About that economic recovery…

There are worries, despite several months of job growth and signs of an economic recovery, that the economy is slowing down:

The drumbeat of bad news about the U.S. economy got louder on Wednesday, rattling financial markets and driving stocks to their biggest drop in a year.

The U.S. factory sector, which has been an engine of the recovery, notched its biggest one-month slowdown since 1984 as companies hit the brakes on hiring and production. Another report showed private-sector hiring dropped precipitously in May, prompting economists to ratchet down their expectations for the closely watched nonfarm payrolls report due on Friday.

The Dow Jones Industrial Average tumbled 279.65 points, or 2.2%, to 12290.14, its biggest point decline since June 4 of last year. Investors piled into the safety of Treasury bonds, sending yields on the 10-year note below 3% for the first time this year. Yields move in the opposite direction of price.
Wednesday’s reports marked a notable shift in sentiment, particularly among stock investors, who have largely shrugged off signs of economic weakness, choosing to focus on strong corporate-earnings growth. The slowdown of manufacturing output could crimp those profits.

The disappointing U.S. economic data followed poor manufacturing reports around the globe. The numbers, together with evidence of a continuing downdraft in housing and signs that companies and consumers remain apprehensive about spending, suggest the economy is rapidly losing speed.

To be sure, the slowdown could be short-lived. Economists predict some problems now hampering growth, including soaring gasoline prices and supply-chain disruptions caused by Japan’s tsunami, will moderate in months ahead. But with unemployment high, the housing market moribund and ongoing financial turmoil in Europe, the slowdown could turn into something more ominous.

Another sign is that private-sector job growth dropped from previous months. Estimates put last month’s gains at only 38,000, nowhere the amount of new jobs needed to keep pace to say the economy is recovering. We’ll know more about this tomorrow when the Bureau of Labor Statistics releases job data for May.

Obviously, this brings political problems for President Barack Obama, who was hoping to ride an improving economy - as slow as it may have been considering the $800+ billion “stimulus” bill was passed more than two years ago - to re-election in 2012. While many observers believe Obama has been a generally safe bet for another term, a still-lagging economy could keep that from happening. And it’s worth noting that 66% of Americans still believe we’re in a recession. If the slow pace keeps up, Obama and his team are going to have a very tough time convincing them otherwise; and that his economic plan, which calls for higher taxes and more regulation and crippling mandates on business, can bring us out of this mess.

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