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Feldstein: Economy Has Slowed as Consumers Cut Back

Tuesday, 01 Mar 2011 12:49 PM

Harvard University economics professor Martin Feldstein said the U.S. economy has cooled at the start of this year as consumers cut back on spending amid higher gas prices and a decline in housing wealth.

“There is a mixed picture now in terms of how much the economy is on track,” Feldstein said in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan.” Growth “started slowing down toward the end of the fourth quarter. The January numbers are not very good at all.”

Feldstein cited less-than-forecast consumer spending in January, continuing monthly declines in U.S. housing prices and weakness in industrial production. While fourth-quarter growth was bolstered by consumers spending more after a rise in the stock market, those gains came as the personal savings rate fell, he said.

“So this is not a strong economy,” Feldstein said. “There hasn’t been a pull-through from the fourth quarter to the first quarter.”

Last week, the Commerce Department reduced its estimate of fourth-quarter growth to a 2.8 percent annual pace. Consumer purchases rose at a 4.1 percent pace, the most since the same three months in 2006, compared with a 4.4 percent rate originally estimated.

“Higher- and middle-income people felt pretty good” because of higher stock prices, Feldstein said. “They went and spent more money. But that doesn’t mean they will keep doing it.”

Bernanke’s Comments

Feldstein’s comments were more cautious than Federal Reserve Chairman Ben S. Bernanke, who reiterated his forecast today to the Senate Banking Committee that growth will accelerate this year. Fed policy makers raised their estimates for growth at their meeting last month, according to minutes of the Jan. 25-26 meeting released Feb. 16.

The Harvard economist also said that congressional cuts in the U.S. budget won’t have much of an effect on economic growth.

The debate centers around “plus or minus $30 billion or $40 billion,” he said. “That is not going to have a very substantial impact on aggregate demand and on GDP growth.”

Feldstein, 71, is a former president of the National Bureau of Economic Research and a member of the NBER committee that declared the recession ended in June 2009.

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Harvard University economics professor Martin Feldstein said the U.S. economy has cooled at the start of this year as consumers cut back on spending amid higher gas prices and a decline in housing wealth. There is a mixed picture now in terms of how much the economy is on...
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Tuesday, 01 Mar 2011 12:49 PM
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