Believe it or not! The current U.S. economic expansion is now completing its second year! Break out the champagne … or perhaps not.
Forecasts of American economic growth in coming quarters have been trimmed in recent weeks, falling victim to the "anxiety list." This is a combination of factors that simply make it easier for American businesses to largely sit on their collective hands as far as expanding employment, with a similar performance (or lack thereof) from the consumer in regard to spending.
How will the current battle of wills in Washington, D.C., play out? Will we get an agreement between the Democrats and the Republicans to increase the debt ceiling before Aug. 2? Will the U.S. temporarily default on its trillions of debt? Will Republicans get the kind of future spending restraint they are demanding, in exchange for their votes to increase the debt ceiling?
Once the debt ceiling is finally boosted, will Democrats and Republicans make necessary inroads to long-term deficit reduction? How will the three major entitlement programs be addressed? Will they "kick the can down the road" even further, letting voters decide in November 2012 which party's ideas are best to address financial sanity in this country? Will tough decisions then actually be made?
Will home prices continue to decline? Will the stock market suffer a major setback? Will the massive and top-heavy health care bill place event greater burdens and mandates on American businesses and households? Will the never-ending growth of new government rules and regulations ever slow?
How will sovereign (national) debt issues in Europe be resolved? Will Greece default on its enormous national debt in coming weeks? How will the Greek situation impact Ireland and Portugal, two other nations that have required enormous financial bailouts? Will Spain be next?
How will political and military battles across northern Africa and the Middle East ultimately play out? How will these issues ultimately impact oil prices?
Will the global economy continue to slow somewhat? How will this impact energy and commodity prices? How will it impact U.S. exports to the world?
The "anxiety list" above is the primary contributor to lesser expectations for U.S. economic growth. The consensus view of 4-6 weeks ago that the economy would grow at a 3 percent-3.8 percent real (after inflation) annual rate over the next 12 months is now closer to a 2 percent-3 percent growth pace. Some forecasts are more dismal, with possible double-dip recession again on the lips of the "doom and gloomers."
May's dismal jobs report was the weakest of the past eight months, adding to a multitude of softer-than-expected economic data points in recent weeks. The gain of only 54,000 net new jobs was one-third of expectations and one-fourth that of the prior three-month average. Adding insult to injury, job gains of the two prior months were revised down by 39,000 jobs.
Private businesses added only 83,000 jobs during May, the smallest gain in 11 months. Government employment fell by 29,000 jobs, with job cuts at the local level the focus. Additional job eliminations in state and local government are widely expected during the next 6-12 months.
Goods-producing employment rose by an anemic 3,000 jobs in May, with a small loss in manufacturing jobs largely offsetting small gains in construction and mining and logging. Private sector service-providing employment rose by 80,000 jobs in May, led by gains in professional and business services and education and health services.
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