Strong second-half rebound not likely

Monday, July 21, 2008 J

eannine Aversa, ASSOCIATED PRESS

Call it the big fizzle. The hoped-for second-half economic rebound is looking to be lethargic, with the country straining under high energy prices and fallout from the housing and credit debacles.

Forty-five percent of economists predict the economy won't log any growth or will clock in at a feeble 1 percent pace in the final six months of this year, according to a survey being released Monday by the National Association for Business Economics (NABE). And 10 percent think economic activity could actually contract during the period.

"Forecasters are approaching the second half with a lot of caution," said Ken Simonson, point man on the survey and chief economist for the Associated General Contractors of America. "Most forecasters are suggesting the outlook will be sluggish, but not desperate. I'm afraid we're stuck on the ground floor of growth."

Thirty-two percent, meanwhile, think the economy growth's during the second half could be between 1 percent and 2 percent, which would mark a plodding performance. The more bullish are clearly in the minority camp: 11 percent think growth will come in between 2 percent and 3 percent. Only 1 percent expect growth to surpass 3 percent.

The economy's growth slowed sharply in the final quarter of 2007 and remained stuck in a rut in the first quarter of this year. Tax rebates, which have energized shoppers, should help lift the country out of the doldrums somewhat in the second quarter. The government releases its estimate of the second-quarter's economic performance at the end of this month. However, as the bracing force of the rebates fade, some analysts fear the economy could hit another rough patch near the end of this year.

Earlier this year, many thought the first half of this year would be difficult and the second half would be stronger, lifted by the government's $168 billion stimulus, including tax rebates for people and tax breaks for businesses. With the rebates kicking in earlier than some expected, the second half could turn sluggish.

Many have "abandoned the notion of seeing a rebound," Mr. Simonson said.

Federal Reserve Chairman Ben S. Bernanke, who briefed Congress on Tuesday and Wednesday, warned that over the rest of this year the economy will grow "appreciably below its trend rate," mostly because of continued weakness in housing markets, high energy prices and tight credit conditions.

Normal activity would be along the lines of a 2.5 percent to 3 percent growth rate for the economy.

Not only is the country slogging through lethargic growth, but it also is confronted by rising prices that threaten to spread inflation.

In the NABE survey, 75 percent reported paying more for raw materials, such as fuel and steel. That's the highest percentage in record keeping going back to 1994. Those higher prices are squeezing profit margins and leading some firms - 35 percent - to boost their prices, the survey found. That's up from the 29 percent who said their companies raised prices in the previous survey in April.

Consumer prices in June rose at the second-fastest pace in a quarter century, the government reported Wednesday. Wholesale prices also went up sharply during the month.