TEXT-S&P: U.S. GDP growth likely to slow in second-half 2012

Fri Sep 21, 2012 2:01pm EDT

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Sept 21 - Recent jobs data were disappointing overall, showing soft
potential for U.S. economic growth, said an article published today by Standard
& Poor's, titled "U.S. Economic Forecast: He's Buying A Stairway To Heaven." We
expect U.S. GDP growth of just 2.2% this year and only 1.8% in 2013.

"Our expectation for the chances of another U.S. recession is about 20%-25%," 
said Standard & Poor's Deputy Chief Economist Beth Ann Bovino. "Chances of a 
quick turnaround are around 15%."

The poor labor market continues to keep the recovery in slow gear, spurring 
Federal Reserve Chairman Ben Bernanke to take unprecedented action. After its 
September Federal Open Market Committee Meeting, the Fed extended its guidance 
on interest rates, saying that it will keep rates low until mid-2015. The Fed 
also initiated another round of quantitative easing, this time making the 
offer open-ended and tying it to labor market conditions.

"A strong economic recovery is likely a long ways away. Businesses have pulled 
back on hiring, with a monthly average of just 97,000 job gains over the past 
six months. That's well below the 240,000-plus monthly job gains we saw in the 
winter," said Ms. Bovino. "This gives us reason not to expect a revival in 
household spending any time soon." Worries that taxes may jump next year if 
Congress doesn't reach a compromise on the fiscal cliff will also keep people 
cautious this year.

For the more optimistic among us, there is some good news. "The housing 
market, which has been a drag on growth since 2005, may finally be 
helping--not hurting--the recovery," said Ms. Bovino. "We expect residential 
investment to contribute to GDP growth in 2012, for the first time in seven 
years." Even home prices, according to the S&P/Case-Shiller Home Price Index, 
may have found their bottom. 

Overall, we expect GDP growth to be about 1.5% (quarter-over-quarter, 
annualized) in the second half of the year, softer than the 1.85% pace in the 
first half of the year. The global economic slowdown, plus poor visibility on 
how things will turn out politically both here and abroad, will likely keep 
this recovery at a crawl.



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