle class families and small businesses that may be hurt by a possible recession.
“We have much more to do in the long term because many more Americans still need our help,” he said.
Bush also pressed Congress to pass reforms to how housing finance authorities Fannie Mae and Freddie Mac are regulated, modernize the Federal Housing Administration and permit state housing agencies to issue tax-free bonds to help homeowners refinance their mortgages.
With consumers increasingly worried about a recession, getting them to spend the rebate checks may be the hard part. If households save the money or use it to pay off debt, the economic impact would be minimal.
A survey of 1,500 people, conducted by American Century Investments, found that 36 percent planned to use their rebate check to pay off debt, while a quarter intended to spend it right away. Another quarter said they would save or invest it.
Another survey done for the National Retail Federation found that consumers plan to spend almost 41 percent of their rebate which could offer nearly a $43 billion boost to the economy immediately.
In 2001 when the economy was last in a recession and the government also handed out rebate checks, many consumers went on a post-9/11 shopping spree.
Colin McGranahan, retail analyst with Bernstein Research in New York, said worries of a severe recession should fade as the rebates and interest rate cuts work their way through the economy, and the benefit will likely last through the third quarter of 2008.
Whether it can last beyond that is still in question as households struggle with falling home prices, a weakening job market and rising costs for food and fuel.
“While the 2001 stimulus appeared to be successful in stabilizing consumer spending and retail sales growth, the larger 2008 plan will need to overcome the current housing and credit conditions to keep consumer spending from returning to a more extended contractionary period,” McGranahan said.
Additional reporting by Emily Kaiser and Matt Spetalnick