Summers: ‘Substantial Amount’ of Credit Crunch, ‘Recession Probabilities Are Going up’

During an interview aired on Friday’s broadcast of Bloomberg’s “Wall Street Week,” Harvard Professor, economist, Director of the National Economic Council under President Barack Obama, and Treasury Secretary under President Bill Clinton, Larry Summers stated that the March jobs report doesn’t have much meaning for interpreting the economy because it’s backward-looking, but “we’re getting a sense that there is some substantial amount of constriction in credit.” And forward-looking numbers are weakening, so “recession probabilities are going up at this point.”

Summers said, “I think this was not a very newsworthy bit of news. Things came in pretty much as people expected. The numbers reflected the strength that we certainly saw in the early part of the first quarter. I don’t think this bears on — very much on interpreting the economy, because the numbers are a few weeks old when we get them. And, more importantly, because those numbers — employment and unemployment — are lagging indicators of what’s happening in the real economy. So, the real question is still how much of a credit crunch is coming in the wake of all the banking problems, in the wake of all the disturbances in the banking sector. And that’s a very hard thing to know.”

He added, “I think we’re getting a sense that there is some substantial amount of constriction in credit. If you looked at the forward-looking numbers this week from the PMI surveys, those numbers were really quite weak. If you look at the UI claims with the new seasonal adjustment, they’re suggesting much less strength than they had been earlier. When you [look] at vacancies, they seem to be coming down. So, I think you have to say that recession probabilities are going up at this point. And I think the Fed’s got very, very difficult decisions ahead of it with very much two-sided risk. That’s a consequence of where we sort of found ourselves with an overheated economy.”

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