WASHINGTON — Republicans and Democrats are struggling to find common ground on a long-term debt deal. But as economic growth has weakened this quarter, they are at odds over what the flagging recovery needs in the immediate future, too.
The Obama administration is arguing that the sluggish economy requires a shot in the arm, and it included tens of billions of dollars of little-noticed stimulus measures in its much-noticed proposal to Congressional leaders last week. But Republicans have countered that the country cannot afford to widen the deficit further, and have balked at including the measures in any eventual deal.
The stimulus measures in the White House’s debt proposal stem from President Obama’s long-since-scuttled American Jobs Act proposal, and include a continuation of emergency support for long-term unemployed workers, an extension of the payroll tax cut, billions in infrastructure investment and a mortgage-refinancing proposal.
“We have a very good plan, a very good mix of tax reforms” and savings, said Timothy F. Geithner, the Treasury secretary, on ABC News last weekend. “We can create some room to invest in things that make America stronger, like rebuilding America’s infrastructure.”
But in his counteroffer, made on Monday, House Speaker John A. Boehner of Ohio did not mention any such measures. Republican aides said that securing stimulus was not the main priority given concerns about the country’s fiscal state, and they appeared to be holding back on supporting any stimulus measures to bolster their bargaining position.
“The president is asking for $1.6 trillion worth of new revenue over 10 years, twice as much as he has been asking for in public,” Mr. Boehner said on “Fox News Sunday.” “He has stimulus spending in here that exceeded the amount of new cuts that he was willing to consider. It was not a serious offer.”
As the debate rages in Washington, data has shown the recovery once again sputtering, with the underlying rate of growth too slow to bring down the unemployment rate by much and some of the economic momentum gained in the fall dissipating in the winter.
The weakness comes from the manufacturing and exports slowdown, disruptions from Hurricane Sandy and sluggish underlying wage and spending growth. The storm hit the economic juggernauts of New Jersey and New York hard, pushing down work and wages. On top of that, consumers and businesses might be holding back out of concern for the tax increases and spending cuts scheduled to take place at the first of the year unless Congress and the administration come to some agreement.
In recent weeks, many forecasters have slashed their estimates of growth in the fourth quarter. Macroeconomic Advisers, for instance, estimates the economy is expanding at only a 0.8 percent annual pace, down from 2.8 percent in the third quarter.
“It’s a pretty dramatic slowdown,” said Joel Prakken, the chairman of Macroeconomic Advisers, the St. Louis-based forecasting firm. “There’s weak demand, which just does not portend well for the coming quarters,” he said.
RBC Capital Markets put the current pace of growth at just a 0.2 percent annual rate. The chance of seeing “a negative sign in front of fourth-quarter gross domestic product is nontrivial, to say the least,” Tom Porcelli, chief United States economist at RBC Capital Markets, wrote in a note to clients last week.
If Congress and the Obama administration are able to agree on a budget deal, economists expect that economic growth will pick up in 2013. Stock markets might cheer, businesses might feel more confident about hiring workers and signing contracts and investors might feel more comfortable investing if Congress struck a deal.
The turnaround in the housing market, rising auto sales and higher consumer confidence all bode well, they note. Refinancing — supported by the Federal Reserve’s effort to buy mortgage-backed securities — would also flush more money into households.
Much of the current slowdown might be a result of temporary factors that might fade away, like fluctuations in how factories stock their inventories or the lingering effects of Hurricane Sandy.
Still, recent economic data has come in surprisingly weak. On Monday, the Institute for Supply Management reported that the manufacturing sector contracted in November, with an index of purchasing activity falling to the lowest level since mid-2009.
The report said manufacturers expressed “concern over how and when the fiscal cliff issue will be resolved” as well as a slowdown in demand.
Over all, unemployment remains high, and wage growth weak. Global growth has gone through a slowdown as well. It all adds up to a United States recovery that might remain vulnerable to shocks — like the Midwestern drought that slashed agricultural production this year, or the Japanese tsunami that depressed exports in 2011, or the long-simmering European debt crisis that has spooked financial markets — for years to come.
Economists remain nervous about the combination of the already weak recovery and the prospect of the tax increases and spending cuts — with billions of dollars of fiscal contraction likely to take place even if the White House and Congress reach a deal.
“We are worried about going too fast, too quick on the cuts side,” said former Senator Pete V. Domenici, Republican of New Mexico, on Monday at a meeting with reporters at the Bipartisan Policy Center. He was presenting a plan for a deficit reduction framework along with Alice M. Rivlin, the budget director under President Bill Clinton.
Ms. Rivlin added, “We don’t need an austerity budget.” Indeed, the two budget experts proposed including a one-year income tax rebate to give the recovery some breathing room.
Republicans Balk at Obama’s Short-Term Stimulus
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Republicans Balk at Obama’s Short-Term Stimulus
