With all due respect to Mark Twain, history seems to be repeating itself pretty much line for line in the U.S. economy right now.
Bank of America cut its U.S. growth forecasts again Friday, citing high energy prices, softening global growth and tightening government purse strings. A run of “dreary data” means weak economic performance won’t be limited to the disappointing first quarter, the bank warns.
“As the data continue to weaken, we continue to cut our forecast,” writes economist Ethan Harris.
Accordingly, BofA trimmed its second-quarter gross domestic product growth projection to 2% from 2.8% and said it expxects growth of just 3% in the second half, which is below the Wall Street consensus.
The weakening U.S. data – orders for big equipment known as capital goods fell 2.6% in April, while U.S.wages remain anemic – suggest nothing less than a replay of 2010, when the economy started strong before tapering off drastically.
That episode, you may recall, ended in a fall slowdown scare that ended only when the Fed promised to hose the joint down with freshly printed dollars. This is worth bearing in mind for those who are now claiming for whatever reason that the Fed won’t, can’t, mustn’t go in for QE3, a third round of Ben Bernanke’s bond-buying program.
Wall Street came into this year promising we were all done with that, with some forecasters projecting that growth would hit 4% in the second half. But it doesn’t take much to cap spending in a debt-soaked economy where wages have actually fallen over the past decade, and this year’s energy shock has done that and more.
So BofA, which was predicting the 10-year Treasury note would finish 2011 trading at a growthtastic 4%, has reduced that forecast to 3.6% — which is itself a half a percentage point above where trading has taken place lately. Even the realists can’t avoid a bit of wishful thinking, it seems.
“The slowdown feels very similar to last year’s soft patch,” Harris writes. Sometimes history does more than rhyme.