July 28, 2012 in Nation/World

Economy appears stuck in neutral

Weak growth likely to last, analysts say
Don Lee McClatchy-Tribune

WASHINGTON – A weak second-quarter economic report made it clear that the United States remains stuck in a painfully slow recovery for the foreseeable future.

Analysts now say that the economy for the rest of this year will look much like it does today, with the November election taking place in an economic middle zone – neither robust growth nor a plunge into recession.

Fresh government data Friday confirmed that economic growth slowed in the second quarter as consumers, despite seeing relief from lower gasoline prices, pulled back on spending for cars and other big-ticket items.

The nation’s gross domestic product, the value of all goods and services produced in the U.S., grew at a meager 1.5 percent annual rate in the April-to-June quarter. That was down from 2 percent in the first three months this year and 4.1 percent in the final quarter last year, the Commerce Department reported.

The slowdown in GDP was broad-based: Business investments expanded at a weaker pace; net exports were softer, thanks to flagging demand from Europe; and government spending cuts continued to be a drag on the economy.

Those conditions seem likely to persist through the rest of the year, though some significant risks remain, particularly the economic turmoil in Europe and next year’s scheduled tax increases and federal spending cuts.

Even as stock markets surged this week on encouraging news from the European Central Bank – the Dow Jones industrial average closed above 13,000 on Friday – experts don’t see a quick resolution to the continent’s deep fiscal and debt problems.

“Part of the rally is the market saying, ‘Oh, there’s not going to be a meltdown,’ ” said Stephen Auth, chief investment officer at money manager Federated Investors Inc. in New York.

Mark Zandi, chief economist at economic research firm Moody’s Analytics, said the latest GDP report offers more evidence that “it’s going to be a struggle, a slog, over the next six to 12 months.”

For President Barack Obama and Republican challenger Mitt Romney, that probably means economic factors won’t dramatically shift the current tight race one way or the other.

The slow growth is not good news for Obama, but neither is it the sort of terrible news likely to change the views of the roughly 90 percent of voters who have firmly made up their minds between the candidates.

Nor is it so dramatic that it would attract the attention of the remaining undecided voters, who tend to be people who follow news only sporadically.

“As a result, I think we’re going to end up with a real nail-biter going up to Nov. 6,” Auth said.

At the current GDP growth rate, the economy probably would add fewer than 100,000 new jobs a month, said Sung Won Sohn, an economist at California State University, Channel Islands. That means little change in the 8.2 percent unemployment rate.

Second-quarter GDP growth was slightly better than the 1.3 percent rate that analysts had forecast. And if there was a silver lining in the mediocre performance, it’s that the report further raised expectations that the Federal Reserve would step in with new stimulus, possibly as early as its meeting next week.

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