WASHINGTON - Hiring picked up much faster in July than expected. Car sales
remain solid. Home prices are climbing again in parts of the country. It all
points to a strong second half of 2012, right? Not necessarily.
Weighing against growth are the ongoing debt crisis in Europe, a clear
slowdown in China and uncertainty over a bitter presidential election,
expiring Bush-era tax cuts and the possibility of steep, across-the-board cuts
in government spending.
That's led most economists to predict sluggish growth at best for the latter
half of the year, and some even whisper that recession is possible next year.
"It's kind of what I call a very uncomfortable economy," said Mark Zandi, the
chief economist for forecaster Moody's Analytics and a frequent witness before
Even Zandi's silver lining _ that construction will add growth in the second
half of the year, pulling the annualized growth for the year to 2 percent or
better, up from the second quarter's 1.5 percent _ "means we make no progress
With the jobless rate at 8.3 percent, "it means the economy is very vulnerable
to what could go wrong," he said.
Kate Warne, an economist and market strategist for the investment firm Edward
Jones, told a recent economic roundtable at the U.S. Chamber of Commerce that
there are reasons for optimism, one of them being improvement in the housing
sector. After several years of dragging against economic growth, it's now
contributing to it.
"I think we're finally seeing housing stabilize," she said.
The National Association of Realtors reported Thursday that the median sales
price for existing single-family homes rose in the second quarter in 110 out
of the 147 metropolitan areas it tracks, compared with the same three months
But even that sign of improvement isn't likely to lead to a return of good
times in the latter half of the year. "We think we're going to see more of the
same," Warne said.
Mark Vitner, a senior economist at Wells Fargo Securities, agrees that the
"housing market has been a notable exception to the recent run of
The company's National Association of Home Builders/Wells Fargo Housing Market
Index, which gauges builders' perceptions of the real estate market, rose by 6
points in July, with builders pointing to rising sales and more buyer traffic.
However, economic readings on income, consumer spending and manufacturing
activity all point to more sluggishness ahead, he said.
Even the housing market improvement is tentative. In his Housing Chartbook
research note for July, Vitner wrote that while "improvement was evident in
every region" and "was particularly pronounced in the West," the supply of
foreclosed homes remains daunting.
More than 2 million homes are in what's called a foreclosure pre-sale
inventory, he said, and an additional 1.6 million are more than 90 days late
on payments. There also are at least 11.4 million homes that are thought to be
worth less than the mortgages they carry.
It all tempers how much positive news can be squeezed from an improvement in
the housing sector.
How growth plays out also may depend in large measure on how close to the edge
of the so-called fiscal cliff lawmakers and the president will take the
nation. This cliff includes expiring Bush-era tax cuts and scheduled deep
across-the-board reductions in government spending that if left to their own
could cost the nation 3 percentage points or more of economic growth.
Given that the economy has grown at a rate of 2.2 percent over the past 12
months, that would mean instant recession.