NEW YORK (Reuters) – Treasury Secretary Henry Paulson said on Monday the Bush administration was considering how to give the economy a boost as it weathers a housing correction, but does not want to rush.
“Our most immediate goal is to minimize the impact on the real economy,” Paulson said in a speech before the New York Society of Securities Analysts. “This will require patience as we thoughtfully evaluate next steps.”
“Working through the current situation and getting the policy right is more important than getting the policy announced quickly,” Paulson added.
Paulson acknowledged that the downturn will last for some time and said its impact already was apparent in December’s weak job employment figures, which showed just 18,000 jobs created and a jump in the jobless rate to 5 percent.
“We will likely have further indications of slower growth in the weeks and months ahead,” he warned. “The overhang of unsold houses will contribute to a prolonged adjustment, and poses by far the biggest downside risk.”
But he also said he expects the U.S. economy to continue growing even as it sees housing prices decline further.
“The housing downturn has been a drag on the economy for some time, but there’s not a lot of evidence that this has spilled over to other areas of our economy,” Paulson in answer to a question after the speech.
“Again, I think it’s got further to run,” he said of the U.S. housing slump, “but the U.S. economy is resilient and will continue to grow.”
Expectations have been growing that the Bush administration might be preparing a package of stimulus measures to unveil as early as the annual State of the Union message, which President George W. Bush is scheduled to deliver to Congress on January 28.
But Paulson reiterated after the speech that no decision had been made on how or whether to use fiscal policy to stimulate growth.
“The administration is focused on what steps might be taken to further strengthen the economy,” he said, but added Bush remains undecided on what action to take.
RECESSION AHEAD, OR JUST SLOWER GROWTH?
Some analysts and economists have started to worry that the United States is headed toward recession, and indeed housing data of late has been on the gloomy side.
A recent report showing new home sales plunging 9 percent in November to their lowest in 12 years.
Contenders for the Democratic presidential nomination have picked up on the recession fears and used them to hammer the Bush administration’s handling of the economy.
New York Democratic Sen. Hillary Clinton raised the issue during a debate in New Hampshire on Saturday night, saying the U.S. middle class was under increasing pressure as costs rise and housing prices wane.
But Paulson said a correction in the U.S. housing market — characterized by slumping home prices and weak sales — was “inevitable and necessary” after years in which banks and other mortgage grantors followed “lax” lending practices and prices had risen too quickly.
He also expressed confidence that the economy would weather the crisis, just as it survived the savings and loan crisis of the early 1990s and the bursting of the dot-com bubble at the turn of the century.
“We all focus on the problems we have in the United States, but I can’t think of any other major country that doesn’t have many more issues and difficulties to deal with than we do,” he said, adding Americans should be more “self-confident.”
He did advocate making President Bush’s tax cuts permanent, saying “the last thing this economy needs is a tax increase.”
He repeated support for a strong U.S. dollar and said that he was not worried about the currency, adding strong U.S. fundamentals would eventually be reflected in exchange rates.
Paulson said financial institutions were writing down the value of the assets they hold but insisted no one should be “surprised or disappointed” to see that happening because the long-term effect will be to strengthen their balance sheets.
“This is market discipline in action and should enhance market confidence over time,” the former Goldman Sachs chief executive said.
He took a swipe at the Democrat-controlled Congress, saying it should speed up reform of government-sponsored enterprises that engage in mortgage lending by temporarily raising loan limits to permit GSEs to package so-called “jumbo” mortgages into securities that can then be resold to investors.
(Reporting by Glenn Somerville and Steven C. Johnson; Editing by James Dalgleish)
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