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U.S. economy's repeat pattern has silver lining

WASHINGTON — The U.S. economy looks set to deliver a repeat performance in 2012: For the third straight year, it may suffer a swoon yet not slip into a recession.

"I don't think the slowdown will be any more consequential than the past two years," said John Ryding, a former Federal Reserve researcher who is chief economist at RDQ Economics in New York. "There are positives out there in the economy. We'll avoid a recession."

Household balance sheets are in better shape, with indebtedness down about $100 billion in the first quarter, according to the New York Fed. Banks are more profitable: Earnings have risen for 11 straight quarters, based on data compiled by the Federal Deposit Insurance Corp. Even the housing market is reviving, with starts through the first four months of this year 24 percent higher than the same 2011 period.

Stocks plunged Friday on news that American employers last month added the fewest workers to their payrolls in a year while the jobless rate rose. After the jobs report, Michael Feroli, chief U.S. economist at JPMorgan Chase in New York, lowered his forecast for third-quarter economic growth to 2 percent from 3 percent.

Allen Sinai, chief executive officer of Decision Economics in New York, bumped up his odds of a recession next year to 15 percent from 10 percent.

The decline in jobs growth to 69,000 last month from a high this year of 275,000 in January was reminiscent of the labor market cooling that occurred in both 2010 and 2011.

Repeating the pattern of the last two years, Fed Chairman Ben Bernanke and his fellow central bankers are likely to respond to the job-market weakness by announcing further steps to stimulate growth. The moves could come when the Fed meets on June 19-20 to decide monetary strategy, Feroli said in a note to clients.

Sinai said the United States is in "better shape" to weather the global economic tremors than it was in the past. He sees U.S. growth picking up to 2.5 to 3 percent in the second half of this year as consumer spending expands, encouraging employers to take on more workers.

Consumers are benefiting from easier credit terms as financial institutions seek to put the money they've earned to work. U.S. banks "eased standards on credit card, auto and other consumer loans," according to the Fed's quarterly survey of senior loan officers, released April 30.

Investor nervousness over the world economy has pluses and minuses for U.S. households. On the negative side, it has lowered stock prices, reducing household net worth. On the positive side, it has helped bring down gas prices and mortgage rates.

U.S. economy's repeat pattern has silver lining 06/04/12 [Last modified: Monday, June 4, 2012 8:32pm]
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