April 26, 2009 / 4:13 PM / 9 years ago

Summers says U.S. economy's freefall has ended

* Obama economic adviser sees positive US economic signs

* Summers says ‘sense of unremitting freefall’ has ended

* Treasury’s Geithner says US to sustain economic support

By Donna Smith and Will Dunham

WASHINGTON, April 26 (Reuters) - The sense of “unremitting freefall” in the U.S. economy has ended and the picture is no longer completely negative, but rather mixed, President Barack Obama’s economic adviser Lawrence Summers said on Sunday.

Speaking on the “Fox News Sunday” program, Summers also said the “vast majority” of U.S. banks are well capitalized and expressed hope that the auto negotiations between Chrysler and Italian carmaker Fiat SpA FIA.MI would work out.

“Six or eight weeks ago, there were no positive statistics to be found anywhere. The economy felt like it was falling vertically. Today, the picture is much more mixed,” Summers said.

“There are some negative indicators, to be sure. There are also some positive indicators. And no one knows what the next turn will be,” he said. “But I think that sense of unremitting freefall that we had a month or two ago is not present today. And that’s something we can take some encouragement from.”

The U.S. economy, now in its 16th month of recession, shrank at a 6.3 percent annual rate in the fourth quarter of 2008, the steepest quarterly plunge in more than 26 years. Economists expect a report on Wednesday to show it slipped a further 5 percent in the first three months of this year.

Still, steep drops in consumer spending and home sales appear to easing, raising hope the worst may be over.

The Group of Seven industrial powers reached the same conclusion about the global economy at a meeting on Friday. But U.S. Treasury Secretary Timothy Geithner cautioned that an easing in the downturn should not be confused with recovery.

On Sunday, he told world development ministers meeting in Washington that the United States was not going to let up in its efforts to spur growth. “The United States will sustain action as long as necessary to see growth resume, not just nationally but globally,” he said. [ID:N26488498]

LONG WAY TO GO

In his television appearance, Summers also sounded cautious about the U.S. economy. “We’ve got a long way to go. There are still serious problems in this economy,” he said.

“But ... the measures we’ve taken are, I think, very strong (and) offer the prospect of containing a very serious situation,” he said.

Working with Congress, the Obama administration has put in place a $787 billion package of tax cuts and government spending to spur growth. In addition, the Federal Reserve has cut interest rates to near zero and pumped money into distressed credit markets to try to free up lending.

Summers said that while the United States had laid the groundwork for a recovery, he expected to see sharp declines in employment for quite some time. History shows it takes some time, six months or more, for a stimulus program to work its way through the economy and job creation to begin, he said.

“I suspect the economy will continue to decline for some time to come,” Summers said. But he noted that the consensus among forecasters suggests the economy will perform better by the end of the year.

GOV‘T IN POSITION TO SUPPORT BANKS

Summers added that the “vast majority” of U.S. banks are well capitalized but said further steps to shore up the financial system are needed.

“It can be done in many ways, by raising private capital through exchanges, back-stopped by government capital where necessary. But I think we’re going to be in a good position to provide the support and set the framework in which the banking system can move along the process of recovery,” Summers said.

U.S. regulators on Friday outlined how they “stress tested” the health of the country’s top 19 banks, and said banks would need to hold substantially more capital than usually required to guard against the risk of a more severe economic downturn.

Regarding the Chrysler-Fiat negotiations, Summers said are issues have been worked out and some remain.

“But it’s in everybody’s interest, we believe, to see these negotiations succeed. And we’re hopeful that they will. It’s obviously a situation that we’re monitoring carefully,” Summers added.

Chrysler faces a Thursday deadline by the Obama administration to reach cost-cutting deals and cement an alliance with Fiat. If the automaker fails to do that, the U.S. government could withhold further loans and the company may face liquidation. (Additional reporting by Glenn Somerville, editing by Philip Barbara)

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