Few think sluggish US economy will strengthen soon

[July 27, 2012]  WASHINGTON (AP) -- A U.S. economy that plodded along in the first three months of the year likely grew even less in the April-June quarter. And most economists no longer think growth will strengthen much in the second half of 2012.

Weaker hiring, nervous consumers, sluggish manufacturing and the overhang of Europe's debt crisis might be pointing toward everyone's big fear: another recession.

Against that background, the government on Friday will issue its first of three estimates of how much the U.S. economy expanded last quarter. The consensus forecast is that growth slowed to an annual rate of 1.5 percent, according to a survey of economists by data firm FactSet. The Commerce Department will issue the estimate at 8:30 a.m. EDT.

A quarterly growth rate of 1.5 percent would be the weakest in a year. It would follow a meager 1.9 percent rate in the first three months of 2012.

Much more growth would be needed to fuel stronger hiring. Economists generally say even 2 percent annual growth would add only about 90,000 jobs a month. That's too few to drive down the unemployment rate, which is stuck at 8.2 percent.

The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009.

Until a few weeks ago, many economists had been predicting that growth would accelerate in the final six months of the year. They pointed to gains in manufacturing, home and auto sales and lower gas prices.

But threats to the U.S. economy have left consumers -- who account for about 70 percent of the economy -- too anxious to spend freely. Jobs are tight. Pay isn't keeping up with inflation. Retail sales fell in June for a third straight month. Manufacturing has weakened in most areas of the country.

Fear is also growing that the economy will fall off a "fiscal cliff" at year's end. That's when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.

All that is making companies reluctant to expand and hire much.

From April through June, U.S. job growth slowed to 75,000 a month, down from a healthy 226,000 average in the first three months of the year.

"The European situation has been getting worse and is dragging down the global economy," said Sung Won Sohn, an economics professor at California State University. "And we have got the fiscal cliff to worry about in the United States."

Six of the 17 countries that use the euro currency are in recession. Growth has also weakened in powerhouse emerging markets in China, India and Brazil. With these economies slowing, so is their demand for U.S. exports.

Sohn estimates the likelihood of a U.S. recession within the next 12 months at 30 percent to 35 percent. That's up from his estimate of 20 percent six months ago.

Nariman Behravesh, chief economist at IHS Global Insight, puts the chance of a recession at 25 percent. He expects growth to increase slightly to an annual rate above 2 percent in the second half of this year.

Other economists are gloomier. They think growth will muddle along below 2 percent through 2012.

Many economists think consumers pulled back sharply on spending last quarter. Analysts at JPMorgan estimate that consumer spending grew at a scant 1 percent annual pace in the April-June period, down from a 2.5 percent annual increase in the first quarter.

"Businesses and consumers are quite worried, so they're holding back," Behravesh said. "For consumers, the worry is the jobs markets. Businesses are worried about Europe. And China is looking weaker than most of us would have thought even a few months ago."

Behravesh said even companies that think Congress will manage to reach a budget deal by year's end are too uncertain about possible tax changes to step up hiring.

"That is making them very cautious about investment decisions," he said.

In delivering the Federal Reserve's midyear economic report to Congress last week, Chairman Ben Bernanke sketched a bleak picture. And he warned that unless lawmakers strike a deal, the tax increases and deep spending cuts that will take effect Jan. 1 could trigger another U.S. recession.

Bernanke has said the Fed is prepared to take further action if unemployment stays high. He hasn't specified what steps it might take or whether any action is imminent.

The lackluster economy is also raising pressure on President Barack Obama in his re-election fight with Mitt Romney, the presumptive Republican presidential nominee.

But few think the Fed, the White House or Congress can or will do anything soon that might rejuvenate the economy quickly. Many lawmakers, for example, refuse to increase federal spending in light of historically large budget deficits.

"There is nothing out there to light a fire under the economy," said Joel Naroff, chief economist at Naroff Economic Advisors.

[Associated Press; By MARTIN CRUTSINGER]

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