A14 Thursday, July 16, 2009
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Economy&Business
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By Neil Irwin
Washington Post Staff Writer
A new forecast raised fresh doubts yesterday about how strong any economic recovery might be, as the Federal Reserve projected that the unemployment rate may sur- pass 10 percent by year’s end and warned that the economy may not return to full health for at least five years.
The projections, by 17 top Fed leaders, suggest that a jobless re- covery could be approaching — one in which the economy begins grow- ing again in the coming months but times remain tough for American workers. The Fed leaders forecast higher unemployment rates than they had just two months earlier. At the same time, they upped their ex- pectations for economic growth. The stock market rose yesterday on similar optimism about growth, recording a 3 percent gain, as meas- ured by the Standard & Poor’s 500- stock index. Industrial firms like General Electric and Caterpillar, in particular, climbed steeply on in- dustrial production figures that were better than analysts expected. Economists increasingly agree
Unemployment Predictions
In January, the rate was
predicted to top 8.8 percent for the year.
New projections have the rate surpassing 10 percent.
prediction January
prediction June
9.8% to 10.1% 9.5% to
9.8% 8.4% to 8.8%
8% 6 4
SOURCE: Federal Reserve
2 0
2009 2010 2011
that the economy will begin grow- ing again in coming months, but there is no consensus about what shape that expansion may take. The Fed’s forecasts suggest that
the recovery, when it comes, is un- likely to have much immediate im- pact on the job market. Most of the Fed governors and regional bank presidents expect that the unem-
ployment rate will be 10 percent or higher in the final quarter of the year, according to projections re- leased along with minutes of a June policymaking meeting. While economic growth and job creation often go hand in hand, that relationship has broken down in the aftermaths of the past two reces- sions. This could reflect efforts by companies to become more effi- cient as they emerge from hard times. But economists are not sure of the reason. The Fed leaders also expect the economy to shrink less than previ- ously expected in 2009 and to grow at a steady clip in 2010. But they an- ticipate that the economy will re- quire an unusually long time to re- gain its vigor.
“Most participants indicated that they expected the economy to take five or six years to converge to a longer-run path characterized by a sustainable rate of output growth and rates of unemployment and in- flation,” the document said, “but several said full convergence would take longer.” For months, the economy has been declining more slowly than at the beginning of the year. But there
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Fed Sees Heightened Joblessness Drawing Out Recovery
has been little evidence of actual growth. That was reflected in a sep- arate report yesterday that indus- trial production contracted in June for the eighth consecutive month, though at the slowest rate in that span. “Eventually we’re going to need to see some better numbers, as op- posed to just less bad,” said Robert A. Dye, a senior economist at PNC Financial Group. That said, the Fed officials were disinclined at their late June pol- icymaking meeting to take new steps to try to strengthen the econ- omy. The central bank could have expanded its purchases of long- term government bonds and other assets to try to push down interest rates further, for example, but con- cluded that the effects would be un- certain, according to the minutes. The minutes offered little detail about how or when the Fed might wind down its emergency pro- grams to support the availability of credit in the economy and ease the effects of the financial crisis. Some traders and analysts have expected clearer guidance on the Fed’s exit strategy. The absence of this infor- mation helped fuel confidence that
the central bank would continue its current efforts to support economic activity.
“All the programs remain on the table,” said Richard Yamarone, chief economist at Argus Research. “The battle is still being fought, and the economy is not out of reces- sion.”
Prices are rising, though. The Labor Department said yesterday that the consumer price index rose 0.7 percent last month, driven pri- marily by a 17 percent rise in the price of gasoline. Even excluding volatile food and energy costs, prices rose more than analysts ex- pected, by 0.2 percent.
The data offer the most solid evi-
dence yet that the nation has avoid- ed the onset of deflation, a danger- ous process in which the weak economy causes prices to fall, lead- ing people to further rein in spend- ing and setting off a vicious down- ward cycle. Instead, prices for a wide range of goods — clothing, medical care, even automobiles — increased in June. Another report, meanwhile, sup- ported the prevailing view among economists that an expansion will begin soon. Industrial production
fell 0.4 percent in June, less than analysts had forecast and the most modest decline since October. Many analysts argue that the indus- trial sector has now contracted so much — it is producing at only 68 percent of its capacity, the lowest on record — that it will soon have to turn positive to keep up even with tepid demand. In particular, the reopening of Chrysler and Gen- eral Motors assembly lines in com- ing weeks will provide a boost, even though they will operate at much lower levels than a year ago. In another piece of evidence that the factory sector is stabilizing, an index of manufacturing activity in the New York region came in at negative 0.6 percent, the strongest since April 2008, up from negative 9.4 in June. An index of zero in the Federal Reserve Bank of New York survey represents the line between contraction and expansion. “The bottom line is that the econ- omy is still very weak and very fra- gile,” said Bill Hampel, chief econo- mist of the Credit Union National Association. “We’re talking about a recovery beginning in the third or fourth quarter, but that’s just barely a recovery.”
PHOTOS BY ALEXANDER F. YUAN — ASSOCIATED PRESS
Workers paint wind turbine blades at a factory of Guodian United Power Technology in Baoding, in China’s Hebei province. China is among the Asian nations pouring money into renewable energy industries.
