After a big spring, job market began to crack in April; most economies said they were not worried about the recovery. But currently, this statement turns into “we are worried now.”
“We’re worried about growth slowing down everywhere, and about it being self-reinforcing,” said Peter Fisher, global head of fixed income for Black Rock, the world’s largest asset manager. “I’m less worried about whether growth is slowing, and more worried about how much farther we have to go”, he added.
As the recovery slows, optimism is giving way to caution, with undercurrents of something darker.
Economic forecasts are coming down all over Wall Street: Goldman Sachs and Deutsche Bank both cut forecasts of second-quarter growth to just over 1%. Companies from chipmaker Intel to Morgan Stanley have missed or lowered earnings forecasts — 99 companies in the Standard & Poor’s 500 lowered second-quarter projections. In June, 22 of 30 U.S. economic-data reports also missed forecasts.
It could get much worse. A combination of expiring tax cuts and slashed federal spending set for Dec. 31 could shave 4% or more off U.S. gross domestic product next year, throwing millions of people out of work if Congress doesn’t stop them. Many economists think even a compromise that extends some tax cuts and reduces or delays spending cuts could reduce growth.
Three years into its recovery, the economy is once again on rough road. Gross domestic product — the leading barometer of the nation’s economic health because it measures the value of all goods and services made in the U.S. — equals consumer spending plus business investment plus government outlays, less the trade deficit. And all four are in trouble.
A shortage of good-paying jobs for one sees as the hurting consumption, Micron Associates Blog.
As gas prices have risen and fallen this year, the job market has been the best predictor of consumer spending, which made up 71% of last year’s GDP. When the U.S. was adding an average 225,000 jobs a month in wintertime, discretionary spending on clothing, cars and restaurants rose at double-digit rates despite more-expensive gas.
Investment is only 13% of the economy, but it’s central to boosting productivity and jobs. Companies boosted spending on new equipment and software — the biggest class of investment — by 10% last year but only 3.5% in the first quarter. That’s a quarter of the late-1990s pace. Investment in commercial buildings and structures grew less than 1% the last six months, after jumping nearly 15% in 2010.
Nearly half of corporate economists expect their companies’ capital spending to stay the same over the next 12 months, according to a new survey by the National Association of Business Economists. Only one in eight thinks it will climb 10%. The share of businesses reporting higher capital spending has fallen by half since December, the association said.