White House official upbeat on U.S. economy

Washington (Friday) A senior White House official offered an upbeat assessment of the U.S. economy on Friday, saying 2002 growth would be "very good" although the first quarter may outpace the rest of the year.

White House Council of Economic Advisers Chairman Glenn Hubbard told Reuters he saw some "very positive" signs in the U.S. March jobs data out on Friday, which showed a 58,000 rise in the number of workers on U.S. payrolls last month but a climb in the jobless rate to 5.7 percent from 5.5 percent.

Noting that employment is often a lagging indicator in an economic recovery, Hubbard said he expected more vigorous job gains later in the spring and said a full recovery in business investment was likely to start toward mid-year.

The U.S. official also was heartened by a 69,000 rise in the number of temporary workers hired in March — the so-called help supply services figures — and by the fact that the long contraction in manufacturing jobs had begun to abate.

"I still expect fairly rapid GDP (gross domestic product) growth (in the first) quarter...I think that we will see very good positive GDP growth all year this year, so in that sense the recovery is well under way," Hubbard said. "I think the first quarter will be stronger GDP growth than the balance of the year."

Many economists are expecting the economy to grow at an annual rate in the neighborhood of 5 percent during the first quarter, with much of that gain due to inventory restocking by firms that emptied their shelves last year.

"The help supply numbers are a very cyclically sensitive indicator and the turnaround there, I thought, was good news," Hubbard said. "The sharp slowing down of what had been a big deceleration in manufacturing employment, I think, is good news that that sector of the economy has begun to bottom out."

Hubbard, one of U.S. President George W. Bush’s top economic advisers, said there was no reason to believe that consumers — a key prop to the U.S. growth and one of the forces that kept the recession short and shallow — would stop supporting the economy.

On the key issue of whether business spending will join consumer consumption in fueling growth, Hubbard acknowledged that many corporate executives are worried about how strongly the economy will perform but said this was typical in a recovery.

Business investment is seen as crucial to a sustained upturn since it was a steep falloff in capital spending that led off the economic slump.

"As you have probably seen anecdotally, many businesspeople have remained uncertain. I think that capital expenditures will turn around by the middle of the year," Hubbard said.

"I don’t see a full recovery in business investment beginning until a bit part because it’s by then that the capital overhang would probably have been worked through, outside of the telecom sector," he added.

The economist noted that business spending contracted dramatically late last year, saying that "even returning to zero would be very positive for the economy and I think we’ll have modest investment growth later in the year."

Hubbard suggested that although energy price increases are always a concern for policymakers, the recent rise in oil prices to six-month highs was unlikely to knock the U.S. economy off track and said he saw "very little" sign of inflationary pressures in the economy.

"It is true that recent increases in energy prices aren’t good but if you look at futures prices (and) indicators of what people expect in the energy market, I don’t think anyone is expecting major price increases for the balance of the year," he said. (Reuters)