Bleak Outlook for 2011

According to an Associated Press (AP) survey of leading economists, the U.S. economic recovery will remain slow deep into next year, held back by shoppers reluctant to spend and employers hesitant to hire.

The AP survey compiles forecasts of leading private, corporate and academic economists on a range of indicators, including employment, consumer spending and inflation.

Among their forecasts:  Economic growth the rest of this year and early next year will weaken, to less than 3%. From January through May, the economy grew at roughly a 3.5% pace; the unemployment rate will be no lower at the end of the year than it is now; 9.5%. 


A majority think it will be 2015 or later before the rate falls to a historically normal 5%. State budget shortfalls pose a "significant" or "severe" risk to the national economy. The loss of tax revenue has forced state and local governments to cut services and lay off workers. 

The economists have turned more pessimistic since the recovery hit turbulence in May. Europe's debt crisis sent tremors through Wall Street, causing stocks to tumble and raising doubts about the durability of the rebound.  Since then, businesses have been slow to step up hiring. Americans' confidence in the economy has declined, leading shoppers to reduce spending. And the housing market has weakened further with the end of a homebuyer tax credit that had buoyed sales earlier this year.  


Consumers aren't leading this rebound, as they usually do, despite ultra-low borrowing costs. Their spending growth will weaken in the second half of this year and strengthen only slightly next year, a majority of economists said. They think shoppers' reluctance to spend more money poses a "significant" or "severe" risk to the recovery.

"It seems like we hit an air pocket in consumer spending," said survey participant Richard DeKaser, president of Woodley Park Research.