Subscribe free to our newsletters via your
. Earth Science News .

Outside View: U.S. at risk of double-dip recession
by Peter Morici
College Park, Md. (UPI) Apr 29, 2013

disclaimer: image is for illustration purposes only

The U.S. Commerce Department reported that consumer spending advanced 0.2 percent in March -- much weaker than the 0.3 percent and 0.7 percent registered in January and February.

Extraordinary year-end bonuses and dividends -- intended to dodge higher taxes in January -- boosted consumer activity in January and February but now households are hunkering down. Much weaker consumer spending is expected for the second quarter as the $120 billion January hike in payroll taxes and $45 billion increase in income taxes borne by the wealthy weakens household finances.

In January, when a last-minute tax deal raised Social Security taxes, working- and middle-class families couldn't adjust spending immediately -- they have to keep driving to work and feeding their children -- but in March retail sales fell precipitously. Now forecasters expect traffic at shopping malls to recover only slowly.

Many upper-income families pay taxes on a quarterly basis and the actual impact of the quite complex changes to the tax code and rates implemented in January weren't reckoned until their accountants computed their first quarter payments due April 15 -- now they are trimming purchases even further.

Also, the January tax changes greatly reduced mortgage interest deductions for high-income families and this will weaken demand for new and existing homes. The pace of sales may not be much affected but the price increases are likely to slow, especially outside of hot markets like Florida and New York, where speculators and foreign investors seeking refuge from uncertainty in Europe and China have been pouring money.

Overall real estate inflation won't support real asset growth and rising consumer spending the balance of 2013 as it did last year.

Along with sequestration, higher taxes are subtracting more than $200 billion from household purchasing power and government spending -- that is slowing demand for what Americans make and makes jobs tougher to find.

More than 40 percent of the 2.5 percent growth in first quarter gross domestic product was supported by growing inventories -- not final sales of goods and services. Overall, final demand is advancing at a pace that will support subpar growth of about 2 percent -- perhaps less -- for the balance of the year.

U.S. corporations are reporting weak sales growth, even as profits advance, but the cost cutting necessary to accomplish that dichotomy will result in continued slow hiring and perhaps a wave of layoffs.

Weakening conditions in Europe make layoffs more likely, and the danger that southern Europe's severe recession could spread north to Germany and across the Atlantic to the United States and Canada is quite real.

(Peter Morici is an economist and professor at the Smith School of Business, University of Maryland, and widely published columnist. Follow him on Twitter: @pmorici1)

(United Press International's "Outside View" commentaries are written by outside contributors who specialize in a variety of important issues. The views expressed do not necessarily reflect those of United Press International. In the interests of creating an open forum, original submissions are invited.)


Related Links
The Economy

Comment on this article via your Facebook, Yahoo, AOL, Hotmail login.

Share this article via these popular social media networks DiggDigg RedditReddit GoogleGoogle

Memory Foam Mattress Review
Newsletters :: SpaceDaily :: SpaceWar :: TerraDaily :: Energy Daily
XML Feeds :: Space News :: Earth News :: War News :: Solar Energy News

Walker's World: Merkel almost alone
Paris (UPI) Apr 29, 2013
A consensus is gathering pace in Europe against the controversial and painful austerity policies that are being driven by German Chancellor Angela Merkel. Even one of her own "wise men" economic advisers has joined European Commission President Jose-Maria Barroso and the leaders of Spain, France and Italy who are calling for some growth-friendly policies since the austerity is showing f ... read more

Ukraine marks Chernobyl disaster amid efforts to secure reactor

U.S. lawyer defends Australian asylum seekers

Landslide kills 14 in Ecuador

Pakistan quake victims burn tyres at angry protests

Vaterite: Crystal within a crystal helps resolve an old puzzle

Space debris problem now urgent - scientists

Nothing Bugs These NASA Aeronautical Researchers

US eases export rules on aerospace parts

Scientists to replenish lobster population with help from wind farm

Sea Surface Temperatures Reach Highest Level in 150 Years on Northeast Continental Shelf

The Asian Monsoon is Getting Predictable

Insights into deadly coral bleaching could help preserve reefs

Discovered: A mammal and bug food co-op in the High Arctic

EU spars with Canada, Norway at WTO over seal ban

EU court maintains seal fur ban

Sea stalactites provide clues to origin of life

India predicted to receive normal monsoon rains

EU set to ban pesticides blamed for decline of bees: source

EU to ban pesticides linked to bee deaths

Deep, Permeable Soils Buffer Impacts of Agricultural Fertilization on Streams and Rivers in Southern Amazon

New grass hybrid could help reduce the likelihood of flooding

First Japan tsunami debris confirmed in California

Afghan quake and floods kill 38: officials

Thirteen killed, dozens hurt in Afghan quake

Sudan state declared rebel 'target' as aviation warned

Bouteflika stroke triggers Algerian crisis

China nears US in money to Africa: study

Mali 'cannot have two armies': French minister

Old Sanaa, an endangered UNESCO heritage site

Ancient DNA reveals Europe's dynamic genetic history

Ancient skeletons reveal genetic 'history' of Europe's peoples

From mice to humans, comfort is being carried by mom

The content herein, unless otherwise known to be public domain, are Copyright 1995-2014 - Space Media Network. AFP, UPI and IANS news wire stories are copyright Agence France-Presse, United Press International and Indo-Asia News Service. ESA Portal Reports are copyright European Space Agency. All NASA sourced material is public domain. Additional copyrights may apply in whole or part to other bona fide parties. Advertising does not imply endorsement,agreement or approval of any opinions, statements or information provided by Space Media Network on any Web page published or hosted by Space Media Network. Privacy Statement