U.S. economy moving sideways again Momentum unlik

U.S. economy moving sideways again
Momentum unlikely to pick up much in third quarter
WASHINGTON (MarketWatch) — All evidence points to another slowdown in the U.S. economy and the government is expected to make it official on Friday.
The key economic report of the week, gross domestic product, is likely to show growth fizzled in the second quarter. The U.S. probably grew at a tepid 1.3%, down from 1.9% in the first quarter and 3.0% in the last three months of 2011, Economists surveyed by MarketWatch estimate.
That’s bad news for millions of Americans who still cannot find work several years after the last recession officially ended. Such a slow growth rate reflects an economy incapable of adding jobs fast enough to dramatically lower the nation’s 8.2% unemployment rate.
Yet with the second-quarter now in the rearview mirror, the more critical question is whether sluggish growth will persist in the third quarter — July through September. The short answer: probably.
http://www.marketwatch.com/story/us-economy-m...2012-07-22

The headwinds from overseas are well known. Europe still has not resolved a financial crisis that has sapped its economy. And growth in China, the world’s second largest economy, has also slowed.

The darker global picture has undercut American exports, a major source of growth over the past year.

Anxiety in the U.S. is also growing, for different reasons. Many businesses are increasingly worried about a so-called fiscal cliff — large spending cuts and tax increases set to take effect Jan. 1 unless squabbling Democrats and Republicans in Washington agree to change current law.

The confluence of concerns at home and abroad have undermined the confidence of American consumers and businesses. The result: Less confident consumers have cut back on spending while businesses are delaying major investments. Retail spending, for example, has fallen three straight months for the first time since the recession.

That’s a recipe for very slow growth.

“Businesses are being very careful in regards to investment. Unemployment remains elevated. And consumers are still very cautious,” said economist Sam Bullard at Wells Fargo. His firm projects GDP will rise only slightly in the third quarter to about 1.4%.

What’s needed, economists say, is a locomotive to pull the economy forward faster. There are not many growth engines in sight, however.

Perhaps the most positive development is a plunge in gas prices since early spring. Deutsche Bank economists estimate consumers could be freed up to spend an additional $30 billion over the rest of the year if gas prices remain at current levels.

The drop in gas prices, what’s more, has reduced inflationary pressure and lowered the cost of living. Even though wages are not rising very fast, each dollar of income can go a little further for American workers.

The housing sector, meanwhile, has gained momentum after suffering its worst slump in modern times. Economists say the sector is likely to contribute to U.S. growth this year for the first time since 2007.

The latest figures on new home sales will be released Wednesday. Sales are forecast to rise to an annual rate of 375,000 in June from 369,000 in May. That would mark a 23% increase compared to one year earlier, though it’s still well below historical norms.

Bob Baur, chief economist at Principal Global Investors, says the actions of government in the U.S. and around the world will also help growth.

For one thing, he points out that central banks around the world have finally joined the Federal Reserve in slashing interest rates to near zero. That should boost growth in China and elsewhere and drum up demand for U.S. exports.

More than half of U.S. states, meanwhile, now have budget surpluses and Baur expects them to increase spending soon as they enter a new fiscal year. State spending had been falling at an annual 2% rate, he calculates.

“We do see a few tailwinds for the second half,” he said.

The upshot is, analysts expect the U.S. to continue to grow and not fall back into recession barring a sudden shock — such as Washington actually allowing the economy to go off the “fiscal cliff.” The economy just won’t expand rapidly.

“There is not a lot of incentive for businesses to go out and make large bets until they know what’s going to happen,” Bullard said.