text: Fits and starts | The Economist
  Batten down the hatches, it's going to be a stormy recovery
  IF AMERICANS have learned anything from their recovery, it is that nothing can be taken for granted. Growth may deliver new jobs, or it may not. Recovery may be under way, but a crisis on the other side of the Atlantic could derail it. In the fourth quarter of last year America seemed at last to shake off the effects of the summer's European jitters. A first estimate put growth in the last three months of 2010 at a 3.2% annualised pace. The economic expansion appeared to be accelerating. Or maybe not. On February 25th the Bureau of Economic Analysis revised GDP growth down to just 2.8%, scarcely more than the 2.6% performance in the third quarter.
  Several factors contributed to the revision. Imports grew more, and personal consumption less, than originally reported. But a larger than estimated drag from state and local government cuts played a significant role. Of the 0.4 percentage points trimmed from the GDP estimate, about half was attributable to local government austerity (see chart). And because high unemployment is lingering, these governments will have to deal with bigger budget gaps for longer than they expected. A projected $125 billion state budget gap in the 2012 fiscal year will come close to matching the $130 billion hole governments faced in fiscal 2011. Cuts to government programmes will add public employees to the ranks of the jobless, complicating the unemployment picture.
  Unlike most states, the federal government is not obliged to balance its budget, and deficits have reached record levels recently. The rise in public debt complicates a long-run budget picture darkened by the shadow of a looming spike in entitlement spending. But there is no immediate crisis. Given the weakness of the recovery, adoption of a credible plan to address deficits over the next few years is the safest course of action. Republicans in the House of Representatives, not content to wait, have committed to chopping $61 billion from planned spending in the current fiscal year. Some say their impatience is risky. Mark Zandi, chief economist at Moody's Analytics, reckons that Republican cuts could lead to the loss of up to 700,000 jobs, while Goldman Sachs forecasters estimate that the plan may trim up to 2 percentage points off annualised growth in the remaining two quarters of the fiscal year. These estimates, though, may be a little too pessimistic. Ben Bernanke, the chairman of the Federal Reserve, has testified to Congress that even cuts of that size should not trim more than a few tenths of a percentage point from growth.
  Under different circumstances the economy could weather the political storm, but global markets are generating their own headwinds. Continuing unrest around the Middle East threatens to disrupt oil supplies even as global recovery boosts petroleum demand. As a result of the uncertainty, oil prices rose by about $10 a barrel in February. Macroeconomic Advisers, a consultancy, estimates that a $10 increase, if sustained, could trim 0.2 to 0.3 percentage points from growth this year.
  Despite all this, America's recovery is getting stronger. February brought news of faster manufacturing activity and rising consumer confidence. But Americans have learned to expect setbacks. In that, at least, 2011 is unlikely to disappoint.
  This article appeared in the United States section of the print edition under the headline "Fits and starts"