US data point to wobbly recovery

WASHINGTON—The mixed bag of economic data released on Tuesday shows a wobbly recovery in danger of being toppled over, analysts said.

Big questions remain in the US about where growth will come from once “juice” from the government assistance fades, said Josh Shapiro, chief US economist at MFR Inc.

This is not so bad, relatively speaking, given the state of the world’s richest economies.

“We’re still relatively better than a lot of other places,” Shapiro noted.

Still, worries persist. The home-builders survey from June released on Tuesday morning surprised economists on the downside, by falling to 17 in June from 22 in May, the National Association of Home Builders said. The decline comes at the end of a popular tax break from homebuyers.

The decline underscores that the housing sector “has hit an air pocket” as the tax breaks have ended, Shapiro said.

Such could be the fate of the overall economy. While growth in the second quarter may come in as high as a 4-percent annual rate, where growth is going to come later this year remains an “open question,” Shapiro said.

Fed chairman Ben Bernanke has been upbeat in recent weeks, saying he thinks the recovery is “sustainable” and that consumer and business spending will power growth forward.

Shapiro said that was more hope than reality: “He hopes it is sustainable. I don’t know anyone really knows.”

Shapiro expects the economy to slow to a 3-percent growth rate in the second half of the year and then to a 2.5-percent rate in the first half of 2011.

In other data released on Tuesday, the brightest was the first report on the manufacturing sector in June.

The New York Fed’s Empire State Manufacturing index edged higher to 19.6 in June from 19.1 in May. While off the high of 31.9 in April, the report shows the sector remains solidly in positive territory, economists said.

Foreign investors gave another vote of confidence in the economy by sending strong flows of capital into the economy, according to the Treasury Department’s monthly data on international capital.

Total holdings of equities, notes and bonds increased a net $83 billion in April. While this is down from a record $140.5 billion in March, it is still a strong increase, economists said.

Foreign investors have sought refuge in safe-haven US Treasury bonds and notes in recent months as the European debt crisis intensified, analysts said.

Also on Tuesday, the Labor Department released import price data for May that showed a firm 0.5-percent gain in prices excluding fuel.

Other measures of inflation have been softening and the firmness in the non-fuel import prices was a red flag to some economists worried about inflation.

Economists at RDQ Economics noted that the 12-month change in nonfuel import prices has picked up for 10 straight months, from -5.3 percent in July 2009 to 3.6 percent last month. –MarketWatch