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Quarterly economic forecast takes a turn for the worse
More than eight in 10 economists surveyed by USA TODAY have downgraded their economic outlook amid the European debt crisis and a flurry of disappointing reports, but nearly all expect the nation to avoid a double-dip recession.

The quarterly forecast of the 47 economists, conducted July 15-21, was decidedly gloomier than April, when the recovery was gaining steam and most experts were ratcheting up their estimates.

But the turmoil in Europe, along with lackluster job growth, a weak housing market and a slowdown in factory output, have damped hopes the nation will recover the 8.5 million jobs lost in the downturn at a more-than-glacial pace.

"We need a much stronger recovery, and we're not getting it," says Conrad DeQuadros of RDQ Economics.

About 80% of the experts are less optimistic than they were three months ago and cut their growth forecasts. Their median projections call for the economy to expand at about a 2.5% clip the second half of 2010, down from 3% in April.

Of greater concern: jobs. About 60% don't expect the USA to regain all the jobs lost in the recession until 2014 or later. Earlier this year, more than half expected those jobs to come back by 2013.

Many economists expect the nation to add more than 100,000 jobs a month the second half of the year. But when figuring population growth, that pace is just enough to keep the 9.5% jobless rate from rising. Fifty-four percent of those polled cited weak job growth as the most serious threat to the recovery; 30% cited global financial instability.

Despite the concerns, economists were evenly divided over whether the government should focus on cutting the swollen federal deficit or another economic stimulus that could add to the red ink. Federal Reserve Chairman Ben Bernanke told Congress last week the Fed has no plans to provide more liquidity to credit markets to juice a recovery he called "uncertain" but "moderate."

Allen Sinai of Decision Economics cites a 25% risk of both deflation — a sustained drop in wages and prices that crimps economic growth — and a slide back into recession. He points to depletion of the economic stimulus late this year, massive layoffs by states and cities, and tight-fisted consumers.

One bright spot is business spending. Corporations flush with profits are buying more equipment and software, and the economists surveyed expect such investment to grow about 5.7% the second half of the year, higher than earlier estimates. To "capture a bigger piece" of profits, Dean Maki of Barclays Capital expects firms to similarly boost hiring in coming months.

"We think (the economy) will grow at a solid pace in the second half," he says.

 
 
 
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