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TheStreet Open House

Fresh Evidence a Spring Swoon Grips the Economy

NEW YORK ( TheStreet) -- Fresh evidence is emerging that the U.S. economy is slowing in the second quarter. Stock prices continued to slide as earnings disappointed, and the Conference Board's index of leading economic indicators pointed down.

Next week the Commerce Department will likely report that GDP growth rebounded from 0.4% in the fourth quarter to more than 3% in the first quarter. However, this was caused by a recovery in inventory and defense purchases, which were uncharacteristically weak last fall, and a surge in consumer spending in January and February, resulting from extraordinarily large year-end bonuses.

Those factors will not repeat in the second quarter, and Jan. 1 tax increases are starting to bite -- consumers appear to have tightened down on spending and their confidence in the outlook for the economy wanes.

Among the Conference Board's leading indicator components that pointed south were a shorter average work week, rising initial unemployment claims, fewer manufacturing orders (as measured by the Institute for Supply Chain Management) and fewer building permits. Moreover, the Philadelphia Fed index of manufacturing activity slipped, in line with the weakening suggested by the most recent ISM manufacturing indicators.


Thursday, I wrote on the TheStreet that structural factors -- inadequately addressed by the administration's response to the financial crisis -- continue to hamper the economy. Growth should slip to below 2% in the second quarter, and the job market will remain difficult.


In a nutshell, without more business-sensitive regulatory policies, fewer and less expensive health care mandates, more assertive international trade policies and more aggressive development of domestic oil reserves, the U.S. economy will continue to grow in fits and starts at best and constantly face the danger of a double dip recession.

Almost four years into the economic recovery, the Fed continues to purchase $85 billion in long-term Treasury and mortgage-backed securities each month, indicating some considerable level of desperation. Those easy money policies have created asset bubbles in urban real estate, corporate equity and bonds and agricultural land markets -- if those burst, the economy could easily head south.

Without radical changes in national economic policies, Americans face slow growth, higher taxes and stagnant or falling wages.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Professor Peter Morici, of the Robert H. Smith School of Business at the University of Maryland, is a recognized expert on economic policy and international economics. Prior to joining the university, he served as director of the Office of Economics at the U.S. International Trade Commission. He is the author of 18 books and monographs and has published widely in leading public policy and business journals, including the Harvard Business Review and Foreign Policy. Morici has lectured and offered executive programs at more than 100 institutions, including Columbia University, the Harvard Business School and Oxford University. His views are frequently featured on CNN, CBS, BBC, FOX, ABC, CNBC, NPR, NPB and national broadcast networks around the world.

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