U.S. economy: Manufacturing slowdown the latest sign the recovery is faltering 1JUN11

SO continuing the bush era tax breaks was supposed to be the fuel for creating jobs to bring us out of recession.....well, the wealthy and corporations have their money, WHERE ARE THE JOBS???? It would seem only those with money are getting more of it and they, along with the political whores of both parties they control in the federal and state governments, are the only ones laughing all the way to the bank.....for the rest of us, it is just another BOHICA moment! From the Washington Post.....

By Neil Irwin, Published: June 1

The economic recovery is faltering, and Washington is running out of ways to get it back on track.
Two bright spots over the past few months — manufacturing and job creation by private companies — both slowed in May, according to new reports Wednesday. The data come amid other reports of falling home prices, declining auto sales, weaker consumer spending and a rising pace of layoffs.
Stocks tumbled Wednesday on the discouraging economic news, with the Standard & Poor’s 500-stock index off 2.3 percent. It was the index’s steepest decline since August.
Just a few months ago, the economy seemed poised to finally strengthen. Business confidence was rising, and extensive government efforts to foster growth were underway. But those hopes are being dashed. Forecasters who once projected economic growth of 3.5 to 4 percent for the year have slashed their estimates with each round of disappointing numbers.
Instead of accelerating, the U.S. economy is puttering along at a growth rate of 2 to 3 percent — barely enough to bring down joblessness slowly, if at all.
“The recovery continues, but at a disturbingly slow pace,” said Diane Swonk, chief economist for Mesirow Financial.
The weak growth comes despite government efforts to boost it: a payroll tax cut that took effect in January and an initiative by the Federal Reserve to pump $600 billion into the ailing economy. But the Fed is unlikely to take further action, and Congress is focused on reducing the budget deficit, not tax cuts or new spending that might spur economic activity.
The worsening economic prospects reflect, in part, the effects of a spike in oil prices this year and of the Japanese earthquake in March, which caused disruptions for some U.S. manufacturers. But it is the underlying weakness of the U.S. economy that may have allowed these developments to knock the recovery off course.
“We’re structurally in a place where we’re going to be more vulnerable to downside risks than if the economy was growing strongly, and that’s what we’re seeing right now,” said Robert A. Dye, senior economist at PNC Financial Services Group. “We’re not far above stall speed.”
The signs are not all bad. The stock market has held up well in recent weeks, aside from Wednesday’s decline. Prices for oil and other globally traded commodities are down substantially since the end of April, a decline that will eventually mean lower prices for gasoline and other goods, and the impact of the earthquake will subside as factories in Japan reopen. Moreover, U.S. businesses this year have been cutting inventories that they will eventually need to rebuild, spurring economic activity.
But the outlook, as projected by economic forecasters and implied in government data, is clearly dimming. Economists at J.P. Morgan Chase on Wednesday lowered their projection for 2011 growth in gross domestic product to 2 percent. A week ago, those same economists had reduced the figure to 2.5 percent.
Reflecting rising pessimism, the interest rate that the Treasury Department must pay to borrow money for 10 years fell to 2.95 percent Wednesday, from 3.06 percent on Tuesday and 3.74 percent in February. As investors grow anxious, they are moving money into the safety of government bonds. Investors are also anticipating that the Federal Reserve will seek to support the recovery by keeping interest rates low for longer than previously expected.
Among the economic information that unsettled markets was a report by the Institute for Supply Management, which said that its index of manufacturing activity fell to 53.5 in May from 60.4 in April. Numbers above 50 indicate expansion, and analysts had expected a more modest pullback to 57.1. The new numbers showed the slowest rate of factory expansion since September 2009.
New orders and production fell the most. This was probably caused by disruptions in automobile and other production after the Japanese disaster, which hurt supply chains around the world.
“Elevated commodity prices, slowing global growth and an increasingly questionable outlook for the U.S. economy are creating head winds for the factory sector, which thus far has been the one strong element in an otherwise sluggish U.S. economic rebound,” said Cliff Waldman, economist at the Manufacturers Alliance/MAPI, a trade group.
Also Wednesday, ADP, the payroll processing company, said that the rate of job creation at private businesses slowed sharply last month. Firms added 38,000 jobs, ADP estimated, compared with 179,000 jobs added in April.
On Friday, the Labor Department will release its report on May job growth and the unemployment rate. Economists expect that about 180,000 jobs were created last month, dropping from 244,000 in April, and that the unemployment rate has edged down to 8.9 percent from 9 percent.
The U.S. economy has sputtered several times while recovering from the trauma of the financial crisis. Last summer, as growth slowed and analysts began to fear a dip back into recession, the government swung into action. The Fed began discussing what would become known as QE2, or the second round of quantitative easing — a $600 billion bond-purchase program aimed at fueling growth. And by the end of the year, the Obama administration had reached an accord with Congress to temporarily cut payroll taxes to boost growth.
But the prospects for another round of government help are slim. The Fed had undertaken its massive bond-buying program last year in large part because leaders of the central bank were worried about the risk of deflation, or falling prices. By contrast, prices today are edging up. The bond market is pricing in inflation of just under 2 percent a year over the coming five years, exactly the level the Fed seeks.
Moreover, Fed officials believe that further efforts could have less bang for the buck than previous ones.
The administration and Congress, meanwhile, are now more concerned with cutting the federal budget deficit than with supporting the recovery through government spending and tax breaks.