The barely discernable economic recovery: What happened?
The US is no longer in a recession, most economists say. But the economic recovery has slowed due to cautious attitudes among consumers and businesses, among other factors.
New Yorkers hustle past Macy’s flagship store. The chain reported a 20-fold increase in
profits over last year. Overall, though, consumers are spending little.
Richard B. Levine/Newscom
Signs of economic recovery, which looked promising early this year, have seemed to wilt as the sun grew hotter.
The economy didn't go off a cliff, but the upward momentum stalled. Some important indicators, such as retail sales, registered outright declines.
This slowdown caught forecasters partly by surprise and has prompted new worries about the risk of another recession. For investors, a recent move by the Federal Reserve toward a more cautious policy stance did more to confirm fears than to assuage them.
Why did the stall happen, and what does it portend?
Many factors played a role, from a crisis in Europe to the end of a tax credit for home buyers. Most forecasters continue to see slow growth ahead, but they say a "double dip" into recession is possible – and is more likely now than during a typical early-stage recovery.
"One of the biggest things that is facing us as a country is just consumer confidence. I think that's what's keeping people from buying homes right now," says Paul Latture, president of the Rutherford County Chamber of Commerce in Murfreesboro, Tenn. "Just about everybody has felt a slowdown in the economy."
Knowing what will come next is difficult for two reasons. First, economists often fail to accurately predict turning points (they generally missed the onset of recession at the end of 2007, for example). Second, as the moniker "Great Recession" implies, this downturn has been a different animal. For the first time in at least 60 years, the US economy is trying to shift back into growth mode even as the flow of credit has been diminishing.
"Odds of a near-term double-dip recession, which appeared to be about 1 in 5 this spring, are now greater than 1 in 4," economist Mark Zandi of Moody's Economy.com wrote in an Aug. 16 report. "The recovery remains tentative, and nothing else must go wrong."
The consensus view of economists surveyed recently by the Federal Reserve Bank of Philadelphia is that there's a 17 percent chance that America's overall gross domestic product (GDP) will contract in the final quarter of this year and the first quarter of 2011. Still, during the next five quarters, their base-line forecast is for GDP growth ranging from 2.3 to 3.1 percent.
All this is a step down from the pace of growth seen earlier this year when first-quarter growth rolled along at a 3.7 percent annualized pace. In the second quarter, growth came in at 2.4 percent, according to an advance estimate. And the job market cooled noticeably.
