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Hard to see it now, but U.S. economy recovering, economists say

Construction crews build up the dike along the Souris River in flood-ravaged Minot, N.D., Wednesday. Reconstruction in flood-ravaged sections of the South and Midwest is expected to provide a slight second-half economic boost.

Associated Press

Construction crews build up the dike along the Souris River in flood-ravaged Minot, N.D., Wednesday. Reconstruction in flood-ravaged sections of the South and Midwest is expected to provide a slight second-half economic boost.

WASHINGTON — Farewell and good riddance to the first half of 2011 — six months that are ending as sour for the economy as they began.

Most analysts say economic growth will perk up in the second half of the year. The reason is that the main causes of the slowdown — high oil prices and manufacturing delays because of the disaster in Japan — have started to fade.

"Some of the headwinds that caused us to slow are turning into tail winds," said Mark Zandi, chief economist at Moody's Analytics.

For an economy barely inching ahead two years after the Great Recession ended, the first half of 2011 can't end soon enough. Severe storms and rising gasoline prices held growth in January, February and March to a glacial annual rate of 1.9 percent.

The current quarter isn't shaping up much better. The average growth forecast of 38 top economists surveyed by the Associated Press is 2.3 percent.

The economy has to grow 3 percent a year just to hold the unemployment rate steady and keep up with population growth. And it has to average about 5 percent growth for a year to lower the unemployment rate by a full percentage point. It is currently 9.1 percent.

As welcome as the stronger growth envisioned in the second half is, the improvement should be modest. For the final six months of the year, the AP economists forecast a growth rate of 3.2 percent.

So far this year, high gas and food prices have discouraged people from spending much on other things — from furniture and appliances to dinners out and vacations. That spending fuels economic growth.

Some U.S. auto factories had to suspend or trim production after the March earthquake in Japan interrupted supplies of parts and electronics. American dealerships have had fewer cars to sell.

Relief is in sight, economists say. Oil prices have been falling since Memorial Day. The drop has lowered the price of regular unleaded gasoline by 23 cents in the past month, to a national average of $3.57 a gallon, according to AAA. In Florida, the average price Monday was $3.53, while in the Tampa Bay area, it was $3.47.

At the same time, the kinks in the global manufacturing chain are starting to be smoothed out as the Japanese factories that make cars and electronics resume production.

Diane Swonk, chief economist at Mesirow Financial, says auto sales should improve "quite substantially" later this year because the lost production from the earthquake is coming back faster than had been expected.

Last week, the government said orders for machinery, computers, cars and other durable goods rose slightly in May after dropping in April. Economists attributed the turnaround, in part, to Japanese factories that started to rev up.

The U.S. economy is also expected to get a slight second-half boost from reconstruction in flood-ravaged sections of the South and Midwest. Construction workers will be employed rebuilding homes and businesses. People will replace destroyed cars and other possessions. Analysts predict the economic losses from the floods in the April-June quarter will be reversed in the July-September quarter.

The economists surveyed by AP predict unemployment will fall to 8.7 percent at year's end. It is not exactly the start of a boom: The economy is still carrying too much baggage from the financial crisis — damaged banks, depressed home prices, debt-burdened consumers — to achieve much liftoff.

Though some of the economy's weakness in the first half is temporary, "it is hard to see much on the horizon to cheer about," Swonk says.

Spending dips

For the first time in a year, Americans have stopped spending more. Consumer spending failed to budge from April to May, and when adjusted for inflation, spending actually dropped 0.1 percent last month, the Commerce Department said Monday. Incomes rose 0.3 percent for the second straight month. But adjusted for inflation, after-tax incomes increased only 0.1 percent in May, after falling by the same amount in the previous month.

Hard to see it now, but U.S. economy recovering, economists say 06/27/11 [Last modified: Monday, June 27, 2011 11:21pm]
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