Saturday, February 27, 2010

Year-end economic spurt shows signs of sputtering

WASHINGTON — The recovery is losing steam.
The economy is now probably expanding at just half the brisk 5.9 percent pace at which the government on Friday estimated it grew last quarter. Business spending will make up for some of a slowdown in consumer spending — but probably not enough to reduce the jobless rate much.

All that adds up to a long slog ahead for an economy trying to get back on firm footing after the worst recession since the 1930s. The economy continues to grow. But it won't feel like much of a recovery this year amid high unemployment, record-high home foreclosures and tight credit.

Stuart Hoffman, chief economist at PNC Financial Services Group, called the year-end growth spurt "a one-hit wonder."

In a fresh reading on the nation's economic standing, the Commerce Department bumped up its growth estimate for the final quarter of 2009, from a 5.7 percent growth rate estimated a month ago. It was the strongest showing in six years.

Roughly two-thirds of the growth came from a burst of manufacturing — but not because consumer demand was especially strong. In fact, consumer spending weakened at the end of the year, even more than the government first thought.

Instead, factories were churning out goods for businesses that had let their stockpiles dwindle to save cash. If consumer spending remains lackluster as expected, that burst of manufacturing — and its contribution to economic activity — will fade.

Consumers are in no mood to spend

The signs aren't hopeful. Consumer confidence took an unexpected dive in February, and unemployment stands at 9.7 percent.

After losing his job in October, Kevin Young, 44, has been cutting back on spending.

Two weeks ago, he disconnected his cable service. Before that, he cut his cell phone plan and car insurance to the minimum.

"I don't go out at all," said Young, who's attending Washington University in St. Louis in the evenings to earn his certification in project management.

Not only is the late 2009 growth spurt fading, but the wobbly housing market is showing fresh signs of weakness.

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