The U.S. economy may be in a standstill, but it's too early to predict another recession, senior economist Paul Dales with Capital Economics said Friday.
The bad news is the ISM manufacturing index fell below 50 for the first time since mid-2009, but Dales said the drop is not steep enough to signal another recession, especially with other factors, including employment numbers, remaining anemic but steady.
A government report released Friday shows only 80,000 jobs were added in June. Still, Dales believes that's not enough to show the economy is not actually contracting – at least not yet.
In the second half of 2012, economists will be eyeing the Euro zone and Congress carefully to ensure other factors don't tip the scales in the other direction.
"Providing that a break-up of the euro is fairly orderly and that Congress prevents the U.S. from falling off a fiscal cliff, the U.S. is unlikely to drop back into recession," Dales said. "That said, the risks to our long-held forecast that GDP will grow by just 2% this year have shifted to the downside."
He added that weaker economic data may end up prompting members of the Federal Open Market Committee to support additional economic stimulus.
"That said, the data have not been weak enough to make QE3 anything like a done deal," said Dales. "Much will depend on the GDP report for the second quarter, which includes the benchmark revisions for the previous year, and July’s ISM index. Both will be released just days ahead of the Fed’s next policy meeting, which concludes on Aug. 1."