Analysts blame recovery’s unevenness as they predict modest 2.5 percent growth
By Ylan Q. Mui,
When it comes to the economic recovery, timing is everything — and so far, it’s been off.
Take two engines of the economy: manufacturing and consumer spending. Manufacturing had been one of the bright spots of the recovery, but government data released Wednesday revealed that the industry suffered its biggest decline in three years in March. That’s the same month that long-beleaguered consumers surprised economists by spending significantly more than expected.
The same thing happened with the market for housing and automobiles, two big-ticket purchases that traditionally move in tandem. Housing prices have continued their decline at the same time that auto sales have reached new peaks.
And just as economists began hoping that the recovery was reaching takeoff speed, Britain has slipped into a double-dip recession.
“Now you have boomlets . . . but you don’t have a sort of consistent pattern,” said Dennis Jacobe, chief economist at Gallup. “It’s trying to run with weights on your legs.”
Part of the problem is that no one sector has made enough gains to galvanize the rest of the economy. Instead, the unevenness of the recovery has constrained its momentum. The result is a sputtering economy that cannot seem to fire on all cylinders at once.
That has analysts predicting a modest 2.5 percent increase in the nation’s gross domestic product for the first quarter. The government is slated to release its estimate Friday. The anticipated increase would represent a slowdown from the more robust 3 percent rate of growth late last year — and some believe the middling pace could continue well into 2013.
Economists say efforts to jump-start the economy have been complicated because weakness in one sector can easily bleed into another, undermining any progress.
The fall of housing prices over the past five years remains one of the most fundamental roadblocks to recovery. For most Americans, a home is the most important asset they own. That means depressed real estate values have outsize influence on everything from consumer spending to bank lending, preventing other sectors from thriving, said Robert J. Shapiro, chairman of Sonecon, an economic advisory firm, and undersecretary of commerce under President Bill Clinton.
“The recovery has been struggling against what we call a negative wealth effect,” Shapiro said. “Every month, people feel poorer.”
At the same time, Jacobe said, energy prices have acted as a ceiling on growth. Each time a sector gains steam, demand increases for fuel to manufacture and transport goods, which in turn drives up the price of oil. Eventually, that knocks the wind out of any momentum.
“It’s like a governor on a vehicle,” Jacobe said. “It only lets it go so fast.”
A new survey suggests many Americans are confused about where the recovery is headed. The Conference Board this week released its monthly index of consumer confidence, showing almost no change in April. Though consumers had lower expectations for the economy in the short term, they felt better about their conditions, the survey showed. In another conundrum, the number of people reporting that jobs are “hard to get” declined but the number who said they were “plentiful” fell.
Mark Zandi, chief economist at Moody’s Analytics, said the country’s fragile psyche makes any setback feel more profound.
“The economy is always buffeted by things, and generally we can slough them off and continue on our way,” he said. “But in the current context, that’s very hard for people to do.”