Friday, June 10, 2011

Roundup: U.S. economy to avert double dip, but recovery to remain slow

By Matthew Rusling

WASHINGTON, June 10 (PNA/Xinhua) -- While a worrisome U.S. jobless report and other data have in recent days stirred fears of a double-dip recession, a number of economists said such a scenario is unlikely, rather, the economy will continue to recover, albeit at a snail's pace.

Last week's jobless report triggered fears of a double dip when it showed a 9.1-percent unemployment rate and only 54,000 new jobs, the smallest increase in eight months.

JD Foster, senior fellow at the Heritage Foundation, said that while a double dip cannot be ruled out, it remains unlikely at this point, barring some unforeseen shock.

"This recovery is anemic and uneven, and when you have an anemic and uneven economy, you are going to have bad quarters," he told Xinhua.

Indeed, commercial real estate and the residential housing market continue to fare poorly, he noted, and those are among the elements holding back the economy.

Moreover, other underlying components such as business investment and personal consumption are simply adequate and lack strength, Foster said.

For real jobs growth, the economy needs to grow in the range of 3.5 percent to 4 percent on a sustained basis, he said.

"And we are a long way from that," he added.

Indeed, gross domestic product growth in the first quarter of 2011 was clocked at a tepid 1.8 percent, and most economists hold that unemployment numbers will not return to pre-recession levels until around 2014.


Robert Johnson, associate director of economic analysis at Morningstar, an independent research provider, noted that Japanese auto production has dropped significantly on the heels of the major earthquake and tsunami that rocked the island nation on March 11. That has disrupted the global supply chain and impacted the U.S. economy, he said.

A number of elements go into auto production, and many products used in Japanese cars are produced in the United States.

"All those things are going to show up in many different places, so it comes as no surprise that (U.S.) manufacturing numbers look a bit weak, because of Japan," Johnson told Xinhua.

Indeed, Japan's auto industry uses a myriad of products, from steel to copper to leather to doorknobs. "They buy a little from a lot of different types of businesses," he said.

But in spite of that hiccup, the recovery continues to slog forward, an inch at a time."The economy is softer than I would like to see it, but I am not panicked that we are headed for the abyss," he said.

Others noted that job growth was merely mediocre prior to last week's disappointing unemployment report.

"This is just further proof that the recovery wasn't that good to begin with," according to a recent article posted on the CNNMoney website.

The article argued that the economy will only improve when companies hire more aggressively, the housing market bottoms out and Washington begins a meaningful conversation on the massive U.S. deficit.


A Gallup report released on Tuesday found that while many employers are holding on to their workers, hiring remains seven to eight points below early 2008, just before the U.S. economy took a nose dive.

While job creation so far this year is better than it was over the same five months in 2009 and 2010, new jobs are being created at an anemic pace compared with what is needed to lower the U.S. unemployment rate. Moreover, the rate of improvement this year compared with last is declining, according to Gallup.

The government's most recent jobs report has led many economists to reduce their forecasts for the remainder of 2011. The real question, however, is whether the recent slowdown in the economy is already being reflected in the unemployment numbers or whether there will be a further deterioration in the jobless rate, Gallup argued.

Foster of the Heritage Foundation contended that U.S. President Barack Obama's healthcare law is creating uncertainty for businesses, which are reluctant to hire because they are still unsure how much the new regulations will cost them.

"A lot of human resources departments say they don't know what Obama care is going to do, and unless they have to hire, they are reluctant to do so when they don't know the consequences of this massive law will be," he said.

Supporters of the law contended it will save money and ultimately benefit the economy.


Sam Bullard, senior economist at Wells Fargo Securities, told Xinhua he foresees no double dip on the horizon, noting that a number of factors bode well for the economy: Gasoline prices may have already peaked, which will be good for personal consumption; second quarter growth looks like it will improve; and the third quarter will see an unwinding of supply chain disruption due to Japan's earthquake and tsunami.

Many companies are also replacing equipment that they have delayed purchasing because of the recession, Bullard said, adding that his company sees growth picking up in the second half of this year.

"Unfortunately, we will have to see a bit stronger growth there to really bring down the unemployment rate," he said.

No comments:

Post a Comment

Blog Archive

The Diary Archive