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Economy Watch: Latest U.S. economic data puncture hopes of steady recovery

I started with Peter Boockvar, equity strategist at Miller Tabak.

My e-mail was short: "Double-dip or slowdown?"

His response was equally abrupt: "Depends on who wins Nov. elections and what taxes get hiked in 2011."

The tax cuts enacted by President George W. Bush expire at the end of this year. President Obama has proposed extending those cuts -- except for families that make more than $250,000 a year. If Republicans win Congress in November, it's a good bet that the wealthiest Americans will keep their tax cuts. If the Democrats hold the Hill, it's unlikely.

"Our fragile economy CANNOT handle any tax hikes whatsoever, particularly on capital and the income of those who invest, save and spend the most," Boockvar wrote, meaning those American families that make more than $250,000 a year. The all-caps are his, but the feeling is shared by many.

I followed up with Boockvar, and e-mailed: "You notice one of my choices was not 'sustained recovery.' "

He wrote back: "Sustained certainly a ways off."

There are those who believe that what we're going through right now is a natural pause in recovery, of the sort we've seen before. In an interview with CNBC on Thursday, former Federal Reserve chairman Alan Greenspan said as much. At the same time, he acknowledged that the recovery has hit what he called "an invisible wall."

The wall is plenty visible to lots of people. Businesses are uncertain about the effects of the financial regulatory reform bill heading toward passage. They worry about new taxes. They see the financial turmoil and spreading debt contagion in Europe. And they wonder about a slowdown in China's growth. If you were a corporate manager, would you look at all of this data and start hiring new employees, making capital investments and taking out loans to expand your firm?

Mizuho Securities USA chief economist Steven Ricchiuto sees "an economy losing momentum at a fairly rapid pace."

"Let's face it," wrote Bernard Baumohl, chief global economist at the Economic Outlook Group. "This has not been a good week for economists who believe the U.S. economy is on the rebound and that the fundamentals of the recovery are getting stronger."

Finally, there are those arguing that we need an Option D for what's ahead, as in D for Depression. New York Times columnist Paul Krugman predicted such a thing last week, saying we're in for a long period of high unemployment and deflationary contraction, with wages falling and businesses failing. Krugman draws comparisons to the Great Depression, to be sure, but also sends us to our history books to remember the Long Depression that began with the Panic of 1873, saying the coming depression will be more like that one.

Disclosure: Paul Krugman has a Nobel Prize in economics and I, um, don't. But let me point out two things: The fastest that information and capital could move in this sprawling nation in 1873 was about 80 mph -- the top speed of a steam locomotive. When bad times hit back then, they tended to settle in for a good, long time.

Second: When you read Krugman on economics, you need to read him through a filter. He believes that the $787 billion government stimulus approved last year was not enough to really kick-start the economy and that much more is needed. You can correctly read many of his columns -- including this one -- as arguments for more taxpayer-funded stimulus. So just know that.

We have been in recovery for more than a year -- wobbly, furtive and paper-thin as it is. But the bam-bam-bam of last week's data boldly illustrate something we've really known for months now: This recovery has been fueled by government money. And eventually that runs out.

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