President Bush, acknowledging that the country is suffering through a period of economic uncertainty, called on Congress Monday to do more to help people and businesses hurt by the housing slump and credit crunch.
In a brief introduction to his annual economic report, Bush said the $168 billion economic rescue package passed by Congress last week will keep “our economy growing and our people working.”
Bush is expected later this week to sign the stimulus package, which includes rebates of $600 to $1,200 to most taxpayers and $300 checks to disabled veterans, the elderly and other low-income people.
“Money will be going directly to America — workers and families and individuals,” he told reporters. “It’s going to help deal with the uncertainties in this economy.”
In addition, the package includes tax breaks for businesses and would take some steps to boost the ailing housing market. Bush said that other steps need to be taken to strengthen the economy, and he exhorted Congress to make his tax cut permanent and do more to help struggling homeowners.
Bush urged lawmakers to pass additional legislation that would revamp mortgage giants Fannie Mae and Freddie Mac and modernize the Depression-era Federal Housing Administration, which insures mortgages for low- and middle-income borrowers. The president also said Congress should approve legislation allowing state housing agencies to issue tax-free bonds to help squeezed homeowners refinance their mortgages.
These and other steps could help struggling homeowners “weather turbulent times in the market,” Bush said.
The stimulus package includes provisions that would temporarily raise to $729,750 the limit on Federal Housing Administration loans and the cap on loans that Fannie Mae and Freddie Mac can buy. Raising that cap on Fannie Mae and Freddie Mac should provide relief in the market for “jumbo” mortgages — those exceeding $417,000. The credit crunch hit that market hard, making it very difficult, if not impossible, for people to get those loans. And, that has plunged the housing market even deeper into turmoil.
Fallout from the housing bust and harder-to-get credit have catapulted home foreclosures to record highs, forced financial companies to rack up multibillion-dollar losses in bad mortgage investments, rocked Wall Street and dealt a powerful blow to the national economy.
The economy nearly stalled in the final three months of 2007, growing at a pace of just 0.6 percent. The odds of a recession have grown considerably over the last year, and an increasing number of analysts believe the economy may actually be shrinking now.
“Our economy is undergoing a period of uncertainty, and there are heightened risks to our near-term economic growth,” Bush said in his economic report to Congress. He said the stimulus package should “insure against those risks.”
Senate Majority Leader Harry Reid of Nevada said the stimulus package should provide some relief but added, “It is far from a panacea, and much more should be done to address our economy’s longer-term problems.”
The administration is hopeful the country will skirt a recession; the last one was in 2001, shortly after Bush first took office.
“I don’t think we are in a recession right now,” said Edward Lazear, chairman of the White House Council of Economic Advisers, told reporters at a briefing. Lazear said the administration is not forecasting a recession, but rather “slower growth” in the first half of this year.
The White House did not change its economic forecasts for this year and next, which were previewed in November. The administration is still predicting the economy will grow by 2.7 percent this year, as measured from the fourth quarter of this year from the fourth quarter of last year. That would mark a slight improvement from the 2.5 percent growth logged in 2007 but would still be considered a sluggish pace. The economy should pick up strength next year, growing by 3 percent.
The unemployment rate for this year and next should climb to 4.9 percent, according to the White House’s projections. The jobless rate last year was 4.6 percent.
The big worry among economists is that consumers and businesses will hunker down more this year, throwing the economy into a tailspin.
The president’s economic report acknowledged that risk.
“The tightening of credit standards raises the possibility that spending by businesses and consumers could be restrained in the future,” according to the report. “Declines in household wealth may also limit consumer spending,” it said.
Recent reports from major retailers showed that people have tightened their belts. Economists say some homeowners have gotten more cautious in their spending as they have watched their single biggest asset — the value of their home — get dragged down by the housing slump. Moreover, high energy prices have also weighed on shoppers.
The housing slump would continue to be a drag on economic growth, probably into the second quarter of this year even if the market were to hit bottom right now, Lazear said.
Bush again renewed his campaign for Congress to make his tax cuts permanent. “Unless Congress acts, most of the tax relief that we have delivered over the past seven years will be taken away and 116 million American taxpayers will see their taxes rise by an average of $1,800,” the president said.
And, he made a fresh call for Congress to approve pending free-trade agreements with Colombia, Panama and South Korea. Bush said those deals would expand sales opportunities for U.S. companies, thus providing “greater access for our exports and supporting good jobs for American workers."