Economists see U.S. recovery weakening: survey
WASHINGTON (Reuters) – The U.S. economy will lose steam as the year progresses but will not slide back into recession, even though unemployment is unlikely to fall significantly, according to a survey released on Saturday. The Blue Chip Economic Indicators survey of private forecasters found analysts increasingly glum about the outlook. They now see the economy expanding just 3.1 percent in 2010, down from 3.3 percent in the June poll.
They do not, however, envisage a renewed period of contraction, which has been widely debated in financial markets in recent weeks.
"Our panelists think talk of a double-dip recession is overblown absent a new, major shock," the group said in its report.
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One of the more significant parts of this economic story is near the end:
Along with more moderate growth, inflation is expected to remain extremely tame. Forecasters are looking for a 0.9 percent increase in prices for 2010 as a whole, the smallest rise since 1950.
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When the economy gets the stuffing knocked out of it to the extent it has over the past three years of 2007-2010, the danger of deflation looms. Think of deflation as reverse inflation. Instead of the cost of goods and services being ratcheted up, prices enter a self reinforcing spiral of decline. Instead of too much money chasing too few goods and services, there’s too little money chasing a plethora of products and services. They become undervalued instead of overvalued.
Unlike in an inflationary economy where people accelerate buying decisions in the hope of beating price increases, in a deflationary economy these decisions are delayed with the expectation that prices will decline and a better deal can be had simply by waiting. With consumers tapped out of credit and many unemployed, waiting becomes far easier. That of course retards economic growth, stalling a speedy recovery.
The last time the economy was tanked by speculation and excess leverage was in the Great Depression of the 1930s. It lasted about ten years. We are in a similar situation today. The decade of 2010-20 could end up as a deflationary “lost” decade that people endure and muddle through until a more sustainable socio-economic environment emerges. The deflationary decade may in retrospect mark the death of an economy driven by excess consumerism, speculation and leverage, a passing necessary to make way for the birth of a new and more sustainable economy.
