Morning in America Means a ‘Long Slog’ as Phelps Eyes Recovery

08/03/2009 • Bloomberg

Just as banks from JPMorgan Chase & Co. to Deutsche Bank Securities Inc. rushed to raise their forecasts for U.S. growth in coming quarters, Nobel laureate Edmund Phelps warned the economy is in for a “long slog.” The divergence emerged after the Commerce Department said July 31 the economy has now contracted the most since the 1940s. Benchmark revisions to the department’s National Income and Product Accounts also showed consumer spending has tumbled 2 percent since the end of 2007, a magnitude unseen since the 1980 slump that ushered President Jimmy Carter out of office. The deeper decline sets the stage for a faster recovery in the second half of the year, said Bruce Kasman at JPMorgan and Joseph LaVorgna at Deutsche Bank. It’s what comes later that worries Phelps and others, including Mark Gertler, the New York University economist who was a research partner of Ben S. Bernanke before he became Federal Reserve chairman.