Is the U.S. economy headed for a recession before it fully recovers from the last one? Unfortunately, it's a timely question.
Divide the answer in two parts: What we know. What might happen.
We know growth is painfully slow, and slowing. Federal Reserve Chairman Ben Bernanke last week suggested that the American job-creation machine is "stuck in the mud."
The economy expanded at a 1.9% annual rate in the first quarter. The second quarter was worse. Analysts expect the government estimate, due Friday, to be between 1% and 1.5% despite a boost from housing and auto sales.
Retail sales have fallen for three months in a row. Consumer confidence is sinking. Manufacturing, which had been vigorous, shows signs of weakening. Government belt-tightening is restraining growth.
Europe, which still buys about one-fifth of U.S. exports, is in recession, and the rest of the world is slowing. Drought is sure to push up food prices, pinching consumer spending on other things.
Most forecasters add this up and predict sluggish growth, but no recession. "We don't see a double-dip recession," Mr. Bernanke told Congress last week. "We see continued moderate growth."
But the Fed has been overly optimistic. In June 2011, officials predicted the U.S. would grow between 3.3% and 3.7% this year. Last month, they forecast bet ween 1.9% and 2.4%, and some have grown gloomier since.
A few CEOs are sounding alarm bells. "A lot of weak numbers over the past two months caused us concern for the next six months," Scott Davis of United Parcel Service Inc. told analysts Tuesday.
He predicted the U.S. will grow at close to 1% in the second half of 2012. "It's going to get tougher before it gets better," he said. He doesn't see a recession, though.
In a recent Wall Street Journal survey, forecasters put the chances of a recession in the next 12 months at a reassuringly low 21%. But economists rarely foresee recessions.
In August 2007, they put recession odds at 28%. Within four months, the economy had fallen into what became the worst recession in more than half a century. In the recent survey, 39 forecasters said risks to their slow-growth forecasts were on the downside; only four said risks were on the upside.
To use another metaphor heard in the corridors of the Fed, the U.S. economy is barely flying at stall speed. It wouldn't take much to push it down.
What's on the horizon? Not much good.
Markets are testing European politicians' resolve to do more than affix Band-Aids to banking and sovereign-debt wounds. U.S. exports, through April, were running 5% above year-ago levels, but Europe is likely to get worse before it gets better.
There is an uncomfortably large possibility that Europe will do something (or fail to do something) that will depress U.S. exports, roil global financial markets and add to the palpable anxiety pervading U.S. households and companies.
On the top of that, the worse Europe gets, the weaker the euro. That means a stronger U.S. dollar, which will make U.S. exports costlier in Asia and other places where U.S. and European producers compete.
Oil prices are down from recent highs, and that's helpful. But with Iran backed into a corner by the U.S. and Syria immersed in civil war, how long before oil prices rise again?
Government in the U.S. is a minus, too. State and local governments are squeezing spending and raising taxes as federal stimulus aid wears off.
Washington is on track to do the same, abruptly if Congress fails to avoid spending cuts and tax increases set for year-end, less abruptly if a compromise is found to avoid this "fiscal cliff."
Of economists surveyed by Blue Chip Economic Indicators, 89% say worries about the fiscal cliff will hurt second-half growth. Most say the impact will be "small."
But the closer we get to the end of the year without a clear plan for steering away from the cliff, the likelier it is that anxiety will prompt consumers, investors and businesses to pull back.
Because of Washington's partisan fiscal paralysis, no matter how much worse the near-term outlook gets, Congress is unlikely to come to the rescue soon w ith another dollop of tax cuts or spending increases. That's one reason the Federal Reserve is contemplating what more it can do to give growth a chance...
Source: Argentine Beef Packers S.A.
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