Experts fear recession redux as U.S. economy grew 1.5% in Q2

WASHINGTON—The U.S. economy that plodded along in the first quarter likely grew even less in the April-June quarter, and economists are saying the chances growth will strengthen in the second half of 2012 are slim.

Weaker hiring, nervous consumers, sluggish manufacturing and the shadow of Europe’s debt crisis might be pointing toward everyone’s big fear: another recession.

The U.S. economy grew at an annual rate of just 1.5 per cent from April through June, as Americans cut back sharply on spending.

The slowdown in growth adds to worries that the economy could be stalling three years after the recession ended.

Much more growth would be needed to fuel stronger hiring. Economists generally say even two per cent annual growth would add only about 90,000 jobs a month. That’s too few to drive down the unemployment rate, which is stuck at 8.2 per cent.

The U.S. economy has never been so sluggish this long into a recovery. The Great Recession officially ended in June 2009.

Until a few weeks ago, many economists had been predicting that growth would accelerate in the final six months of the year. They pointed to gains in manufacturing, home and auto sales and lower gas prices.

But threats to the U.S. economy have left consumers—who account for about 70 per cent of the economy—too anxious to spend freely. Jobs are tight. Pay isn’t keeping up with inflation. Retail sales fell in June for a third straight month. Manufacturing has weakened in most areas of the country.

Fear is also growing that the economy will fall off a “fiscal cliff” at year’s end. That’s when tax increases and deep spending cuts will take effect unless Congress reaches a budget agreement.

All that is making companies reluctant to expand and hire.

From April through June, U.S. job growth slowed to 75,000 a month, down from a healthy 226,000 average in the first three months of the year.

“The European situation has been getting worse and is dragging down the global economy,” said Sung Won Sohn, an economics professor at California State University.

Six of the 17 countries that use the euro currency are in recession. Growth has also weakened in powerhouse emerging markets in China, India and Brazil. With these economies slowing, so is their demand for U.S. exports.

Sohn estimates the likelihood of a U.S. recession within the next 12 months at 30 per cent to 35 per cent. That’s up from his estimate of 20 per cent six months ago.

Nariman Behravesh, chief economist at IHS Global Insight, puts the chance of a recession at 25 per cent. He expects growth to increase slightly to an annual rate above 2 per cent in the second half of this year.

Other economists are gloomier. They think growth will muddle along below 2 per cent through 2012.

In delivering the Federal Reserve’s midyear economic report to Congress last week, Chairman Ben Bernanke sketched a bleak picture, warning that unless lawmakers strike a deal, the tax increases and deep spending cuts that will take effect Jan. 1 could trigger another U.S. recession.

Bernanke has said the Fed is prepared to take further action if unemployment stays high. He hasn’t specified what steps it might take or whether any action is imminent.

But few think the Fed, the White House or Congress can or will do anything soon that might rejuvenate the economy quickly. Many lawmakers, for example, refuse to increase federal spending in light of historically large budget deficits.