A confluence of factors, including waning consumer confidence and weak jobs growth, prompted one researcher at the Federal Reserve Bank of San Francisco
to conclude the "underlying recovery has lost some momentum" and gross domestic product for 2011 will come in one percentage point lower than previously forecast.
Mary Daly, vice president of the San Francisco Fed, now expects GDP growth of 2.6% this year in a report published
on the central bank's website Tuesday.
While she attributed the most recent slowdown in personal spending to temporary factors, including surging commodity prices and supply-chain disruptions, consumer confidence is an ongoing factor that caused Daly to pause when looking ahead.
"The slow growth of private-sector hiring is especially worrisome given expectations of additional cuts in government employment," Daly said. "These cuts are expected at all levels of government. At the federal level, a political consensus has emerged to reduce the budget deficit. At the same time, fiscal stimulus is waning. State and local governments are also shedding jobs as they work to bring expenditures in line with revenues."
While Daly said the Fed expects to gain momentum in 2012, she added "evidence suggests some of the recent weakness is persistent."
Other areas of concern include low wage growth among workers who are still employed, with average hourly earnings rising by less than 2%, slightly above the rate of inflation.
Daly said comparatively "many workers have seen few gains in real wages." She sees a gradual reduction in unemployment and a return to a low level of underlying inflation.
Write to Kerri Panchuk.