American consumers, faced with grim job prospects and the looming threat of a national debt default, are in no position to support the global economy with a new wave of spending.
That bodes poorly for rather rosy forecasts for U.S. economic growth in the second half of the year from many Wall Street economists and top Federal Reserve officials.
One ray of hope for the global expansion is a surprisingly rapid industrial rebound in Japan following the devastating earthquake and tsunami earlier this year.
Output in the industrial sector bounced 6.2 percent in May and a report on Thursday is expected to show it surged another 4.5 percent in June, according to a Reuters poll.
But stateside, the figures give little cause for optimism. The U.S. Commerce Department is slated to release its first estimate of second-quarter gross domestic product on Friday.
The U.S. economy likely expanded at a 1.8 percent clip in the April-to-June period, below the first quarter's paltry 1.9 percent rate. What is worse, a stagnating job market has dented consumer confidence, dimming the chances of a robust recovery toward the end of the year.
GDP, however, is a backward-looking indicator, and economists will look to other guideposts to get a flavor of how the economy is currently faring, including Chicago-area factory managers and an index of consumer sentiment on Friday.
The Chicago purchasing managers index is projected to slip to 60.0 from 61.1, a level that would still suggest factory sector resilience.
But sentiment is expected to hold steady at historically low levels, raising questions of just how much help the recovery will get from consumers, whose spending drives two-thirds of U.S. economic activity.
This makes the U.S. central bank's June forecasts for 2011 economic growth, which saw GDP rising between 2.7 percent and 2.9 percent, appear somewhat lofty.
"I just don't see any big catalyst to propel growth," said Haag Sherman, managing partner at Salient Partners, an investment firm in Houston, Texas. "The consumer is tapped out and you have a pretty uncertain picture that's not helping matters much."
Part of that uncertainty comes from an acrimonious battle over the U.S. debt ceiling that has rating agencies threatening to downgrade the United States' prized AAA credit rating.
Analysts at Goldman Sachs posited in a research note this week that consumer confidence may already have been dented by the confrontational tone of budget negotiations and the looming possibility of a debt default.
TWIN DEBT CRISES
Helping divert attention from the August 2 deadline beyond which the U.S. Treasury has said it will no longer be able to pay all of the government's bills is Europe's own debt debacle, which continues to simmer despite progress at a summit last week on Greece.
The sweeping bailout and policy package agreed by euro zone leaders has helped stem market panic in the short-run. But analysts say the measures are not enough to bring the crisis to a swift resolution.
Even with optimistic assumptions for economic growth and the contribution from the private sector, Greece's public debt-to-GDP ratio looks likely to stay well above 100 percent in the next several years, while Ireland and Portugal may still need debt restructuring down the road.
"Once the dust settles, the markets will surely return to the question of whether the package really addresses the fundamental economic and fiscal challenges facing both Greece and the euro zone in general," said John Higgins, economist at Capital Economics in London. "They will probably conclude that the answer is 'No.'"
Still, a temporary respite from short-run debt concerns could allow investors to turn their attention back to growth and inflation. Preliminary German inflation figures and euro zone sentiment numbers for July, due on Wednesday, will help to determine whether the European Central Bank tightens policy one more time this year.