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June 5, 2012

Slowdown short of recession seen for third year

WASHINGTON — The U.S. economy looks set to deliver a repeat performance in 2012: for the third straight year, it may suffer a swoon yet not slip into a recession.

"I don't think the slowdown will be any more consequential than the past two years," said John Ryding, a former Federal Reserve researcher who is chief economist at RDQ Economics in New York. "There are positives out there in the economy. We'll avoid a recession."

Household balance sheets are in better shape, with indebtedness down about $100 billion in the first quarter, according to the New York Fed. Banks are more profitable: earnings have risen for 11 straight quarters, based on data compiled by the Federal Deposit Insurance Corp. Even the housing market is reviving, with starts through the first four months of this year 24 percent higher than the comparable 2011 period.

Stocks plunged on Friday on news that American employers last month added the fewest workers to their payrolls in a year while the jobless rate rose. Treasuries gained, sending yields to record lows, as investors sought refuge from rising financial strains in Europe and slowing growth in the U.S. and China. German and British yields fell to all-time lows after Spanish Economy Minister Luis de Guindos said the future of the euro is at stake.

Following the jobs report, Michael Feroli, chief U.S. economist at JPMorgan Chase in New York, lowered his forecast for third-quarter economic growth to 2 percent from 3 percent. He sees the economy expanding 2.5 percent this quarter.

Allen Sinai, chief executive officer of Decision Economics in New York, bumped up his odds of a recession next year to 15 percent from 10 percent.

Mitt Romney, the presumptive Republican nominee in November's presidential election, seized on the jobs figures to attack Barack Obama. "It is now clear to everyone that President Obama's policies have failed to achieve their goals," he said in a statement.

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