Analysis: Anxiety mounts as economy limps into second half

Thu Jul 5, 2012 4:42pm EDT
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By Lucia Mutikani

WASHINGTON (Reuters) - A slew of weak economic data is casting doubts over expectations of a pick-up in growth in the second half of the year.

From manufacturing to job growth to consumer spending, the numbers have been grim, and economists are wondering whether they need to dial down forecasts for the remainder of the year.

"Our sense was that of a gradual improvement. Now the sense is of muddling along at a low level of activity," said Adolfo Laurenti, deputy chief economist at Mesirow Financial in Chicago. "We went from seeing progress, though gradual and very uneven, to not seeing progress at all."

The economy grew at a 1.9 percent annual pace in the first quarter and estimates for the April-June period are increasingly coming in around 1.5 percent.

A high level of uncertainty as Europe struggles with a debt crisis and as the United States stares at the prospect of a sharp budgetary tightening at the start of next year seem to have led businesses and ordinary Americans to watch their dollars carefully.

While the so-called U.S. fiscal cliff - a combination of expiring tax cuts and automatic government spending cuts - will be hit only in early 2013, if Congress does not act, an increasing economic toll could be exacted in the second half of this year.

"I don't think we are going to get a resolution before the fourth quarter," said Julia Coronado, chief North America economist at BNP Paribas in New York.

"Companies and households won't know what their tax liabilities are going to look like in 2013, what the regulatory or spending backdrop is. It's going to be an uncertainty which weighs on people's ability to make plans."   Continued...