Recent evidence the economic recovery may be slowing has prompted analysts to scale back their expectations for the pace of growth into next year, a Reuters poll showed.
Persistently high unemployment, along with disappointing May retail sales data and evidence that the housing market continues to struggle have contributed to a significant reining in of expectations compared with just a month ago.
The median of forecasts in a survey of almost 100 economists taken in the past week pegs annualized U.S. second-quarter gross domestic product at 3.3 percent, down from 3.5 percent in the last Reuters poll taken in June.
GDP growth is expected to ease to 2.6 percent in the third quarter (from 3.0 percent), 2.7 percent in the fourth quarter (2.8 percent), and 2.6 percent in the first three months of next year (2.7 percent).
For the full year 2010, the median of forecasts for growth was chopped to 3 percent from 3.2 percent in the June poll. That was the first downgrade in the last eight polls but the range of forecasts was narrower, indicating a hardening view.
There has been some concern about a tightening in financial conditions and how that is filtering through to consumer and business confidence and the economy, said Jonathan Basile, economist at Credit Suisse in New York.
And those tighter financial conditions are part of the reason why there is a scaling back of expectations for growth.
There is also widespread uncertainty about how the second quarter just ended will look. Out of 51 common contributors, 27 downgraded their GDP forecasts and only 8 upgraded them.
For the third quarter, the situation was similar. Out of those same 51, 24 downgraded and five upgraded.
U.S. data on housing, employment and sales have generally disappointed over the past two months, undermining U.S. stocks and bolstering lower risk Treasury debt prices, sending yields plummeting.
Slower economic growth and subdued inflation will likely mean the Federal Reserve will be in no hurry to raise interest rates from their current ultra-low level near zero, according to the results of the survey.
The median of forecasts called for a fed funds rate of 0.125 percent -- the middle of the U.S. central bank's current range of zero to 0.25 percent -- through the third and fourth quarters of this year, and then for the rate to be fixed at 0.25 percent in the first quarter of next year.
Last month, the median forecast called for the Fed to fix rates at 0.25 percent in the fourth quarter of this year, then boost them to 0.50 percent in the first quarter of next year.
It is going to require a lot more growth to start to move the economy forward on a basis that feels acceptable, Basile said.
Even if we are moving forward but we are not moving forward fast enough to bring unemployment down, then that is not going to feel like we are out of recession.
The poll showed the U.S. unemployment rate will average 9 percent or above for all but one quarter in the forecast horizon. It is expected to average to 8.7 percent in the final three months of 2011.
Despite scaling back growth forecasts, economists still ascribe only a minimal median 15 percent chance the U.S. will experience a double-dip recession.
A double-dip is unlikely, but the risks are tilted toward the downside, said Scott Brown, chief economist at Raymond James & Associates in St. Petersburg, Florida.
Indeed, the outlook for next year is shaky. The range of forecasts provided for 2011 GDP was in a spread of 3.2 percentage points, the widest since polling for this began in January.
Expectations for price inflation are also being pulled back, with the median of forecasts calling for the consumer price index to rise by 1.6 percent in 2010, down from a forecast 2010 CPI rise of 1.8 in the June poll.
(Polling by the Bangalore Polling Unit; additional analysis by Dinesh Mehta; Editing by John Stonestreet)