U.S. slowdown likely for third straight year

BLOOMBERG — 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 LLC 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 comparable 2011 period.

MARKET REACTIONS
Stocks plunged on Friday on news that American employers last month added the fewest workers to their payrolls in a year while the jobless rate rose. Treasuries gained, sending yields to record lows, as investors sought refuge from rising financial strains in Europe and slowing growth in the U.S. and China. German and U.K. yields fell to all-time lows after Spanish Economy Minister Luis de Guindos said the future of the euro is at stake.

Orders to U.S. factories unexpectedly declined for a second month in April, pointing to a deceleration in manufacturing as the global economy cools, according to a Commerce Department report released Monday (June 4). Bookings dropped 0.6% after a revised 2.1% slump in March, the first back-to-back decreases in more than three years.

Following the jobs report, Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York, lowered his forecast for third-quarter economic growth to 2% from 3%. He sees the economy expanding 2.5% this quarter.

Allen Sinai, CEO of Decision Economics in New York, bumped up his odds of a recession next year to 15% from 10%.

POLITICAL REACTIONS
Mitt Romney, the presumptive Republican nominee in November’s presidential election, seized on the jobs figures to attack Barack Obama.

“It is now clear to everyone that President Obama’s policies have failed to achieve their goals,” he said in a statement.

The administration, seeking to blunt the political impact, highlighted private payroll gains over the past 27 months while promoting measures Obama has proposed to boost hiring.

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 2010 and 2011. Then as now, employers turned skittish as Europe’s sovereign-debt woes worsened.

Repeating the pattern of the last two years, Fed Chairman Ben S. 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. Bernanke may give a hint of the Fed’s plans when he testifies to Congress on June 7.

Sinai said the U.S. is in “better shape” to weather the global economic tremors than it was in the past, and in comparison with other countries today, provided the euro region’s currency compact doesn’t collapse completely. He sees U.S. growth picking up to 2.5% to 3% in the second half of this year as consumer spending expands, encouraging employers to take on more workers.

ECONOMIC INDICATORS
• Household purchases rose 0.3% in April, the Commerce Department reported on June 1. That followed a 2.7% annualized increase in the first quarter, the most since the final three months of 2010.

• While automobile sales slipped in May from April, they were still up 17% from a year earlier, according to Ward’s Automotive Group.

• Consumers are benefitting 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 on April 30.

• The average price of regular unleaded gasoline fell to $3.61 a gallon on May 31 from a 2012 high of $3.94 on April 5, according to AAA, the nation’s largest motoring group, as oil demand ebbed with the slowing world economy.

• The average rate for a 30-year mortgage dropped to 3.75% in the week ended May 31 from 3.78%, according to Freddie Mac, the McLean, Va.-based mortgage financier.

• The drop in loan rates is aiding housing, the trigger for the worst recession since the Great Depression. Confidence among U.S. homebuilders jumped to a five-year high in May, the National Association of Home Builders/Wells Fargo index showed.