US Treasury Secretary Mr Paul O'Neill said yesterday that following the abrupt economic downturn, the US economy had likely stalled near a zero per cent growth rate.
His comments followed a series of negative indicators showing that the economy could be heading toward a hard landing after an eight-year boom and that job losses were beginning to hurt several US states. Mr O'Neill said the US economy was "flashing something approximating a zero rate of real growth", but that it could be revived by the tax-cut proposals of President George W Bush.
"We can do better and we need to do something more like 3 to 4 per cent growth with no inflation," he said. "And getting money back into people's hands seems to me to be a wise thing to do." On Thursday, Mr Bush submitted to the US Congress his plan to cut taxes by $1.6 trillion over the next 10 years. Mr O'Neill warned that the program must not be expanded.
"The president has said this is the Goldilocks amount, we don't want any more and we don't want any less," he said in a series of television interviews aimed at discouraging Democrats who want to limit the size of the tax cuts and Republicans who wish to expand the plan. Presenting his tax package, Mr Bush warned they were badly needed to "jump-start" the economy. "A warning light is flashing on the dashboard of our economy and we just can't drive on and hope for the best," he said. "We must act without delay." In the period September-December, the US economy grew at only 1.4 per cent annual rate, its worst quarterly performance in 5-1/2 years. The chairman of the Federal Reserve, Mr Alan Greenspan, warned in January that growth was near zero. While most US economists forecast a soft landing, the investment house Morgan Stanley Dean Witter has predicted that the economy could slip into recession, technically defined as two successive quarters of negative growth.
The US Labour Department reported on Thursday that initial applications for jobless benefits climbed by a bigger-than-expected 15,000 to a seasonally adjusted total of 361,000 for the week ending February 3rd. Last week the US government reported that the nation's unemployment rate jumped to 4.2 per cent in January, the highest level in 16 months, as the sharp economic slowdown resulted in a loss of 65,000 manufacturing jobs.
While the unemployment level remains near 30-year lows, some states are hurting badly, especially those depending on manufacturing, a sector which is already in recession. Michigan reported the biggest rise in jobless claims, up by 23,565, for the week ending January 27th.
