GOP seeks to trim stimulus, cut deficit

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By Donald Lambro and S.A. Miller

With the economy showing signs of recovery, fiscally conservative economists and Republican lawmakers are suggesting that the large unspent portion of the nearly $800 billion stimulus fund should be redirected to slash this year's nearly $2 trillion annual deficit.

Democratic lawmakers, Obama administration officials and many economists doubt the wisdom of truncating the stimulus program so soon after it began. But Republican congressmen and economists who were not thrilled with the stimulus effort are increasingly calling for it to be foreshortened as a return to economic growth appears closer at hand.

Administration accounting shows that relatively little of the stimulus funds that would directly create jobs have been spent. The White House says $112 billion from the stimulus account has been spent or obligated. In addition, much if not most of the economic recovery expenditures have been spent to pay for state assistance, unemployment and Medicaid benefits, and other safety net programs that would create few if any new jobs.

Nevertheless, there are increasing reports that key sectors of the economy are beginning to show modest signs of recovery.

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Construction spending is up slightly for the second straight month, factory orders rose 0.7 percent in April, existing home sales were up three months in a row, and banks have begun raising capital again and showing signs of growth. These and other economic signals have sparked a rally on Wall Street that has raised stock values by more than 30 percent since March.

No one suggests the economy is out of the woods. The unemployment rate, always the last economic figure to show improvement in the aftermath of recessions, continues to climb, rising from 8.9 percent in April to 9.4 percent in May -- though the figure of 345,000 jobs lost last month was sharply below economic forecasts and marked the fourth straight month that the pace of layoffs has slowed.

That is one of the reasons why top economists such as Ben S. Bernanke, chairman of the Federal Reserve, see the pace of the nation's economic contraction slowing and entering a recovery stage later this year. A survey of 45 economists by the National Association for Business Economics (NABE) Outlook reported late last month that the end of the recession is near.

"The good news is the NABE panel expects economic growth to turn positive in the second half of this year, with the pace of job losses narrowing sharply over the remainder of this year and employment turning up in early 2010," NABE President Chris Varvares said. Nearly three out of four of the panel's economists said they expected the recession would end by the third quarter.

But some economists think President Obama's stimulus plan has had little if anything to do with the economy's new signs of life, that a lot of the heavy lifting in the recovery is a result of actions taken by the Federal Reserve, and that once the recession ends, the remaining funds, estimated to be in the hundreds of billions of dollars next year, should be returned to the U.S. Treasury.