Experts aren't sure whether the U.S. economy will descend into a full-fledged recession, but it's clear the recovery has slowed down considerably, which could create even more fiscal drag as the year goes on.
Manufacturing. After a relatively strong start in 2011, gains in the manufacturing sector have tapered off, yet another sign that the fledgling recovery the U.S. saw earlier this year is faltering. The ISM Manufacturing index, which tracks manufacturing activity, fell to 50.9, the worst month for U.S. manufacturers in two years. While the July reading is still technically in expansion territory—above 50—it's barely above the break-even mark, leaving little wiggle room before it heads into contraction.
"Manufacturing, like the rest of the economy, looks stalled right now," Nigel Gault, chief U.S. economist at IHS Global Insight, said in a report Monday. Gault doesn't expect any salvation from the recently-forged debt-ceiling deal, either. "It just avoids making things much worse," he said.
Adding salt to the wound, businesses cut back on orders for durable goods such as autos, construction equipment, and airplanes, one sector of the economy that had been fueling what little growth America has seen over the past few months. While demand is still higher than the trough it fell to during the recession, experts blame high energy prices and the earthquake in Japan for the nearly $441 billion loss in orders.
Experts hope that with prices stabilizing and temporary shocks working their way out of the system, manufacturing and the economy will regain its footing.
Consumer spending. Making up almost two thirds of GDP, consumer spending continued to flatline in June, falling 0.2 percent after gaining 0.1 percent in May. While slight, the drop was the first decline in nearly two years and a signal, experts say, of concerns about a weak job market and sinking home prices. But while higher oil and food prices might have had a temporary dampening effect on consumer spending, worries about jobs and the housing market will likely stick around for some time, discouraging Americans from spending money.
The good news is that economy ramped up job creation in July and earnings have increased slightly. Those factors put together could stimulate more consumer spending, experts say, softening the impact of other economic ailments afflicting the nation.