Former Treasury Secretary Lawrence Summers said that while he still sees challenges for the US economy to avert a downturn as policymakers battle inflation, the odds are improving that it can.
(Bloomberg) — Former Treasury Secretary Lawrence Summers said that while he still sees challenges for the US economy to avert a downturn as policymakers battle inflation, the odds are improving that it can.
“These numbers are consistent with very optimistic scenarios,” Summers said on Bloomberg Television’s Wall Street Week with David Westin, referring to Friday’s August employment data. “There are all sorts of things that could have been alarm bells in today’s numbers that didn’t ring.”
US employers hired a net 187,000 people in August, and extended average weekly working hours, both signs that the economy remains “strong,” Summers said. At the same time, hourly earnings rose the least in more than a year, and there were over half a million new entrants to the labor force — helping to reduce what’s been an historically large imbalance between labor supply and demand.
“These were good numbers,” said Summers, a Harvard University professor and paid contributor to Bloomberg TV. “I still think the road to a soft landing is a very difficult one, but this was a step down that road.”
Looking ahead, it will be important to monitor potential pressures on wages from labor activity, he said. The recent deal signed between United Parcel Service Inc. and its union workers was “probably not consistent with 2% inflation,” he said. Now, automakers are facing strike threats from the United Auto Workers union.
Read More: UPS Workers Approve $30 Billion Labor Contract Lifting Wages
“That’s traditionally been a major template in the economy,” Summers said of the auto industry’s wage negotiations. It’s understandable that the UAW is “very ambitious” in its demands, given that there are “a lot of workers left behind” at a time that carmakers did well.
Unlike with labor strains in the railroad industry last year, “the federal government has only limited” roles with regard to sway in the auto sector, the former Treasury chief said.
“These are very difficult situations for administrations,” Summers said. “If there’s a strike — and in terms of inflation pressures — it’s going to be something people need to watch over the next month.”
Summers also reiterated his concern about the widening US fiscal deficit, and the need for Washington to wrestle with raising the government’s revenue over time. One reason why the economy has been so strong in the face of high interest rates has been a fiscal swing of “perhaps 3%” of gross domestic product this year compared with 2022, he said.
Shutdown Warning
“It would be helpful if we could get to more realistic views about the fact that we’re going to need more revenues,” he said. He also warned lawmakers against failing to enact annual appropriations bills that are needed to keep the federal government funded after the start of the new fiscal year on Oct. 1.
A shutdown caused by an impasse over spending bills “doesn’t save any money, and further serves to disillusion people with Washington,” he said.
Read More: Biden Asks Congress for Short-Term Spending to Avert Shutdown
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