White House adviser says parts of U.S. in recession

WASHINGTON (Reuters) - Parts of the United States, struggling with high jobless rates, seem to be in recession, but the government's plan to support credit markets will help, President George W. Bush's top economic adviser said on Sunday.

"We are seeing what anyone would characterize as a recession in some parts of the country," Edward Lazear, chairman of the Council of Economic Advisors, told CNN.

Unemployment in some areas is running "much higher" than the 6.1 percent national level, he said.

Lazear said the administration "has taken the right steps" to thaw out credit markets and get loans flowing to businesses and consumers.

Although it will take a few months for a significant impact from the Treasury's $700 billion credit market rescue plan, the first signs of response are already apparent, Lazear said.

"Banks are now willing to lend to one another. That's a huge plus for the economy because the big problem has been that banks have been unwilling to trust one another," he said. As lending picks up, the flow of money through the economy will be "amplified immediately."

Certain benchmark credit spreads have shrunk over the past week as new liquidity measures by global central banks and governments have started to kick in.

Those spreads have been at unusually high levels, a reflection of risk aversion among banks.

"If you look at the numbers that we've seen this week ... it looks it is working. All the numbers have been going in the right direction."

Lazear said the U.S. budget deficit would grow because of the cost of the bailout plan, but declined to say how high.

"The deficit is important (but) the main focus is turning the economy around," he said.

(Reporting by Ros Krasny, editing by Maureen Bavdek)

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