The much-vaunted recovery began to show signs of slowing a few months ago. Even so, the revelation on June 1st that employment grew by just 69,000 in May, a 12-month low, suggested a more serious deceleration than anyone had imagined. The stockmarket plunged, giving up all its gains since January. Online punters slashed the odds that Barack Obama would be re-elected to a little over 50%.Dreamers!
Yet hopes that 2012 would be the year when America's economy at last shook off its lethargy seem dashed. Employers and investors face increasing uncertainty in every big economy. China, India and Brazil have slowed sharply. The euro zone is dangerously close to collapse. Goldman Sachs reckons that the spillover of European stress into American financial markets will knock 0.2 to 0.4 percentage points off growth this year.
Meanwhile, tax increases and spending cuts equal to 5% of GDP a year are programmed to take effect around December 31st. Most analysts assumed this "fiscal cliff" would not be a worry until 2013. But economists at Bank of America, in a recent report, think it could become a significant drag relatively soon. The fiscal hit is huge, the date is set, and no resolution is in sight before the election on November 6th.
Uncertainty is a killer.
This all gives firms a powerful incentive to postpone hiring and investment until the resolution is known. The bank sees a one-in-three chance of recession between now and mid-2013.
Sunday, a WaPo editorial said O's downfall would be Europe, but it looks like he can crash the US, too.