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Economists Increasingly Bearish on U.S. Recovery
IndustryWeek ^ | Aug. 16, 2011 | Paul Handley

Posted on 08/16/2011 6:19:02 AM PDT by voicereason

Slowing global expansion, the plunge in U.S. stock markets after Standard & Poor's cut the country's credit rating, and political pressure on the government to cut spending rather than stimulate growth are all putting the brakes on the world's largest economy, economists say.

Mostly negative data -- though with a few bright spots -- has reinforced feelings that the recovery from the 2008-2009 recession is in trouble.

And the Federal Reserve's own warning last week of increased "downside risks" to growth in the second half has added to the gloomy picture.

Mark Zandi, the top economist for Moody's Analytics, said Monday that the firm cut its growth outlook for the second half to 2%, from a 3.5% forecast just last month.

"The near-term economic outlook is significantly weaker than it was just a month ago," he said in a new report.

"The odds of a renewed recession over the next 12 months are one in three, and rising with each 100-point drop in the Dow."

Goldman Sachs said the economy appeared to be moving at less than "stall speed" after, at best, a mere 0.8% growth in the first half.

"With growth clearly below trend, the unemployment rate has crept up slightly, suggesting the possibility of a self-reinforcing deterioration in the economy," Goldman said -- also predicting a 33% chance for a recession.

Grim Data

A raft of poor economics statistics -- on second-quarter growth, layoffs and job creation, industrial production, consumer spending, and consumer and business sentiment -- underpin the lower projections.

On Friday, a University of Michigan survey showed consumer sentiment at its lowest level since May 1980.

And on Monday, the Fed's New York manufacturing survey for August also took a sharp downward turn.

The Fed gave no sense of optimism last week when it announced it would keep interest rates at ultralow levels for two more years because of the weak economy.

After a one-day meeting, the U.S. central bank's policy board forecast growth at a "somewhat slower pace" over the coming quarters than it had estimated in June.

"Downside risks to the economic outlook have increased," it added.

Also darkening the picture is the context, points out Goldman: the ongoing debt troubles in Europe, that are beginning to affect US financial institutions, and the expectation that Republicans will force more fiscal tightening domestically in the wake of the Aug. 2 debt-ceiling deal.

One key will be whether the government can push through any short-term stimulus measures, such as extending unemployment benefits or the payroll tax cut about to expire at year-end.

But S&P's downgrade "has if anything increased the likelihood of fiscal restraint," Goldman said.

The Fed hinted it is reviewing its tools to support growth, but nothing concrete has emerged, and economists are skeptical it could add much of a short-term charge.

Unemployment, Stock Markets Are Key Variables

Aside from Europe, two other variables are important -- first, the direction of unemployment, which if it worsens will slow consumer spending; and secondly, the markets.

Zandi says that if stock markets continue to fall, it will drag down wealth, confidence and spending.

"Since equity prices peaked in late April, well over $3 trillion in wealth has evaporated. Since every $1 decline in stock wealth is estimated to reduce consumer spending by three cents, the loss to date means spending will take a $100 billion hit over the coming year," he said.

Not all are as pessimistic. Jeffrey Rosen at Briefing.com has grabbed onto positive retail sales data for July released last week as a rosier sign for the rest of the year.

With falling prices for fuel and food commodities, he said, inflation will ease and consumer spending will get a boost in coming months, Rosen predicted.

Briefing, an economics consultancy, boosted its forecast for the third quarter to 2.2% from 2%.

But Rosen warned that the United States will find it hard to get growth back to more than 2.4% until consumers cut more of their debt -- a process that he said could take another decade or more.


TOPICS: Business/Economy; Front Page News; Government; Politics/Elections
KEYWORDS: economy; recession

1 posted on 08/16/2011 6:19:05 AM PDT by voicereason
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To: voicereason

economists are the last to know what is happening.

consumers and small business owners know first.


2 posted on 08/16/2011 6:21:04 AM PDT by ken21 (ruling class dem + rino progressives -- destroying america for 150 years.)
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To: voicereason
Economists Increasingly Bearish on U.S. Recovery

They aren’t the only ones!

