Economic Forecasts Dimas Fragile Recovery Brakes

Article excerpt

After a big spring, Zach Atya thought the Solstice Sunglass Boutique would have a boffo summer.

Instead, July sales at the McLean, Va., store are 7 percent short of its target, even with promotions.

"People are shopping around and comparing prices," said Atya, the store's assistant manager. They're "uncomfortable with spending money now."

When the job market began to crack in April, most economists said they were not worried about the recovery.

They're worried now.

As the recovery slows, optimism is giving way to caution, with undercurrents of something darker.

Economic forecasts are coming down all over Wall Street: Goldman Sachs and Deutsche Bank both cut forecasts of second-quarter growth to just more than 1 percent. Companies from chipmaker Intel to Morgan Stanley have missed or lowered earnings forecasts -- 99 companies in the Standard &Poor's 500 lowered second-quarter projections. In June, 22 of 30 U.S. economic data reports also missed forecasts.

Three years into its recovery, the economy is once again on a rough road. Gross domestic product, the leading barometer of the nation's economic health, equals consumer spending plus business investment plus government outlays, less the trade deficit. And all four are in trouble.

Since 1990, unemployment has generally fallen when growth is 2.5 percent or better. As growth has stalled this year, so has the improvement in unemployment, now stuck at 8.2 percent.

Meanwhile, a shortage of good-paying jobs is among factors limiting consumption. Just ask Janet Beaman.

The 61-year old from Manassas, Va., was a mortgage underwriter until losing that job in 2007 as the housing market began to fracture. She became a security guard for half the pay. …