Swagel Comments On US Economy

by Mike Godfrey, Tax-News.com, Washington

29 January 2008

US Treasury Assistant Secretary for Economic Policy, Phillip Swagel, on Monday spoke about the state of the economy at the Treasury Borrowing Advisory Committee of the Securities Industry and Financial Markets Association.

Beginning his statement, Mr Swagel explained that:

"Economic growth appears to have slowed in late 2007, and is likely to remain sluggish through the first half of 2008. Labor market conditions softened notably in December, as job growth slowed and the unemployment rate jumped to 5%. Core inflation has remained contained, even as a pickup in energy prices boosted headline inflation at the end of the year."

"Against this background, the bipartisan tax relief proposal agreed to by the Administration and House leadership has the potential to provide meaningful and well-timed support for economic activity in mid-2008 and into 2009."

He continued: "Slower growth of both consumption and investment appear to have offset continued support from exports and government purchases."

"Exports remain a source of strength, with exports of goods and services up by 13% over the 12 months ending in November. Despite the solid export performance, recent increases in imports, including a higher volume of oil imports, suggest that the contribution of net exports to real GDP will be smaller than the 1.4 percentage point boost seen on average in the second and third quarters."

"While the economy is expected to continue to grow, the risks of a broader slowdown have increased. Financial markets have deteriorated considerably since the start of the year and credit conditions for households and businesses remain tight."

Swagel went on to add that:

"The housing market is likely to remain weak well into 2008. Inventories of unsold homes, both new and existing, remain substantially above levels that were typical before or during the housing sector boom."

"The housing market slump and broader economic weakness has contributed to an increase in mortgage delinquencies and foreclosures.However, the Administration has taken steps to help prevent avoidable foreclosures and minimize the impact of the housing downturn on markets and the economy."

Concluding, Swagel explained that:

"Working with Congress, the Administration has also temporarily eliminated taxes on forgiven mortgage debt so homeowners facing difficult mortgage situations do not also face adverse tax consequences."

"The Administration has urged Congress to pass legislation to modernize the Federal Housing Administration, allow states to issue tax-exempt bonds to fund refinancing programs, and undertake comprehensive reform of the housing government sponsored enterprises."

"In sum, growth is expected to continue, albeit at a modest pace and with increased downside risks. Rapid enactment of the bipartisan fiscal package would support growth and help to ensure continued economic expansion and job creation in 2008."

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