WASHINGTON — Shoppers won't shop. Companies won't hire. The government won't spend on economic stimulus — it's cutting instead. And the Federal Reserve is reluctant to do anything more.
The economy might be in danger of slipping into a stupor like the one Japan has failed to shake off for more than a decade.
On Wednesday the Dow barely broke an eight-day losing streak, finishing up about 30 points. Even with the gain, the Dow has fallen 828 points, or 6.5 percent, during the past nine trading days. Economists are lowering their forecasts for the full year and recalculating the odds the economy will slide back into recession.
Kurt Karl, chief U.S. economist at Swiss Re, has cut his 2011 forecast for growth this year to 1.8 percent from 2.6 percent. And he has bumped up the likelihood of another recession to 20 percent from 15 percent.
It's hard to see anything lifting growth to the 2.5 percent needed to keep unemployment from rising, let alone the 5 percent needed to bring the rate down significantly from June's 9.2 percent.
"Sales are what keeps the market moving higher, and there's not much demand when there's only 0.4 percent growth," said Andrew Goldberg, U.S. market strategist at J.P. Morgan Funds, referring to the government's report that the economy grew at an annual pace of 0.4 percent during the first quarter.
The Fed has kept short-term interest rates near zero since December 2008 to stimulate the economy. But at the end of June, it ended a $600 billion program to buy government bonds and keep long-term rates — the ones that determine the rates people pay on cars and houses — low.
It was the second round of what economists call quantitative easing, or QE2 for short. The Fed has no plans for a third, fearing it would lead to higher inflation.
Kenneth Rogoff, a Harvard University economist, says that in this economy, QE3 — and, if necessary, QE4 — is the only hope. "Yes, we are starting to look like Japan," he says. "But it is not too late."