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Thursday, June 2, 2011

US recovery slows, fueling stagnation fears

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A home is for sale in Glendale, California, in May
© AFP/File Robyn Beck
AFP

WASHINGTON (AFP) - Revelations that key sectors of the US economy were pummeled last month have rekindled fears that the world's largest economy faces protracted high unemployment and lackluster growth.

Exactly two years after the recession officially ended, weakness in the jobs, housing and manufacturing sectors left economists scrambling to downgrade their growth predictions on Wednesday.

"This week is the most important week for assessing the strength of the May economy, and growth is looking much softer than we were forecasting," said John Ryding and Conrad DeQuadros of RDQ Economics.



Confidence was buffeted early in the week by news that house prices have fallen below levels seen during the "Great Recession".

Compounding that, private sector job growth slowed in May to the lowest rate since September 2010 and the manufacturing sector suffered one of sharpest decelerations in decades.

Most economists now predict growth to be well under three percent for the second quarter, a sclerotic rate of recovery from the deepest recession in eight decades.

The grinding pace of growth is likely to spell further pain for the 13.7 million Americans who are out of work.

The head of the Federal Reserve's Cleveland region, Sandra Pianalto, on Wednesday lamented that just 1.8 million of the nine million jobs lost in the recession have been recovered and warned of a long slog ahead.

"I anticipate it could take about five years for unemployment to reach its long-run sustainable rate of 5.5 to six percent," she said.

Private payrolls firm ADP on Wednesday said the private sector added a measly 38,000 jobs in May, almost one-fifth of what was expected.

That led Moody's Analytics to downgrade its expectations for May's official job creation figures, released Friday, to a paltry 80,000 from an originally forecast of 175,000. The official figures include data on jobs in the public sector, which has faced tough cuts.

Although hopes for a supercharged recovery were jettisoned long ago -- amid Europe's debt crisis, Japan's devastating earthquake and higher oil prices caused by Middle East unrest -- recent weakness has caused palpable concern.

According to a survey by HPS Insight, 95 percent of Americans believe the country is in recession, or feel like it is, despite experts judging it ended in June 2009.

Experts pinned much of the recent weakness on higher commodity costs, the impact of the Japan quake and continued high unemployment that brings weak consumer spending.

"The surge in gasoline essentially sapped household spending power by approximately $100 billion over the past five months," said Joseph LaVorgna, chief economist with Deutsche Bank.
But the repercussions are seen trickling out across the economy.

Auto sales are now not expected to reach pre-recession levels until after 2015, according to analysts at Edmunds.com.


Still, economists and White House advisers hope the current economic "soft patch" will be short lived.

"(I) strongly believe that the economy will bounce back quickly from the series of shocks that have piled on the economy in early 2011," said Stephen Stanley of Pierpont Securities.

And after bad industrial sector news, Ron Bloom, Obama's senor counselor for manufacturing, said he was confident of a rebound.

"The long-term trend on manufacturing since the bottom of the recession is quite positive, and I think we remain optimistic that manufacturing has a good future."

But if the broader economy does bounce back it will have to do so with limited help from Washington.

The Federal Reserve's $600 billion stimulus plan is expected to end in June and Fed chairman Ben Bernanke has warned the benefits of future stimulus may outweigh the drawbacks.

Lawmakers meanwhile are locked in a debate about cutting spending, and any move to provide further fiscal stimulus would be deeply unpopular.

© AFP -- Published at Activist Post with license



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