The $168 billion government stimulus effort has been a timely support for the economy and will continue to boost growth in the second half of this year, Treasury Secretary Henry Paulson said Thursday.
Paulson predicted in a speech to a Washington audience that the economy will continue growing at a moderate pace for the rest of this year, despite housing slump-induced problems.
"We are making progress although not in a straight line," Paulson said. "Housing continues to be at the heart of our economic challenges and remains our most significant downside risk."
Paulson said the economy needs to work through adjustments in housing and credit markets, which have been roiled by huge losses on mortgage loans, for the country to "return to stronger growth next year and beyond."
Paulson spoke on a day the government released a report showing that the housing and credit crises continued to weigh on the economy. The gross domestic product expanded at an annual rate of 1.9 percent in the April-June quarter, double the 0.9 percent increase in the first three months of the year.
The government estimated that the economy shrank in the final three months of last year, however, at an annual rate of 0.2 percent. It's the first time GDP has declined since the 2001 recession.
The checks sent out to millions of households earlier this year have helped the economy, though, Paulson said.
"Clearly, the stimulus plan has supported the U.S. economy during this difficult period and couldn't have been timelier," he said. "American families spent, companies invested and benefited from strong export growth."
Paulson said that from April to June, the Treasury Department had distributed almost 95 million payments totaling over $78 billion to U.S. households.
While many private economists worry that the effect of the stimulus payments will quickly fade, Paulson said the administration expects the stimulus program would continue to support growth in the second half of this year.
On housing, Paulson said he expected foreclosures and the level of unsold homes would likely remain "substantially elevated this year and next and home prices are likely to decline further on a national basis."
Nevertheless, he predicted that the bulk of the housing slump would be over in months, instead of years.
President Bush on Wednesday signed a sweeping housing rescue bill that is designed to help 400,000 families avoid losing their homes to foreclosures and to provide a financial lifeline to Fannie Mae and Freddie Mac, two mortgage giants that own or guarantee nearly half of the nation's home mortgages.