Pace of the recovery seen in doubt

WASHINGTON - When the federal government releases its closely watched May jobs report Friday, it's likely to raise more concerns that the U.S. economic recovery is slowing.

What's not clear is whether this is a temporary bump or something more ominous.

The Labor Department's monthly employment reports are economic indicators that point backward, but they also help cement expectations of the future. The last two monthly jobs reports showed robust hiring, but two private reports this week pointed to a sharp downturn in hiring.

That's but the latest disquieting note in a quickly developing trend: Other economic indicators - on manufacturing, car sales, home prices, and unemployment-benefits claims - are also pointing to a slowdown. But how weak, and for how long? Forecasters aren't sure.

On top of that, Washington is unlikely to do anything more to spur the economy - that is, provide new stimulus. There's little appetite in Congress for more government spending; in fact, all the momentum there is toward cutting spending to reduce the debt.

In addition, at the end of this month, the Federal Reserve will end its unprecedented $600 billion purchase of government bonds. It was intended to lower bond interest rates and stimulate financial markets by spurring investors out of safe bond havens and into more risk-taking, such as stocks. Ending the Fed's program removes that incentive.

All this has led forecasters to lower their projections for near-term economic growth. Macroeconomic Advisers dialed back its 3.5 percent growth projection for the second quarter of 2011, dropping it to 2.7 percent Wednesday, then another notch to 2.6 percent Thursday.

Few economists predict a return to recession, yet many are increasingly concerned that the slowdown may be growing worse.

"There's a certain trepidation right now that there wasn't a month ago," said Steven Ricchiuto, chief economist for Mizuho Securities USA Inc. "A month ago, people thought the end of QE2 [the Fed's bond-purchase program] would be no issue. People are a little bit more worried that this is a repeat of last year, and to be honest . . . it is a very difficult question to ascertain at this juncture."

Laurence Meyer, a former vice chairman of the Fed, said he didn't think the central bank was out of bullets. It could, for example, signal that it won't raise interest rates for a longer period than expected.

Some causes of the slowdown are clear. They include high energy prices, which have sucked away any benefit from this year's payroll tax break. Soaring pump prices have eaten into consumer spending, and consumption drives more than two-thirds of economic activity.

The continued slide in home prices is also limiting people's mobility and dampening their appetite to consume as they see the value of their most important asset continue to drop.

The hard fact may be that the U.S. economy is going to grow in fits and starts for several years, said Vincent Reinhart, the former top economist on the Fed's rate-setting Open Market Committee.

"Economies grow more slowly after a financial crisis. The unemployment rate stays persistently high, and house prices tend to keep declining well into an [economic] expansion," he said. "We're pretty much following that path."