3 posted on 08/16/2011 6:22:41 AM PDT by Jim from C-Town (The government is rarely benevolent, often malevolent and never benign!)
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To: voicereason

Spreading scum on the waters, not one thing has changed except the spin, when you get fools saying we could get out this mess’s with a good old outer space invasion. To the next day things are looking good, someone and/or somebodies are blowing smoke up your rear.


4 posted on 08/16/2011 6:25:11 AM PDT by org.whodat (What does the Republican party stand for////??? absolutely nothing.)
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To: voicereason

What recovery?


5 posted on 08/16/2011 6:38:12 AM PDT by CGalen
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To: voicereason

Whoever wants to be elected or re-elected, here is your blueprint:

Talk to small business owners, in a council type arrangement. The owner of the local Ace Hardware, the owner of a small plumbing shop, the owner of a fabrication shop.

Get their input on what they need, and build it in as part of your platform for election. Don’t talk to them like they are children, or pets, talk to them like they are titans of industry, because in their own realm, they are.

Everyone knows major corporations aren’t American, they are simply corporations. They will move in a heartbeat for a relatively small competitive advantage. They will often times move because some Ivy League educated executive thinks it’s a great idea, even though it ends up costing more in the long run.

Small businesses are American. They aren’t going anywhere. The boss generally cares about his or her employees because they work together. Most if not all of the employees take their lead from the boss. If the boss says he’s voting for candidate X because it will help the business, which in turn helps the employee. Chances are the employees will follow suit.

In this environment, it will work.


6 posted on 08/16/2011 6:39:52 AM PDT by brownsfan (I miss the America I grew up in.)
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To: voicereason

“With falling prices for fuel and food commodities, he said, inflation will ease and consumer spending will get a boost in coming months, Rosen predicted’

Just heard over the weekend that corn could go to $9/bu maybe as high as $13/bu. Katie, bar the door!


7 posted on 08/16/2011 6:40:02 AM PDT by griswold3 (Character is Destiny)
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To: brownsfan

Excellent idea.

Can we get really serious about this for a moment?

We all know that the “2008-2009 recession” is really the 2008-2011 recession and will probably become the 2008-2012 recession. Most economists have brown eyes for a reason.

We all shop for groceries, we all pay bills every month. We see what’s happening in real time via never ending streaming.

Economist blatherings are just that. Their pronouncements are carried down from their ivory towers on a hope and a wing and a prayer. We see things the way they really are. And that’s what counts!


8 posted on 08/16/2011 6:55:03 AM PDT by upchuck (Rerun: Think you know hardship? Wait till the dollar is no longer the world's reserve currency.)
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To: voicereason
...recovery from the 2008-2009 recession is in trouble.

Does anybody remember "recovery" in 2010?

When will they begin calling it the "Great Obama Depression of 2008-2012"?

9 posted on 08/16/2011 6:55:43 AM PDT by ProtectOurFreedom
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To: voicereason

Except for Paul Krugman who believes that the Mothership will come and save us, apparently


10 posted on 08/16/2011 6:56:01 AM PDT by Buckeye McFrog
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47 Days And FR Is Still Short Of Its Goal

We Are In A Fight For Our Republic

Are You In Or Are You Out?

Support Free Republic

11 posted on 08/16/2011 6:56:19 AM PDT by DJ MacWoW (America! The wolves are here! What will you do?)
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To: voicereason

Who are these economists?
They are always a day late and a trillion dollars short.
Everything is unexpected to them.

Makes you wonder how they keep their jobs.


12 posted on 08/16/2011 7:01:34 AM PDT by Texas resident (Hunkered Down)
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To: voicereason

ping


13 posted on 08/16/2011 7:15:00 AM PDT by Rich21IE
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To: voicereason

,,, the Obamatron needs to be unplugged.


14 posted on 08/16/2011 7:32:16 AM PDT by himno hero (Obamarisk)
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To: brownsfan

Well put


15 posted on 08/16/2011 7:46:12 AM PDT by templarbeat
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To: voicereason

Forty five years of liberalism is too much for this country to overcome at this point.


16 posted on 08/16/2011 9:53:37 AM PDT by crosshairs (If Sharia Law becomes the law of the land, heads are gonna roll.)
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