The U.S. economy is out of the ditch. But is there enough gas left in the engine to reach highway speed?
The recovery faces a crucial test over the next couple of months: Either it will pick up vital momentum from increased consumer spending and investment or stall out, dipping into a period of anemic growth -- or perhaps even another recession.
Forecasters knew this inflection point would arrive, a moment when consumers and businesses must take over for government stimulus spending and the rebuilding of inventories.
On Friday, the government will offer crucial evidence when it reports on second-quarter economic growth. This will be the first in a series of indicators in the coming weeks that could help answer whether the economy has achieved cruising speed, in particular whether the private sector is growing fast enough to put unemployed Americans back to work. Forecasters are expecting that gross domestic product rose at a rate of 2 to 2.5 percent rate in the April-through-June quarter, which would be too slow to drive down the jobless rate.
Just Wednesday, the government announced a surprising 1 percent drop in June orders for durable goods and a compilation of anecdotal reports from around the country by the Federal Reserve showed a recovery that is increasingly uneven. This fit into the pattern of recent economic indicators showing that the transition to a self-sustaining recovery has been rocky.
Fits and starts are common during early stages of economic expansion. Before long, it should be clear whether the summer of 2010 has indeed been a mere soft patch as recovery took hold.
"We're right on the cusp between simply decelerating and actually falling into a double dip," said Robert A. Johnson, executive director of the Institute for New Economic Thinking. "We have households still trying to be cautious and improve their savings, and if they cut back further, it will create a feedback loop that drives us back down."