All this has taken a toll on the popular rating of young, charismatic President Obama, despite his remarkable legislative accomplishments to lay the foundations for a new economy rid of boom-bust cycles. “We are headed in the right direction (but) it will take years to fully repair the damage and we cannot bring back all jobs (over eight million) lost (in the recession) and restore our economy to full strength overnight”, he told the American people on July 24.

The great question now is whether President Obama, who is already in a campaign mode, would be able to reverse a seemingly rising tide against Democrats with belligerent Republicans out to wrest control of the Congress from Democrats in the midterm November elections. They have, over the last 18 months, consistently rebuffed the President's gestures of bipartisanship, and voted against the massive fiscal stimulus to combat recession with tax cuts for middle class to stoke recovery, health care reform and other crucial bills to extend relief to unemployed and provide loans to small businesses which create most jobs.

To an extent, in a milieu of despondency with lost jobs not being restored, the Conservatives have succeeded in raising doubts about the effectiveness of all the Obama measures which, they contend, would expand the Federal Government and run America deeper into deficit with soaring debt.

At stake in the November 2 elections are the 435 seats in the House of Representatives and 36 of the 100 -member Senate. Democrats tend to be defensive against the Republican onslaught in touting their own achievements beginning with President Obama's massive fiscal stimulus, which helped to bring the economy back from brink in the aftermath of the worst-ever financial and economic crisis, and the historic health care and Wall Street reforms. Many Democrats pin their hopes on President Obama's standing and proved ability in coping with the inherited challenges including the worst recession, trillion-dollar deficit and two wars. And the President strikes an air of confidence in all his utterances and declared that the Republicans “will not be handed over the keys”.

Americans are more concerned with the state of economy today of the world's richest and powerful nation.

The latest assessment of US economy by IMF notes that post-recession recovery remains slow by historical standards, despite the extraordinary measures of monetary accommodation - Fed maintaining interest rates close to zero and asset purchases to ameliorate financial strains - and the Administration's fiscal stimulus equivalent to 5 per cent of GDP during 2009-11. Though economic growth has been positive for four weeks consecutively since the latter half of 2009, it dropped disappointingly to 2.4 per cent in April-June, from 3.7 per cent in the first quarter. The sovereign debt crisis in Europe has elevated the risks for both EU and USA.

IMF noted the “outlook remains uncertain, private demand sluggish and unemployment rate receding only modestly”. Also, US financial system seems to be slowly recovering after “the most devastating financial crisis in a century” leading to massive costs in terms of jobs lost and significant damage to economy with spillovers to the rest of the world. The Administration's “bold and aggressive” response has been commended by IMF as well as mainstream economists while the Obama Administration is equally underlining its commitment to fiscal stabilisation, bringing the level of deficit down from the present 10 per cent to 4 per cent of GDP by the middle of the decade.

The President expects by the end of the year the recommendations of the bipartisan Fiscal Commission on ways to balance the budget and stabilise the debt-to-GDP ratio at an acceptable level once the economy recovers. IMF has, however, called for social security and other entitlement reforms for longer-run fiscal sustainability. But all this cannot detract from the larger picture of America stumbling for years to restore growth that would help to make a real dent on unemployment to shrink it to the US average level of 5 per cent. There are no quick fixes to overcome what IMF calls the nation's “major fiscal and generational imbalances”.

US Treasury Secretary Timothy Geithner acknowledges that there is a long way to go to address the fiscal trauma and damage across the country but by taking “aggressive action to fix the financial system, reduce growth in health care costs and improve education, we have put the American economy on a firmer foundation for future growth”. Now and then economic data give mixed signals, such as manufacturing and consumer spending which was stagnant in June. But the Administration maintains that business investment and consumption - two keys to private demand - are getting better than last year and the first quarter of 2010.

The President has lately highlighted the turnaround in the automobile industry which had to be bailed out, initially by the Bush Administration and later substantially reinforced by the Obama Administration. Of the Big Three, only Chrysler, which was almost turning bankrupt and General Motors received solid though conditional loans and they have now turned leaner and generating profits. Ford has been doing relatively better but auto sector as a whole registered higher sales in July.

According to US Treasury statement, major banks, forced by the stress tests to raise capital and open their books, are stronger and more competitive. Now, as businesses expand again, “our banks are better positioned to finance growth“. However, they face spill-over risks from European debt crisis. Exports are gaining while private job growth is slow.

Overall assessment by the Federal Reserve is that the economy is not rid of uncertainties and has a long way to go to achieve a full recovery for job growth. The recession battered the budgets of state and local governments, as revenues declined sharply and they cut their programs and work forces.

Fed is considering options to ease conditions should the economy continue to falter in the second half of the year besides maintaining its interest rates around zero. Fed's Open Market Committee meeting on August 10 may throw up signals on its future course of action, considering the persisting level of unemployment.(IPA Service)