PORT WASHINGTON, N.Y. (MarketWatch) -- Midyear finds the economy at a crossroads, perched precariously between growth and recession.
There is no longer any doubt that economic growth has petered out. Growth in the first quarter, at 2.7%, was less than half of the fourth quarter's 5.6% pace. Data available since then suggest that the second quarter was even weaker. As a matter of fact, considering the recent declines in housing, employment, consumer spending, exports and local government spending -- not to mention the plunge in stock prices -- about the only thing keeping the economy from slipping backward in the quarter just ended was a rise in business inventories.
PORT WASHINGTON, N.Y. (MarketWatch) -- Midyear finds the economy at a crossroads, perched precariously between growth and recession.
There is no longer any doubt that economic growth has petered out. Growth in the first quarter, at 2.7%, was less than half of the fourth quarter's 5.6% pace. Data available since then suggest that the second quarter was even weaker. As a matter of fact, considering the recent declines in housing, employment, consumer spending, exports and local government spending -- not to mention the plunge in stock prices -- about the only thing keeping the economy from slipping backward in the quarter just ended was a rise in business inventories.
Events since then have only served to reinforce the likelihood of a double-dip. The plunge in stock prices has affected the wealthy, while lack of jobs has depressed just about everyone else.
And while it thinks it is doing the right thing, the Obama administration is actually making things worse, first by creating economic uncertainty, and now by adding in political uncertainty as well.
On the economic side, the administration's initiatives dealing with health care, energy, financial reform, climate, regulations and taxes have caused business people to pull in their horns, since they don't have a handle on how much these will cost.
The political uncertainty comes from the administration's wavering over the issue of budget deficits.
By acknowledging the Group of 20's communiqué stating the need to reduce budget deficits, the president has caused many Democrats in Congress to be wary of supporting any legislation that would help the economy but would increase the budget deficit. ( See last week's column.)
This could well be the straw that breaks the economy's back. The economy is already facing a measure of fiscal restraint with the lapse in jobless benefits, the expiration of credits for buying autos and houses, and, soon, the end of the Bush tax cuts.
