By Brai Odion-Esene

WASHINGTON (MNI) – The chief economists of three major industry
trade associations warned Tuesday that the economic recovery will
continue to nearly stagnate for some time yet, dragged down by a U.S.
consumer who remains unwilling to spend.

On a day when consumer confidence in the U.S. is said to have
fallen to levels not seen since the beginning of the year, the general
consensus among the economists from the American Petroleum Institute,
the National Association of Manufacturers and the National Association
of Home Builders is that the U.S. economy is still many months away
from normal.

“The likelihood of us getting back to pre-recessionary levels of
output is going to be sometime, probably early next year,” David
Huether, the NAM’s chief economist told reporters during a joint
economic briefing. “We still have a long way to go.”

The economic recovery, as measured by overall demand for fuel,
remains weak, said John Felmy, chief economist for the API. Within that
measure, he added, gasoline demand has also been down — particularly
within urban areas.

The drop in demand for diesel used in transportation is also
significant, Felmy continued, as that indicates a drop in shipping
levels and inventory accumulation.

Constrained by weak consumer spending, Heuther predicted that the
U.S. economy will likely grow by 1.5% to 2% in the second half of 2010,
before returning to pre-recessionary levels “sometime in the first half
of next year.”

With the bulk of the growth due to the stimulus package “basically
now in the rearview mirror,” Huether said, “the economy is going to
become, I think, stuck in low gear for the second half of this year.”

Conditions in the labor market — as well as consumer confidence —
should be closely monitored, he said, noting the one area that has not
yet to see significant improvement during the recovery is consumer
spending.

Huether noted that consumer purchases of services, 48% of GDP, have
risen by only 0.3%. This compares with growth of 4% in previous
recoveries. “It shows you that consumers are very low on confidence,” he
said.

The Conference Board reported Tuesday that after seeing improvement
in August, consumer confidence worsened in September, the index falling
to 48.5 from 53.2 in August. This was the lowest reading since February.
The decline in the headline index was concentrated in the expectations
component, which dropped to 65.4 from 72.0 previously.

NAHB Chief Economist David Crowe also expects the recovery to be
slow, predicting the economy will grow by 2.5% in the fourth quarter of
2010. He then expects GDP growth to be 2.6% for the whole of 2011.

One of the reasons the recovery is stagnating, Crowe said, “is
because housing isn’t growing.” The NAHB chief economist said housing
starts at the end of 2010 will total 600,000. This is off the peak of
2.2 million.

With the long-term average being about 1.8 million housing starts,
the U.S. is at a third of where it should if things were back to normal,
Crowe said. Next year, he estimates housing starts will total 850,000.

“So even in 2011 we are only halfway back to what would be roughly
a normal market,” he said.

On the manufacturing side, NAM’s Huether said those more reliant on
exports and global growth will be in a better position than
manufacturers whose sales are driven by domestic demand.

“The recoveries, especially in South America and Asia, has been a
real benefit to the manufacturing sector and it’s helped, to a degree,
offset the lacklustre upturn domestically,” he said.

Exports have been the one bright spot, the NAM chief economist
added, noting a 14% rise in manufactured products as a share of U.S.
exports.

Government policies, however, appear to impeding a recovery in
certain sectors, with the NAHB’s Crowe accusing regulators of
restricting the flow of credit into the real estate market.

There are states, he argued, whose housing markets are in good
health because they did not have a large buildup in house prices or
inventory, meaning they are undergoing a speedier recovery.

“But our builders cannot get credit in order to anticipate that
demand,” he said. Bank regulators, according to Crowe, have said to the
financial institutions they supervise, “Don’t lend to real estate.”

He warned that down the line, when the recovery does take place,
there will be a difficulty in meeting the demand for housing due to
current lack of credit available to builders.

The three economists were also united in their opposition to the
Obama administration’s proposal to allow the Bush administration’s 2001
and 2003 tax cuts for wealthy Americans to expire.

They warned that given the current state of the economy, now is not
the time to raise taxes on anyone. The recovery remains finely balanced,
Crowe warned, could “fall of the ledge.”

“What we are seeing is tax proposals that would drain money” from
the oil industry, Felmy said.

The last thing the government should do is add to the cost of U.S.
manufacturing, Huether said, warning of the impact that would have on
the recovery and competitiveness. “Let’s not make the situation worse.”

** Market News International Washington Bureau: 202-371-2121 **

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