The U.S. economy is “leveling off at a low level” and doesn’t need a second fiscal stimulus package, said Paul Volcker, one of President Barack Obama’s top economic advisers and the former chairman of the Fed.

Volcker, head of Obama’s Economic Recovery Advisory Board, said the 6.1 percent decline in first-quarter gross domestic product reported by the government today was “expected.” More recent data show the contraction in housing, business spending and inventories has slowed, and stimulus spending is only just beginning to hit the economy, he said.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

One of the bright spots in the numbers was a 2.2 percent increase in consumer spending, which accounts for some 70 percent of economic activity. After two quarters of sharp declines, economists said consumer spending had stabilized, thanks in part to lower energy prices and higher-than-normal tax refunds, which have put more money in people’s pockets. [My emphasis added]

And economists said that government spending, which declined 4 percent, would probably turn around and buoy the broader economy for the rest of the year as infrastructure projects from the $787 billion stimulus plan get underway.
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The gross domestic product shrank at an annual rate of 6.1 percent from January through March after a 6.3 percent decline in the fourth quarter of 2008. Not since 1958 have Americans experienced such a sharp contraction over six months.

But on Wall Street, investors barely flinched at the worse-than-expected decline in economic output. Stock markets rallied 2 percent in midday trading as two big media and entertainment companies beat earnings expectations and analysts upgraded their outlook on bank profits.

Although economists expect the economy to shrink again in the current quarter, they said it would do so at a slower pace and level off in the second half of the year as one of the longest downturns since the 1930’s begins to lift.

“The 6.1 percent decline in the first quarter was very bad,” said Mark Zandi, chief economist at Moody’s Economy.com. “But the situation is not nearly as dark as this number suggests. The details suggest a more stable economy this summer.”