Economists step back from rosier predictions

8/27/2010
BLOOMBERG NEWS

WASHINGTON - Economists who projected the recovery would gain speed in the second half of the year are scaling back those forecasts as the outlook for jobs and business investment dims.

"We have to be realistic and acknowledge that the economic data have been weaker than we thought," said Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York. "We're more concerned about the near-term risk to growth than the longer-term."

The Fed should "spur confidence and emphasize that the medium-term outlook at this point is still good," said Stephen Stanley, chief economist at Pierpont Securities in Stamford, Conn.

By now, "I thought we would've for sure turned the corner and there would be no fears of a double dip," he said. He now pegs the odds of relapsing into a second recession at about 20 percent, up from 10 percent in April.

Companies created 51,000 jobs on average from May through July, down from 200,000 in the prior two months, according to Labor Department data. Investment in capital equipment, one of the few remaining bright spots, dropped last month and businesses reined in equipment and machinery orders, indicating the slowdown in spending will persist.

"The labor market has definitely downshifted from where it was earlier this year," Mr. Stanley said.