Obama's $447-bn jobs plan may add 2% to US GDP next year

The US economy would get a boost of up to two per cent under President Barack Obama's $447 billion jobs plan, say economists at Goldman Sachs Group Inc, Moody's Analytics Inc and JPMorgan Chase & Co.

"The US is on the cusp of a recession," said Mark Zandi, chief economist at Moody's Analytics in West Chester, Pennsylvania. "The plan would go a long way toward stabilising confidence, forestalling another recession and jump-starting a self-sustaining economic expansion."

The proposal, which would raise infrastructure spending and cut in half payroll taxes paid by workers and small businesses, would add two per cent to next year's GDP, create 1.9 million jobs and lower the unemployment rate by one percentage point compared with current policy, Zandi said.

Obama announced his plan to a joint session of Congress a week after a government report showed that hiring unexpectedly stalled in August, raising concern the recovery was grinding to a halt. Unemployment has hovered at about nine per cent or more for two years, damping consumer spending.

Tax cuts account for more than half the dollar value of the plan, which includes a $105 billion in infrastructure spending for school modernisation, transportation projects and rehabilitation of vacant properties. The proposal includes $35 billion in direct aid to state and local governments to stem layoffs of educators and emergency personnel, according to a White House fact sheet.

Unemployment Benefits
A reduction in government spending and the end of the payroll-tax holiday and an expiration of extended unemployment benefits would have cut GDP by 1.7 per cent in 2012, according to JPMorgan chief US economist Michael Feroli.

Instead, the Obama proposal more than makes up for that potential loss and may add a net 0.1 per cent to the economy, he estimates.

"It offsets what would otherwise have been a huge drag from the fiscal restraint" that was due next year, he said. "The plan reduces the risk of a recession in 2012, though it doesn't do much for growth in the second half of this year."

Goldman Sachs estimated the plan would add 1.5 per cent to the economy, while Macroeconomic Advisers LLC said 1.3 per cent and UniCredit Research, up to two per cent.

"This plan would reduce the odds of a recession to very low levels," said Joel Prakken, senior managing director of Macroeconomic Advisers in St Louis, which estimated it would add 1.3 million jobs next year. "The biggest immediate boost is from consumer spending from the payroll-tax holiday and extension of unemployment benefits. If people get more income, they will spend it."

Stocks, Treasuries
Stocks sank and 10-year Treasury yields fell to a record yesterday as concern grew about Greece's debt crisis. The Standard & Poor's 500 Index dropped 2.7 per cent and has declined 15 per cent since July 7. Ten-year Treasury yields slid as low as 1.89 per cent. They have plunged from 3.18 per cent in July amid signs of a slowing economy.

Public opinion of Obama as well as Congress has plummeted to new lows since a partisan fight in July and August over raising the government's debt limit that took the country to the edge of default.

Obama's monthly job-approval rating in a Gallup Poll dropped to the lowest of his presidency, with 41 per cent of US adults saying they approved of his overall performance.

Some economists were less impressed with his proposals.