The world's largest economy may be facing a growth problem.
After a disappointing first quarter, economists largely predicted the U.S. recovery would ramp back up as short-term disruptions such as higher gas prices, bad weather and supply problems in Japan subsided.
But there's little indication that's happening. Manufacturing is cooling, the housing market is struggling and consumers are keeping a close eye on spending, meaning the U.S. economy might be on a slower path to full health than expected.
"It's very hard to generate a rapid recovery when rapid recoveries are historically driven by housing and the consumer," said Nigel Gault, an economist at IHS Global Insight. He expects an annualized, inflation-adjusted growth rate of less than 3% in coming quarters—better than the first-quarter's 1.8% rate, but too slow to make a meaningful dent in unemployment.
A growing number of forecasters are downgrading their second-quarter growth predictions. JPMorgan Chase & Co. economists revised down their estimate to a 2.5% rate from 3%, while Bank of America Merrill Lynch economists cut theirs to 2% from 2.8%. Deutsche Bank cut its forecast to 3.2% from 3.7%.
Companies are similarly cautious. Applied Materials Inc., the largest maker of machines used in producing computer chips, said it expected growth in its semiconductor and solar markets to slow following one of its best quarters ever. Hewlett-Packard Co. cut its fiscal-year outlook amid weak computer sales and negative effects from the disaster in Japan. Clorox Co. offered a more guarded outlook for its household goods business as executives noted that higher prices may hurt sales.
The dimming outlook raises a deeper question about the economy's health: Has it emerged from the financial turmoil of 2008 and 2009 with a chronic growth problem?
Some economists think it has. "We keep expecting the economy to perform along norms that are very difficult to achieve when you have this much private debt and public debt," said Carmen Reinhart, an economist at the Peterson Institute for International Economics. She thinks the Federal Reserve's forecasts have been too optimistic, and the U.S. could be in for a protracted period of subpar growth and high unemployment.
Let's make a few, important points.
1.) No one is calling for a recession -- although expect that call to start back up again with stories like this.
2.) There are several contributory problems: a consumer who is spending less, housing is still weak and I would add a slowdown in emerging markets which was driving the resurgence in manufacturing as well as austerity measures at the federal and state level.
3.) The good news about the recent slowdown is this: it will cause weaker commodity demand, which will help stave off the inflationary calls and high gas prices. The drop in gas prices may add a quiet boost to the economy.