Tags: Summers | Virtuous | Circle | US

Larry Summers: I See ‘Virtuous Circle’ Building in US Economy

Saturday, 11 February 2012 09:23 AM

The U.S. economy is looking so good that improving economic indicators will build upon themselves, with rising employment pushing incomes up, which in turn will boost consumer spending which will create even more jobs and so on, says former Treasury Secretary Larry Summers.

"The run of numbers for the last two months really have been consistently positive, consistently ahead of expectations, and do raise the possibility that the kind of virtuous circle we've been looking for has kicked in, virtual circles of rising income, rising employment, leading to increased spending, leading to more employment," Summers tells CNBC.

The country has seen bursts of optimism in the recent past although they didn't last, Summers points out.

But this time around, the economy looks poised to finally break from the Great Recession.

"There's been optimism in the winter of 2010, and optimism in the winter of 2011, so we've got to keep focused on moving the economy forward, but I do think that there is a prospect that we're going to break out of the tepid growth we have been seeing, and that for the first time in a long time, my feeling is that if you take the consensus forecast, there are more risks to the upside than there are to the downside."

Other experts aren't so sure.

Unemployment rates don't accurately reflect the weakness in the jobs market because they don't take into account those who have quit working or those holding down part-time jobs to make ends meet.

While headline unemployment rates are falling, the decrease in part reflects people leaving the labor force as opposed to a surge in hiring.

"We're very depressed relative to normal trend levels in terms of employment and output," says Michael Darda, chief market strategist at MKM Partners, according to Bloomberg.

"So you really do need a period of above-trend growth. That's what the Federal Reserve is trying to do."

The Federal Reserve has said interest rates will likely remain low through 2014.

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