US recovery losing steam: Clinton stands his ground on economic programme

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The Independent Online
AMID accumulating evidence of a sudden slowdown in the American recovery, President Bill Clinton served notice yesterday that he intends to stand by his economic programme to reduce the federal deficit and raise some taxes.

'The best thing we can do for the economy this year clearly is to pass a multi-year deficit reduction plan because of what it will do to interest rates,' Mr Clinton said. 'We need to pass that, keep the interest rates down and see what happens.' He argued that this offered the best hope of keeping interest rates down and stimulating growth. Congress was to begin work at committee level on the detailed budget proposals yesterday.

The President was speaking after the Commerce Department reported that the index of leading indicators, the government's chief forecasting tool, plunged 1 per cent in March, the biggest drop since November 1990 when the US was just entering recession.

A composite of available data on activity and business confidence, the index is designed to predict the economy six months ahead. It showed a slight 0.5 per cent increase in February, after slipping just 0.1 per cent in January. In December, when optimism was riding high, the index leapt by 1.7 per cent, the best in a decade.

Most analysts still expect the recovery to continue but only at a modest pace and not strongly enough to bring down unemployment. Initial figures released last week showed first-quarter economic growth at only 1.8 per cent, less than half the 4.7 per cent registered in the last quarter of 1992.

Acknowledging the softness of the recovery, the US Treasury Secretary, Lloyd Bentsen, said this week that the slowdown was partly a result of blizzards that struck the eastern part of the country in March. He described the weak first-quarter growth figures as a 'winter pothole on our road to recovery'.

A White House spokeswoman placed some of the blame for the latest disappointing figures on the Bush and Reagan administrations, and specifically the government's 'failure to invest over the last 12 years' in creating jobs. The economy, she added, represented a 'tremendous long-term problem that cannot be fixed overnight'.

(Graph omitted)