A string of positive economic data has economists saying the U.S. has likely dodged a double-dip recession. Following Friday’s Labor Department report that the economy added 103,000 net jobs last month, economists at Goldman Sachs (NYSE:GS) and Macroeconomic Advisers LLC raised their forecasts for third-quarter growth to 2.5%, up from about 2% — that’s nearly double the second quarter’s 1.3% rate of growth, this year’s fastest growth rate so far.
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“The U.S. economy doesn’t look like it’s double-dipping at all,” said Allen Sinai, president of Decision Economics Inc. in New York. “But it is a crummy recovery.” Economist Chris Rupkey says the recovery faces “a lot of headwinds,” ranging from the sovereign-debt crisis in Europe to political gridlock in the U.S. over the budget.
“We can skirt a recession,” said Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. “But if headlines worsen in Europe and cause a major stock-market rout, it could lead to a loss of confidence here on the part of businesses and consumers and make forecasts for a recession a reality.”
Today, German and French leaders pledged to devise a plan to recapitalize banks by the next Group of 20 summit on November 3, giving both European and U.S. stock futures a boost. However, investors will be cautious over the next few weeks as they try to determine the impact of the European crisis on U.S. corporate earnings. Business with Europe represents about 20% to 25% of operating profits for companies in the S&P 500.
Still, “the continued forward momentum in private job growth should ease concerns that the U.S. will slip into recession in the second half of this year,” said Michael Feroli, chief U.S. economist at JPMorgan Chase & Co. in New York. The 103,000 gain in September payrolls included a 137,000 gain in private employment, which included the return of 45,000 striking Verizon (NYSE:VZ) workers. Feroli says the latest numbers are in line with what other statistics have been suggesting: that gross domestic product is growing “very slowly,” but not contracting.
Construction spending jumped in August, manufacturing accelerated in September, and some of the biggest drags on the economy during the first half of the year, namely higher gasoline prices and supply-chain disruptions from the earthquake and tsunami in Japan, are dissipating.
The average price for a gallon of unleaded gasoline fell almost 20 cents in September to $3.43, according to AAA. Declining gas prices have led to a rise in car and truck sales, which climbed to an annualized rate of 13.1 million in September, the highest since April’s 13.2 million, when lost output caused by the tsunami first began to restrain supply.
However, the debt crisis in Europe will “likely slow the economy to the edge of recession by early 2012,” said Andrew Tilton, senior economist at Goldman Sachs in New York. He sees growth in the U.S. falling to a half percent in the first quarter of 2012. Nariman Behravesh, chief economist at IHS Inc., says that a mild recession in the euro zone could shave as much as a half percentage point off U.S. expansion.
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“Europe is so large and so closely integrated with the U.S. and world economies that a severe crisis in Europe could cause significant damage by undermining confidence and weakening demand,” said Treasury Secretary Timothy F. Geithner on October 6 in testimony to the Senate Banking Committee, posing a “significant risk to global recovery.”