June job losses add to list of consumer worries

Along with consumers, private economists also are getting gloomier. Many forecasters now concede that the economic recovery they had expected to see by the end of this year will take longer than they thought to materialize.

Though consumer spending helped the gross domestic product advance by 1 percent in the first quarter of this year, that positive momentum may be short-lived once the stimulus checks are spent. Goldman Sachs chief economist Jan Hatzius expects the economy to begin turning down late this year or early next, with the unemployment rate hitting 6.5 percent by the end of 2009.

Despite the concerns about a weakening economy, Fed policymakers signaled last week that they had begun to worry more about inflation. That could signal plans to raise short-term interest rates. Already, central banks around the world — including China, India, Russia and Brazil — have begun boosting rates to try to keep a lid on inflation. The European Central Bank to followed suit at its rate-setting meeting Thursday, boosting rates by a quarter point to 4.25 percent.

Higher rates overseas put further pressure on an already weakened dollar, which has drawn some of the blame for the rise in energy prices. Some economists think the Fed’s inflation fears are misplaced. Especially if the economy is headed toward a full-blown recession.

“You’re going to have slack in the labor markets, slack in goods markets and you’re going to have a reduction in commodity prices once the U.S. recession becomes global,” said Nouriel Roubini, and economics professor at New York University’s the Stern School of Business. “Inflation is not the problem the Fed has to face.”

A lot depends on how long the housing market remains stuck in reverse. With the spring selling season over, home prices have continued to fall, wiping out billions of dollars worth of consumer wealth. That’s why job growth is so important: With less home equity to fall back on, consumers have little cushion to offset the loss in wages that comes from losing a job.

With most rebate checks paid out, there appears to be little prospect of further government response to the worsening economic outlook. Despite a recent call for more offshore drilling from the White House, there has been little talk of a formal response to the surge in energy costs, despite concerns that oil and gasoline prices may remain stubbornly high for some time to come.

Meanwhile, Congress and the White House continue a year-long effort to pass a housing relief bill to try to head off an estimated three million more home foreclosures this year. Though both sides are hopeful of passing a bill before the summer recess, it remains to be seen how far the final version will go in providing relief to those at risk of losing their homes.

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