Why economists see a stronger second half for US in 2011

Wednesday, 29 June 2011 00:00 - - {{hitsCtrl.values.hits}}

WASHINGTON: Farewell and good riddance to the first half of 2011 - six months that are ending as sour for the US economy as they began.

Most analysts say economic growth will perk up in the second half of the year. The reason is that the main causes of the slowdown - high oil prices and manufacturing delays because of the disaster in Japan - have started to fade.

``Some of the headwinds that caused us to slow are turning into tail winds,’’ said Mark Zandi, chief economist at Moody’s Analytics.

For an economy barely inching ahead two years after the Great Recession ended, the first half of 2011 can’t end soon enough. Severe storms and rising gasoline prices held growth in January, February and March to a glacial annual rate of 1.9 per cent.

The current quarter isn’t shaping up much better. The average growth forecast of 38 top economists surveyed by The Associated Press is 2.3 per cent.

The economy has to grow 3 per cent a year just to hold the unemployment rate steady and keep up with population growth. And it has to average about 5 per cent growth for a year to lower the unemployment rate by a full per centage point. It is 9.1 per cent today.

As welcome as the stronger growth envisioned in the second half is, the improvement should be modest. For the final six months of the year, the AP economists forecast a growth rate of 3.2 per cent.

So far this year, high gas and food prices have discouraged people from spending much on other things - from furniture and appliances to dinners out and vacations. That spending fuels economic growth.

And some US auto factories had to suspend or trim production after the March earthquake in Japan interrupted supplies of parts and electronics. American dealerships have had fewer cars to sell.

The latest dose of glum news: The government reported Monday that consumer spending was about the same in May as in April, the first time in a year that spending hasn’t increased from the previous month.

The report confirmed the toll that high gas prices, Japan-related disruptions and high unemployment have taken on personal spending in the second quarter.

``Here’s to a better third,’’ says Jennifer Lee, senior economist at BMO Capital Markets.

Relief is in sight, economists say. Oil prices have been falling since late May. The drop has lowered the price of regular unleaded gasoline by 23 cents in the past month, to a national average of $3.57 a gallon (3.8 liters), according to AAA.