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WASHINGTON-the economy is at risk of slipping into another recession.
The stalemate almost over the first six months of the year, the Government reported Friday. Economic growth was weak in the second quarter and virtually non-existent in the first.
The new framework of an economy much weaker than many analysts had expected a second recession suddenly made a threat more serious — and the threat will increase if Congress fails to reach an agreement to increase the debt limit of the Government.
"The only question now is, how much weaker might get things?" said Nariman Behravesh, Chief Economist at IHS Global Insight.
In April, may and June, the economy grew at an annual rate of 1.3 percent, below expectations. And the Government has changed the growth figure for January, February and March to 0.4 percent, well below its previous estimate of 1.9 percent.
Combined, the first half of the amounts to the worst performance in six months from the great recession year ended officially in June 2009.
Last year, gross domestic product — the total output of goods and services in the United States and the wider measure of economic health — actual registered growth of 1.6 percent.
By 1950, the year of growth has dipped below the 2 percent 12 times. Ten of those times, the economy was already in recession or soon fell into one, said Mark Vitner, senior economist at Wells Fargo Securities.
Normal economic growth is closer to 3 percent.
High gasoline prices leave people with less money to spend on other goods and services. And not all expenses on gas contributes to the economy of the United States because some of the money goes to oil-producing countries. GDP figures are also correct inflation, then spend $ 1 to $ 1 a gallon doesn't mean additional help for the economy.
Production disruptions from Japan's earthquake, cuts to State and local government and tighter household budgets have weighed down the economy, too.
Add those problems uncertainty fanned political standoff in Washington with Republicans refusing to increase $14,3 trillion Federal Government's borrowing limit, unless Democrats agree to spending cuts on Federal terms of GOP deep.
Without an agreement, the Treasury Department said, the Government does not have enough money to pay all the Bills later Tuesday. It must cut spending by around 40 percent and choose which programs and beneficiaries receive money and who doesn't.
The dismal second-quarter report has led economists to lower their estimates of growth in the second half of the year. Capital economics, who had expected the economy to grow 2.5% this year, now says the 2 percent seems more likely.
Joel Naroff of Naroff Economic advisors said that he is waiting until the expiry of the debt-limit switches to revise its economic forecasts for the rest of 2011. He knows that he will scale back its estimates. He just doesn't know how.
If there is an agreement for another month, Naroff estimate there is a possibility of 80-90 percent that the spending cuts will tip the economy into recession. Although there is a deal, it would be significant spending cuts likely trigger could slow the growth, at least in the short term.
"Kicking the Federal Government, and the economy is going to be doubled in pain," said Naroff.
Federal Reserve Chairman Ben Bernanke and other economists have warned Congress against cutting too much too soon because the economy remains so fragile.
The economy needs to expand can create jobs for a growing population. It must grow at an annual rate of 2.5 percent to prevent the unemployment rate and growing at a rate of 5 percent to reduce unemployment significantly.
In a message to Twitter, Economist Justin Wolfers of the Wharton School of the University of Pennsylvania said he thinks there is a chance of 40 percent of the economy is already in a recession for the past four months.
Normally, when the economy is weak, the Government spends more and the Federal Reserve aggressively try to stimulate growth. But the stimulus package of President Barack Obama 862 billion dollars of spending programs and tax cuts not wasted last year — and not be picked up by a Congress focused on cutting the public debt.
And the Federal Reserve last month ended a program to buying 600 billion bonds designed to jolt the economy by lowering interest rates in the long term and stock prices.
The Fed is keeping interest rates at near zero in the short term, and Bernanke said this month that the Fed is willing to do more if the economy remains weak. But the Central Bank has been more preoccupied recently for a resurgence of inflation.
The private sector has not yet picked up the slack. The housing industry, which drives economic recoveries, still depressed after house prices started tumbling in 2006 and 2007.
Americans are still heavy debts, and what little they have made gains in wages were eaten by higher gas and food prices. Businesses increasingly work outside of the sticks scaled down during the recession, are reluctant to take as long as I'm sure their sales pick up.
"What is going to take into the unknown"? Naroff said.
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