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Lindsey sees slow growth
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July 11, 2001: 1:26 p.m. ET
President's top economic adviser says unemployment could rise to 5%
By CNN White House Correspondent Major Garrett
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WASHINGTON (CNN) - U.S. economic growth will remain sluggish through the third quarter, and the nation's unemployment rate could rise to at least 5 percent before a turnaround occurs, the president's top economic adviser told CNN Wednesday.
"I would not be surprised to see 5 percent unemployment by the end of the summer," said Lawrence Lindsey, director of the president's National Economic Council. "I would be surprised to see 6 percent."
Lindsey said the rate could rise above 5 percent – it's at 4.5 percent now – as job losses catch up with the dramatic cutback in business investment and as corporate profits continue to sag.
He also said that economic growth for the second quarter, which ended in June, will be near zero, and that prospects for growth in the third quarter will, at best, top out at 1 percent. He said he is hopeful for growth of close to 2 percent in the fourth quarter but would not make that a prediction.
"We've got our fingers crossed," Lindsey said.
Lindsey: Tax rebates will help
His perspective is more pessimistic than the so-called "Blue Chip" economic forecast released just Tuesday.
The Blue Chip survey predicted growth of 2 percent in the third quarter and 2.9 percent in the fourth. After the release of that report, the Bush administration sent Vice President Dick Cheney out to suggest the president's tax cut plan was at least in part responsible for the improving economic outlook.
For the long term, Lindsey said the economy's prospects are bright because of interest rate cuts and the Bush tax cut. Both, he said, should combine to spur growth early next year.
"We really did need an insurance policy, and we bought an insurance policy just in time," Lindsey said, referring to passage of Bush's $1.35 trillion tax cut over 10 years. "The test is going to be: Did we buy a big enough insurance policy? And we will know in the fourth quarter."
Economy in consumers' hands
Lindsey said it will be up to consumers to prop up the U.S. economy through the summer months. That's because corporate profits continue to fall and business investment has virtually collapsed. He said the arrival of tax rebate checks and the 1 percent reduction in income tax withholding that began the first day of July should boost consumer spending in the late summer months and early fall.
"The tax cut provides enough of a floor that we don't fall too far," Lindsey said. "We'll have a base from which to grow."
The Federal Reserve has been putting its own muscle behind efforts to prop up consumer spending; it's cut its target for short-term interest rates from 6.5 percent to 3.75 percent this year in an effort to keep money flowing through the economy.
Click here for CNNfn.com's economic calendar
As to the economic downturn's effect on federal surpluses, Lindsey said the Social Security surplus, which this year will run about $160 billion, is safe and calls by House and Senate Democrats for higher taxes to protect the surplus are off-base.
"I don't think we're going to be touching Social Security at all," Lindsey said. 
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