Asian Nations Could Outpace U.S. in Developing Clean Energy
American Markets’ Slump Feeds Worry
By Steven Mufson
Washington Post Staff Writer
President Obama has often de- scribed his push to fund “clean” en- ergy technology as key to America’s drive for international competitive- ness as well as a way to combat cli- mate change.
“There’s no longer a question about whether the jobs and the in- dustries of the 21st century will be centered around clean, renewable energy,” he said on June 25. “The only question is:Which country will create these jobs and these indus- tries? And I want that answer to be the United States of America.” But the leaders of India, South Ko- rea, China and Japan may have dif- ferent answers. Those Asian nations are pouring money into renewable energy industries, funding research and development and setting ambi- tious targets for renewable energy use. These plans could outpace the programs in Obama’s economic stimulus package or in the House cli- mate bill sponsored by Reps. Henry A. Waxman (D-Calif.) and Edward J. Markey (D-Mass.). “If the Waxman-Markey climate bill is the United States’ entry into the clean energy race, we’ll be left in the dust by Asia’s clean-tech tigers,” said Jesse Jenkins, director of energy and climate policy at the Break- through Institute, an Oakland, Calif.- based think tank that favors massive government spending to address global warming.
Energy Secretary Steven Chu and Commerce Secretary Gary Locke are
in the world” for solar power. China is also expected to boost its long-term wind requirement to 150 gigawatts, up from the current 100 gigawatt target, by 2020, industry sources said. Jenkins said China could provide $44 billion to $66 bil- lion for wind, solar, plug-in hybrid ve- hicles and other projects. Fan said China also plans to make sure that many of the orders go to its own firms, Gold Wind and Sinovel. The big Asian research and in-
vestment initiatives come as U.S. pol- icy makers boast about their own plans, giving ammunition to those who say this country needs to do more.
“That R&D represents America’s chance to become the world’s leader in the most important emerging eco- nomic sector: energy technology,” said House Majority Leader Steny H. Hoyer (D-Md.) in a May 13 speech to the U.S. Chamber of Commerce. “In the years to come, I hope that Amer- ica will be selling clean technology to China and India and not the other way around.”
A worker checks solar-powered traffic lights at Victory Traffic Facilities Engineering in Baoding.
visiting China this week to discuss cooperation on energy efficiency, re- newable energy and climate change. But even though developing nations refused to agree to an international ceiling for greenhouse gases last week, China and other Asian nations are already devoting more attention to cutting their use of traditional fos- sil fuels such as oil, natural gas and coal.
South Korea recently said it plans
to invest about 2 percent of its GDP annually in environment-related and renewable energy industries over the next five years, for a total of $84.5 bil- lion. The government said it would
try to boost South Korea’s interna- tional market share of “green tech- nology” products to 8 percent by ex- panding research and development spending and strengthening indus- tries such as those that produce light-emitting diodes, solar batteries and hybrid cars.
China and India are kick-starting their solar industries. India aims to install 20 gigawatts of solar power by 2020, more than three times as much as the photovoltaic solar power in- stalled by the entire world last year, the industry’s best year ever. And China’s new stimulus plan raises the nation’s 2020 target for solar power
from 1.8 gigawatts to 20 gigawatts. (A gigawatt is about what a new nu- clear power plant might generate.) “China is trying to catch up in a global race to find alternatives to fos- sil fuels,” the official China Daily said in an article last week.
“A lot of people underestimate
how focused China is on becoming a global leader in clean technology,” said Brian Fan, senior director of re- search at the Cleantech Group, a market research firm. China now provides a $3-a-watt subsidy upfront for solar projects, he said, enough to cover about half the capital cost. Fan said it is “the most generous subsidy
Confident that the United States will develop top-notch technology, the House voted overwhelmingly on June 10 to oppose any global climate change treaty that weakens the intel- lectual property rights of American green technology. “We can cede the race for the 21st
century, or we can embrace the real- ity that our competitors already have: The nation that leads the world in creating a new clean energy econo- my will be the nation that leads the 21st century global economy,” Oba- ma said on June 29.
But countries in Asia are not standing still waiting for U.S. ad- vances.
That both excites and worries U.S.
manufacturers torn between oppor- tunity and fear of a boost for Asian competitors at a time when the world’s biggest market, the United States, has slowed down sharply. “This is heavy manufacturing busi- ness. The U.S. has had a great posi- tion over the last several years,” said Vic Abate, vice president of renew- ables at General Electric, the world’s number two wind turbine company. “If it slows down and if investment doubles down in China, it will be a lot harder to catch up.” “We have already been left behind in some areas,” said Mark Levine, di- rector of the environmental energy technologies division at Lawrence Berkeley National Laboratory. “But . . . there remain many opportuni- ties,” he said, adding that “the U.S. can carve out key areas in clean en- ergy technology.”
Although GE is the only U.S. com- pany among the world’s top 10 wind turbine makers (China has two, Ger- many has three), Levine said “there are areas in wind energy where we are likely to develop crucial technolo- gies that we will both exploit and likely license to others.” He cited ad- vanced materials that would permit stronger rotors and techniques for taking advantage of higher wind speeds at greater heights.
Levine said the United States is
unlikely to “become the or even a leading photovoltaic manufacturer. But our scientific talent . . . has a good chance of developing the next- generation PV systems which we could either manufacture in China or another country . . . or license to for- eign companies. . . . Even if the man- ufacturing is done abroad, this will lead to very real and large benefits to the U.S. from licensing fees, not to say sales in the U.S. and elsewhere.”
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