The headwinds blowing against the economic recovery are getting stronger.

The latest batch of economic data to come down the pike point to an economy that is not merely heading for a double-dip — it suggests that we are already there.  Jobless claims jumped to a nine-month high, the leading indicators flattened and the Philly Fed’s index of regional manufacturing took a header.  The second quarter’s gross domestic product showed a growth rate of 1.6%, compared with a 3.7% clip in the first quarter. This was weaker than it looked, since a lot of it was due to goods that were produced but not sold.  Since this is an annual rate, the actual percentage change was less than 0.4%.  The current quarter does not look much better. Indeed, it might well be even worse, and if just a little worse, then negative growth (the start of the double dip??).

It is not hard to see why the economy is struggling. As anticipated, the push from inventories appears to have faded. So has the stimulus from the housing tax credit and the government’s “cash for clunkers” program.  Washington has laid-off temporary census workers, while many states and local governments are furloughing people as well. For its part, the private sector is creating few new jobs while terminating many.  The U.S. economy appears to be caught in a vicious circle.   People are not spending because they lack home equity and have no jobs or are afraid they will lose the one they have. Business is not hiring because demand is weak, and at the risk of being repetitious, many firms are unwilling to hire because they face more than the usual uncertainties. They may be making good money (and many are sitting on mountains of cash), but they are concerned about the anti-business environment that appears to be developing in Washington.  Talk to business people from all walks of life and they will tell you that there is too much government, too many new rules and regulations — not to mention the higher cost of providing health care for their employees. To top it off, many are expecting their taxes to go up next year — which tilts the cost-benefit equation even further against hiring.  If business does not hire, consumers won’t spend.

And, real estate, the keystone of the vast number of past recoveries is going nowhere (but down). 

Washington could surprise me and take some aggressive steps to right the economic ship through intelligent moves; but, like I said, I would be surprised (Data Source: Irwin Kellner, MarketWatch).