Newspaper article The Christian Science Monitor

Economy's 'Soft Patch' Deeper Than Expected ; Reluctant Consumers and Record-High Crude Oil Prices, at $43.85 a Barrel, Affect GDP Growth - and Election Campaign

Newspaper article The Christian Science Monitor

Economy's 'Soft Patch' Deeper Than Expected ; Reluctant Consumers and Record-High Crude Oil Prices, at $43.85 a Barrel, Affect GDP Growth - and Election Campaign

Article excerpt

It's time to worry about the economy, again.

Consumers are balking about pulling out their wallets, particularly to buy new cars. Paychecks for low-wage workers are not keeping up with inflation.

And the price of crude oil has spiked up yet again to a new record high of $43.85 a barrel. Call it "Shock at the Pump: The Sequel."

If the economy doesn't kick into a higher gear, it won't have enough oomph to create more jobs, and the unemployment rate might actually begin to climb. The slower-paced economy, which will be especially noticeable in the industrial Midwest, also gives the Democrats room to criticize President Bush. And it may call into question how fast the Federal Reserve raises interest rates this year.

"Clearly, the concern for economic growth now and in the future has increased," says Sung Won Sohn, chief economist for Wells Fargo Banks in Minneapolis.

The impetus for the new economic worries came last Friday when the Commerce Department reported the nation's gross domestic product (GDP) grew at a 3 percent annual pace, a number that economists considered to be disappointingly soft. The first quarter was revised upward to 4.5 percent, making the drop-off look even sharper.

"The soft patch is deeper and bigger than we anticipated," says Mr. Sohn. Because of the timing, the economic slowdown has political ramifications. The Kerry campaign says it's not just focusing on one quarter. But Phil Singer, a spokesman, adds, "Clearly the current administration's management of the economy is not getting the job done."

In Washington, John Snow, the Treasury secretary, said the economy was on a "positive track" and the fundamentals were "solid for the future."

Outside economists, however, thought the administration was probably unhappy with the latest news.

"Three percent is uncomfortably weak for the president," says Mark Zandi of Economy.com. "It's not going to generate enough jobs to get the unemployment rate down."

Economy could still accelerate

Yet some economists also think the economy has already started to accelerate. By some estimates the second half of the year will see the economy buzzing along at as much as 4.5 percent annualized growth. The optimists believe business spending and a return of the consumer will drive the economy.

The first indication of whether that's true will come on Friday, when the Labor Department issues the July employment report. The consensus is that the economy added about 200,000 jobs last month. If job growth is considerably weaker, many economists will start to ratchet down their estimates for the second half of the year.

Job growth could be better

Any slowdown in the jobs arena will also catch the attention of the Fed, which meets to discuss the economy and interest rates on Aug. 10.

Most interest-rate observers expect the Fed will consider the second quarter to be the low-water mark for the economy, because the consumer was beset by high prices at the gas pump, the effect of the tax cuts was less than expected and mortgage refinancing slowed down. …

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