NEW YORK – A private research group forecast that the economy will grow slowly as summer turns into fall — if U.S. politicians can agree to raise the amount the government can borrow.
The political impasse means the government could default on its debts next month, potentially setting off a financial crisis. If a deal is reached by an Aug. 2 deadline, that "headwind" would recede, and the economy should resume its modest recovery, said Conference Board economist Ken Goldstein.
The Conference Board said Thursday that its index of leading economic indicators rose 0.3 percent in June. The index had rebounded 0.8 percent in May after dropping 0.3 percent in April. The April decline was the first since June 2010.
The June rise in leading indicators suggests that the recent slowdown in growth won't worsen into a recession over the next few months, even with high unemployment and a weak housing market.
The economy expanded at a 1.9 percent pace from January through March. Most economists believe growth was similarly weak from April through the end of June. Economists blame temporary factors, including a supply chain disruption resulting from the Japanese earthquake and tsunami and a spike in gas prices, for the sharply slower growth compared to the end of 2010.
Federal Reserve Chairman Ben Bernanke has said he believes growth will recover over the next six months. A pullback in gas prices and relief from the supply chain problems should help the economy, he has said. But he has also said high joblessness — 9.2 percent in June — and a weak housing market are hurdles to a full recovery.
Many private economists also expect a moderate pick-up in the second half of the year. The two straight monthly increases in the leading indicators in May and June help support the view that the second half of the year will at least not be as bad as the first six months of 2011 have been, said Barclays economist Troy Davig. Barclays expects 3 percent growth from July-September and 3.5 percent growth in the last three months of the year, with unemployment falling back below 9 percent.
That forecast assumes that the U.S. will not default on its debt, Davig said. But worries over the high-stakes political negotiations may have kept employers from hiring recently, he added.
"There's a lot of uncertainty. If there is a cataclysmic event, (employers) don't want to be suddenly saddled with a lot of employees" that they're then going to have to lay off, he said.
The employment situation has recently grown worse. Just 18,000 jobs were created in June, the smallest amount in nine months, and the unemployment rate rose to 9.2 percent. On Thursday, the government said the number of people applying for unemployment benefits rose to a seasonally adjusted 418,000 last week. Applications have topped 400,000 for 15 straight weeks, a sign of sluggish hiring.
Half of the 10 measures that the Conference Board compiles into its index showed improvement in June. Four declined, and one was steady.
The Federal Reserve's policies to help support financial markets and an increase in building permits, which signal future construction, were the biggest reasons the measure rose.
But a decline in stock prices, hours worked by factory employees and lower consumer confidence weighed down the index. The number of people applying for jobless benefits had a neutral effect on the leading indicators.
The Conference Board is a private research group based in New York. It uses data that has mostly already been released about real estate, manufacturing, employment, consumer confidence and financial markets in calculating the leading indicator index. The Conference Board also includes its own estimates about manufacturers' new orders and the country's money supply.