Markets: News  

The future is not what it used to be

PORT WASHINGTON, N.Y. (MarketWatch) -- As the U.S. economy rounds the midyear turn, the outlook for the rest of the year has darkened considerably.

June's jobs data should dispel any notion that the economy is going to strengthen sometime soon. If anything, these and other stats present clear evidence that spring's weakness will stretch through the summer and into fall and winter.

In other words, the road ahead looks dismal, to say the least.

The third quarter certainly has gotten off on a weak note. Hiring in the second quarter fell to an average of only 75,000 jobs a month -- down one-third from the first quarter's 226,000 rate.

This is not what economists expected at the turn of this year. Then, they forecasted gradually rising rates of growth right through the elections. Instead, forecasters now think that the economy grew at a puny 1.6% clip in the second compared with 1.9% in the first and not much faster over the balance of this year.

The reason for this revised outlook is simple: Business is not hiring, so consumers have neither buying power nor confidence, and thus are reining in their spending. And if consumers, who collectively account for about 70% of our gross domestic product, don't spend, the economy can't grow much -- if at all.

This dreary scenario is most evident in the nation's stores and shopping centers. Early reports indicate that retail sales slowed sharply in June, causing the service sector to grow at the slowest pace in two years and manufacturing to contract for the first time in three years.

You know why business won't hire? No mystery here. Besides lack of demand, there is more uncertainty out there than you can shake a stick at.

To name just a few, there's the fiscal cliff, the threat of new taxes and regulations, the upcoming elections, and political gridlock, stateside.

Abroad, in addition to the European debt crisis and the likelihood that the euro will collapse, there's the slowdown in China and other major export markets. For more see my column of June 5.

Can this dismal outlook be ameliorated? Sure -- but not in time for this year's elections. After all, the economy doesn't turn on a dime.

The best we can hope for is to influence 2013, if our elected officials do the right thing as soon as possible.

What's the right thing? First and foremost, they must stop the incessant partisan bickering we have been subject to for more than three years and start cooperating so the people's business can get done.

For starters, the pols need to come to an agreement over the fiscal cliff -- postponing it until the economy is stronger. Don't raise taxes on anyone, or cut spending while the economy is in sick bay. Maybe even inject some more stimulus as well; deficit reduction can wait for another day. Another idea would be to declare a moratorium on new regulations.

Come to think of it, after doing all this, the best thing that the pols can do to bolster both business and consumer confidence is to take the rest of the year off and hit the campaign trail.

This way, maybe some of them will be able to hold onto their seats, come November.