Economic outlook still gloomy despite some good news, analysts say
Stock markets surged Thursday on assurances that the euro will be kept intact. Durable goods orders were up. And the number of people seeking unemployment benefits was down.
But analysts said that those bright spots were not enough to alter a gloomy economic picture marked by tepid hiring.
The federal government releases its estimate for growth in the second quarter of 2012 on Friday, and expectations are not good. Economists predict that the economy grew by a dismal annual rate of 1.4 percent between April and June.
“We really are just crawling along here,” said Kathy Bostjancic, director for macroeconomic analysis at the Conference Board.
Despite the overarching gloom, stocks soared on Thursday after European Central Bank President Mario Draghi said he would do “whatever it takes” to keep the euro from unraveling.
The Dow Jones industrial average surged 212 points, or 1.7 percent, to close at 12,888 Thursday. The Standard & Poor’s 500 rose 22 points to 1360, marking its first gain in five days. And the Nasdaq rose 39 points to 2893.
Also Thursday, the Labor Department reported that jobless benefit claims fell sharply. Still, economists stopped short of cheering the development, saying the number could be skewed because the government’s seasonal adjustments didn’t anticipate fewer summer shutdowns by automakers.
The good news was tempered by a Commerce Department report that durable goods orders rose a seasonally adjusted 1.6 percent in June. But when transportation equipment was subtracted, orders fell 1.1 percent — the third decline in four months — raising concern that confidence in the economy is once again eroding.
Analysts said the usual suspects are a continuing drag on growth: debt problems in Europe, a slowdown in emerging markets including China and India, and growing anxiety about the fiscal cliff, the series of tax increases and spending cuts that will automatically take effect in January unless Congress and the White House agree on an alternative.
“It seems that those factors are weighing heavily on employers, making them hesitant to hire. And they are weighing on consumers, making them hesitant to spend,” said Scott Hoyt, senior director at Moody’s Analytics.
Those things are bracketed by the larger dynamic caused by the many Americans still paying down debt built up during years of carefree borrowing that preceded the housing crash, which stripped many Americans of a good chunk of their wealth.
All of that has prevented some of the recent promising developments in the economy, including a seeming bottoming-out of the housing market and a recent decline in gasoline prices, from igniting strong growth.
The result has been an economy that is growing, but slowly. Job creation, which began the year surprisingly strong, has slowed substantially over the past three months and the unemployment rate is stuck at 8.2 percent.
The tepid growth has increased pressure on the Federal Reserve to do more to spur growth. Federal Reserve Chairman Ben S. Bernanke told Congress last week that the bank would take additional action to push down already low interest rates if it concludes that employment is “stuck in the mud.” And recent news reports indicate that the Fed, whose policymaking committee meets next week, is moving closer to that conclusion.
Even with Fed action, analysts say they do not expect a major uptick in the economy anytime soon. While they are expecting growth to improve somewhat in the third quarter — perhaps to a 2.5 percent annual rate — they say it is likely to cool again through the final three months of the year.
Economists say households have cut back, putting an effective cap on the growth in consumer spending. The recent trend has been that if disposable income is down — because of rising gasoline prices, for example — people might use credit to boost their spending, but only so far, some analysts say. But when gasoline prices or other expenses ease, people do not seem to be consuming any more.
“We’re not seeing consumers step up their purchases,” Bostjancic said. “Any incremental money they have, say through falling gas prices, they put that into savings or paying down debt.”
For growth to take off, the analysts say, officials have to deal with the debt problems in Europe and U.S. policymakers must resolve the nation’s long-term debt problems without resorting to sharp tax increases and spending cuts.
Until then, analysts are expecting the economy to produce much of the same: tepid growth.