Economic Uncertainty Despite Obama Cheer

As Obama touts auto industry rebound, companies betray fear of the unknown.

July 30, 2010, 9:06 PM

July 31, 2010 — -- Behind the wheel of a glossy black Chevy Volt plug-in car Friday, President Obama sought to drive home some good news about his 2009 bailout of the auto industry on the same day the country learned that the growth of the economy as a whole is slowing down.

Serendipitously, though, the president's trip to Michigan coincided with positive announcements from both Chrysler and GM, the two American auto companies bailed out by the federal government.

Chrysler announced its plans to add a second shift at the Sterling Heights Assembly Plant near Detroit early next year and to keep it open past 2012, the year that the company previously had slated for the plant's shutdown.

In a similar statement, GM disclosed its intentions to manufacture 45,000 Chevy Volts by 2012; a figure that is 15,000 cars stronger than GM's initial production plan.

With those indications of the auto industry's improving fortunes, Obama seized the opportunity to defend his bailout of the two companies, which have received more than $62 billion in bankruptcy assistance and direct bailout funds since 2009.

"This plant and your jobs might not exist," he told workers at Chrysler's Jefferson North plant Friday. "There were leaders of the 'just say no' crowd in Washington. They were saying, 'Oh, standing by the auto industry would guarantee failure.' One of them called it 'the worst investment you could possibly make.'"

President Obama then proudly pointed out that the car makers saved by his administration's controversial bailout -- so heavily criticized by his Republican opposition -- are making money now and have added 55,000 jobs.

"They don't like admitting when I do the right thing, but they might have had to admit it," the president said. "And I want all of you to know now that I will bet on the American worker any day of the week."

Report Shows Economic Growth Slowing

Outside of the auto industry, however, American workers have little reason to cheer. The government released a report Friday that revealed economic growth has come to a relative halt. Specifically, economic growth in this country has slowed from 5 percent in the last quarter of 2009 to 3.7 percent in the first quarter of 2010 and then to 2.4 percent in the second quarter.

When combined with the current 9.5 percent rate of unemployment, these numbers paint a dismal picture for the average American worker and, perhaps, an even murkier picture for Obama's Democratic allies ahead of November's midterm ballot.

"Underlying growth is tepid and the uncertainty from the political side is tipping everything in the direction of more caution, less hiring and less growth," said Dr. Martin Regalia, chief economist for the U.S. Chamber of Commerce.

The problem is not that companies lack the money to expand. Rather, studies have shown that they are sitting on close to $1.8 billion cash. They simply are not spending it because the current economic climate is beleaguered by uncertainty.

"Businesses have lots of cash. Big businesses, in particular, are very profitable," said Mark Zandi, chief economist at Moody's "I think they're just nervous about a great deal of the policy uncertainty coming out of Washington. We're debating really large things -- health care, energy, tax policy, financial regulatory reform -- all very important, and we need to discuss and debate these things. But it makes business people very nervous."

There are many reasons for companies to be uncertain at the present moment, and growth is only one. They are uncertain about whether costs will rise under the new health care bill and what that will mean for taking on new workers. They are uncertain about whether taxes will rise at the end of the year. And they are uncertain about how they will be affected by all of the new financial regulation rules that are yet to be written.

"It's simply dealing with the unknown," Regalia said. "And when people have been through a significant downturn, there is fear of making a fatal mistake."

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