Democrats sounding economic warnings after downplaying recession threat

Democrats are starting to warn of major risks to the economy after months of downplaying the threat of a double-dip recession.

In letters, interviews, and public statements, President Barack Obama, House Speaker Nancy Pelosi (D-Calif.) and other senior Democrats are now raising red flags that the economy could falter without additional stimulus efforts.

Obama urged congressional leaders in mid-June to pass an extension of tax breaks and unemployment benefits, and up to $50 billion in aid for states and local governments. Without Congress acting, Obama said the economy could “slide backwards.”

Two weeks later, in an interview with the Huffington Post, Pelosi said that absent new federal help, “we could slip back and have another recession, and if we do it’s harder to come back.”

Earlier this year, senior administration officials suggested the economy did not risk falling back into recession.

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On Feb. 7, Treasury Secretary Timothy Geithner downplayed any such threat on ABC’s “This Week”.

“I think we, we have much, much lower risk of that today than at any time over the last 12 months or so,” Geithner said.

The shift in rhetoric and emphasis comes as Democrats head into tough midterm elections, in which Republicans charge the majority has failed to shore up the economy. According to a series of Pew polls, only one-third of voters believe the 2009 stimulus package helped the economy and less than half say additional spending would help a lot.

Over the last year, the percentage of voters in Pew polls that believe Obama’s economic policies have made the economy worse has risen from 16 percent to 29 percent. Democrats argue Republicans are scuttling their efforts to improve the economy.

The arguments reflect a series of reports in the last few months about the broad economy and stock market that show continued or worsening conditions.

The Labor Department reported on Friday that the economy gained 83,000 private sector jobs but lost a total of 125,000 jobs because of a decline in the number of temporary workers on the 2010 Census.

The U.S. economy has gained nearly 600,000 private sector jobs this year, but the numbers have slowed in the last two months. The private sector was gaining roughly 200,000 private-sector jobs per month in March and April, but has only gained a total of 123,000 over the past two months.

The unemployment rate dipped in June to 9.5 percent, but the decrease is more a matter of how the rate is calculated than a decisive improvement in the economy. Fewer people were actively searching for jobs in June, leading to the decline in the unemployment rates.

The economy last month posted 7.9 million fewer jobs than in December 2007, when economists date the beginning of the recession. Many economists suggest the recession ended in the third quarter of 2009, but the official body that makes that determination has yet to announce an end.

The labor market weakness follows similarly tough reports on the nation’s housing and manufacturing markets. Consumer confidence numbers have declined, and stock markets have slumped. The Standard & Poor’s 500 is off roughly 16 percent since its 52-week high in April.

Few economists argue the economy is headed back into another recession, but the mixed or negative economic data has sparked concerns.

“Does it all add up to a double dip recession? I don’t think so,” said Nigel Gault, economist at IHS Global Insight. “I think there is a possibility, 20 – 25 percent. I wouldn’t rule it out. But it isn’t likely.”

Heidi Shierholz, economist at the left-leaning Economic Policy Institute, called the June employment report a, “sobering snapshot of where we are now.”

In April, Geithner appeared on CNN and was asked if he worried of a double dip recession when federal aid starts tapering out.

“I’m not worried that – and the reason I’m not worried is because I think that we’re going to be careful not to put on the brakes before we’re confident,” he said.


In the last few months, though, lawmakers and governments abroad, notably in Europe, have expressed rising concerns about the deficit and debt. In late-June, before the meeting of the heads of the G-20 nations, Geithner was asked again at a press conference about the risks of a double dip recession.

“I think it’s within the capacity of the people who are going to be in those rooms together in these next two days to avoid that outcome,” Geithner said in Toronto.

The administration's case for new stimulus help has had just as tough a reception on Capitol Hill. House and Senate lawmakers have been unable for two months to strike a deal on extending benefits. Despite the prodding of the administration, the upper chamber failed again last week to reach an agreement.

Most Senate Republicans and Sen. Ben Nelson (D-Neb.) have voted against the bill, arguing that it would add to the deficit.

“It’s absurd to think that most Republicans and some Democrats just spent an entire month – several months – battling against jobless benefit extensions when the job market remains so weak,” said Christine Owens, executive director of the National Employment Law Project.

The group estimates the loss of benefits has affected 1.2 million people so far.