Monday, February 09, 2009

Deal reached on $827bn US stimulus package

US President Barack Obama on Saturday called on senators to complete passage of the $827bn stimulus package that was struck behind close doors late on Friday. US Senate Democrats agreed to cut their hopes for a larger economic stimulus package and support a compromise that would give Mr Obama an important but narrow victory.

In his weekly radio and YouTube address to the nation, Mr Obama said he was pleased that the bipartisan compromise, which may only result in the switched votes of three Republican senators, out of a total of 41, ended a turbulent week on a ”positive note”.

But he urged the upper chamber to accelerate its vote. It now seems likely that Congress will be unable to finalise a bill before the White House’s deadline of February 13. “Americans across the country are struggling and they’re watching to see if we’re equal to the task before us,” said the US president. “Let’s do whatever it takes to keep the promise of America alive in our time.”

Democrats said a vote on passage of the measure – drafted by leaders of a group of moderate lawmakers from both parties – and closely watched overseas as a sign of US commitment to help revive the world economy, would be held on Tuesday.

”We are pleased the process is moving forward and we are closer to getting Americans a plan to create millions of jobs and get people back to work,” said White House spokesman Robert Gibbs.

The tentative agreement followed news that the US economy lost a half-million jobs for the third month running in January, bringing the unemployment rate to the highest level since in 1992 and increasing the pressure for government action to stimulate the economy.

Official figures released on Friday showed that non-farm payrolls dropped by 598,000 last month, while the unemployment rate – 4.4 per cent before the credit crisis – jumped to 7.6 per cent, its highest level since 1992.

The figures were somewhat worse even than the dire outcome that the markets had expected. Economists had predicted a 525,000 fall in employment and a rise in the unemployment rate from 7.2 per cent to 7.5 per cent.

A revised Senate package will need to be reconciled with the House plan and then be reconfirmed by each house of Congress before being sent to the White House for signing.

Mr Obama on Friday seized on the dire news about the American jobs news market to criticise foot-dragging in the Senate. “It is inexcusable and irresponsible to get bogged down in distraction and delay while millions of Americans are being put out of work,” he said.

The US economy has now shed 3.6m jobs since the recession began in December 2007, out of a total of some 135m, with half the decline occurring during the past three months, according to the labour statistics office.

Economists said the figures showed that the US economy was sinking at least as quickly as in the worst recessions since the second world war. “Even allowing for the bigger population now, the decline is now as severe as the worst of the decline in the mid-1970s,” said Paul Ashworth, senior US economist at Capital Economics.

“With initial jobless claims still edging higher, February could be even worse.”

The president spoke as he announced the staffing of an economic advisory panel, which will include top leaders from business and the labour movement as well as former top regulatory officials and financial experts.

Mr Obama has been struggling to regain the political initiative on combating the economic downturn, amid rising concern in the White House that the Republicans have scored important victories in the public relations war over the stimulus bill.

“The bill that has emerged from Congress is not perfect,” Mr Obama said. But “it is the right size, it has the right scope and it has the right priorities”, he said.

With investors having anticipated a dire jobs report, financial markets reacted calmly to the payrolls data, and stocks rallied in expectation of the stimulus bill being agreed. The S&P 500 advanced 2.7 per cent, led by financial stocks such as Bank of America, which rose nearly 27 per cent.
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