July 20, 2010|By Don Lee, Los Angeles Times Reporting from Washington — Even as Congress moves to extend jobless benefits for millions of workers, a growing body of evidence suggests the United States is heading toward an economic netherworld — avoiding a slide back into recession but growing so slowly that unemployment will remain high, home prices low and incomes essentially stagnant.
Many Americans may continue to feel much as they did during the worst recession in half a century: filled with insecurity, financial pressures and fading hopes for a quick return to better times.
"Extended unemployment benefits is helpful but hardly the booster rocket that's needed to get out of the gravitational pull of this terrible economy," said Robert Reich, a public policy professor at UC Berkeley.
The former Labor secretary during the Clinton administration painted a grim picture of what the continuing economic weakness will mean for large numbers of people, including those who have lost jobs.
"If they're over age 55 [and unemployed], it's unlikely they'll ever be back in the workforce. Most families that depended on two wage earners will have to substantially tighten their belts for a long time. More young people will be living with their parents, and more families will be doubling up."
Lonnie Kane, who manufactures fashionable women's sportswear, has similar concerns.
"I'm more worried about not getting better than about having a double dip," said the president of Karen Kane Inc. in Los Angeles. "I see it as just staying flat — and that's not healthy."
Though not all economists and business leaders see a gray future, and long-term forecasts often have been wrong, concerns over signs of renewed weakness have intensified in the last few weeks.
Policymakers at the Federal Reserve — whose chairman, Ben S. Bernanke, is testifying Wednesday before Congress on the state of the economy — recently lowered their economic outlook, as have many private economists.
The downgrade reflects a broad range of indicators that have grown increasingly anemic or negative in recent weeks: Consumer spending is softening. The trade deficit is widening. Housing sales are faltering. And manufacturing is losing steam.
The slowdown prompted Kane last month to cut by half his budget for capital spending this year. He also put off hiring more product-development workers. As for his existing staff of 165, Kane had intended to give them raises later this year after a two-year wage freeze.
"But now we're having second thoughts," said Kane, whose business is in its 31st year. "I just don't have the confidence to spend the cash."
Some analysts said the recent economic retreat could be a pause in the economy as it shifts from one supported by government to one buoyed by the private sector. Business spending for equipment and software remains solid. And the $34-billion bill to extend jobless benefits — expected to pass Congress soon — also will have a positive effect on the broader economy.
Even so, economic growth of less than 3% this year is widely forecast because of recent setbacks. And that won't create enough jobs to make a meaningful dent in the nation's 9.5% unemployment rate, given increases in productivity and the population.
"What it means is that millions of people unemployed or underemployed [and forced to work part time] or too discouraged to look for work won't find jobs," said Martin Regalia, chief economist at the U.S. Chamber of Commerce.
Many of the remaining employed, he said, will face smaller wage increases and fewer opportunities to move into new jobs and boost their incomes.
Further economic stimulus by the federal government is one possible way out of the malaise, possibly including zero-interest loans to businesses and more infrastructure projects. But with deficit hawks in Congress and across the nation digging in their heels, the chances of passing major new stimulus programs anytime soon look slim.
President Obama pushed through a $787-billion economic stimulus early last year, which many agree helped rescue the economy from recession. But that's done little for the president's standing with the public, and he and his advisors don't appear interested in fighting for another large-scale stimulus.
"I think they've decided it's less risky to ride it out and presumably things will be better in 2012" when Obama is up for reelection, said Dean Baker, co-director of the Center for Economic and Policy Research in Washington.
It's not that corporate America doesn't have the wherewithal either.
Although many small businesses lack funds and credit to invest and expand, larger companies are sitting on mountains of cash earned from sharply rebounding profits in recent quarters. Much of that cash came from layoffs and other cost-cutting moves.
