Slowing growth does not signal a recessionary contraction

Although the year began with a fizzle, Beacon Economics is forecasting that the U.S. economy will not enter into a double dip recession in 2011.

Similar to the recent ISM findings, Beacon suggests that growth will pick up modestly in the last half of the year and into 2012.

While the nation’s economy slowed sharply during the first half of this year, slowing growth is not the same thing as a recessionary contraction. For the economy to actually shrink, there needs to be a significant and sustained negative shock to the system. Beacon Economics does not identify any such shock hitting in 2011. A number of good signs include stabilizing home prices and the fact that construction should pick up somewhat by the end of 2012. Population growth is sure to help chip away at excess housing supply nationwide.

And while Beacon share’s our reservations about President Obama’s recent proposal to help jumpstart the economy, if portions of the package are adopted, there may be some positive economic effect.

Beacon Economics is optimistic in the short term, but they note that the U.S. economy is still far behind where it should be in this stage of the business cycle, explaining much of the weakness in the labor markets.

There remain serious issues leftover from the massive imbalances that pushed the nation’s economy into recession in the first place.

Beacon believes that ultimately, there are some painful but necessary adjustments to be made and issues to address –including the Federal budget deficit and recent “loose money” policies by the Federal Reserve.