Obama praised on economy,joblessness clouds future

Elected a year ago on a pledge to rescue a sinking economy, President Barack Obama is credited with helping avert a depression, but now faces a growing unemployment crisis that could torpedo both the recovery and his political fortunes.

Economists say the Obama administration's swift action along with a barrage of measures from the Federal Reserve allowed the world's biggest economy to avert deeper problems.

But the jobless nature of the recovery is proving more difficult to address and threatens to undermine progress in lifting the economy out of recession, say analysts.

The patient is out of intensive care but still needs treatment. If you pull away the medication too soon there could be a relapse.

Sung Won Sohn

"I think the administration handled the crisis very well, but it remains to be seen how they will cope with the exit strategy," said Sung Won Sohn, economist at California State University.

"I believe we were able to avoid a depression as a result of the stimulus program and easy monetary policy."

Sohn said the administration along with the Federal Reserve face "a fine balancing act," with the economy seeming to emerge from recession but with jobs still being lost on a massive scale.

"The patient is out of intensive care but still needs treatment. If you pull away the medication too soon there could be a relapse."

The United States rebounded from recession in the third quarter, when it posted its strongest economic growth in two years thanks to government stimulus spurring consumer spending, official data showed Thursday.

After four negative quarters, the world's largest economy grew 3.5 percent in the July-September period, indicating the end of a recession that began in December 2007 following a home mortgage crisis.

But analysts say rising unemployment, which Obama warned could surpass the current near 10 percent critical level, remains a serious threat and could continue to hamper consumer spending, the main US growth driver.

Christina Romer, chair of President Barack Obama's Council of Economic Advisers, told lawmakers recently that joblessness would remain "severely elevated" for some time even with a recovering economy.

She said that the key to reducing joblessness is sustainable growth of at least 2.5 percent, and that most projections call for an expansion close to that level in the coming quarters.

Still, she said things could have been much worse without economic stimulus passed.

US officials said Friday that Obama's nearly 800 billion dollar stimulus plan had already created or saved more than a million.

Josh Feinman, chief economist at Deutsche Bank's DB Advisors, said the administration helped cushion the crisis along with the Federal Reserve.

"Policy has not been without its problems, but on the whole it has been broadly successful in stabilizing the financial system and providing stimulus," he said.

Now the administration is struggling to find new incentives to help bring back employment, which is needed to sustain a recovery.

"There could be targeted tax credits that could create jobs or something else," he said.

"The broader economy has stabilized and job losses have slowed, but there are still job losses," he added. "How successful will they be (in bringing back jobs) is a matter of some debate."

Diane Swonk, chief economist at Mesirow Financial, said one early problem for Obama was that the economy was headed toward an abyss after he was elected in November but before he assumed office in January.

"Much of the stimulus plan was not written by the Obama administration, it was written by Congress and it was not as well targeted as it could have been," she said.

She noted that Obama's inability to break partisanship in Congress has continued to hurt the economy."

Still, she said the quickly enacted stimulus in February helped put the economy on a recovery track.

"There's no question that the fact that we are seeing positive growth has a lot to do with the stimulus and the stabilization of the banking system," she said.

According to Sohn, the new president was able to help reverse some of the negative sentiment weighing on the economy in a manner similar to that of Franklin Roosevelt, who took office amid the Great Depression.

"Confidence has been crucial, just like when Roosevelt took office in 1933. He spent a lot of money and started new programs but the bottom line he was able to enhance confidence in the economy," said Sohn.

"I think Mr. Obama was in similar position. Confidence in the Bush administration was not high and by engaging an economic stimulus and talking to the American public I think he has enhanced confidence as well and that has been a key factor."