Worries about a loss of momentum in the U.S. economy continued to make stock markets jittery Thursday. Major foreign exchanges experienced sell-offs following the sharp drop of more than 2 percent in U.S. indexes Wednesday. The markets are responding to data that suggest the U.S. recovery will remain a long, hard slog.
Mark Vitner, senior economist and managing director of Wells Fargo, says the market sell-off was a response to a tide of negative news in the past few days.
"There's been a lot of disappointing economic data," he says.
For instance, lower auto sales and fewer new jobs in the private sector than expected, a slowdown in manufacturing growth, and another slump in home prices. It's a reminder that the U.S. recovery is still anemic.
"People are beginning to realize that there's no quick fix," Vitner says.
Couple that with a minefield created by the Greek debt crisis and the U.S. debt-ceiling battle and it makes for nervous investors, he says.
"I think a lot of people said, 'Wow, I'm just not feeling as comfortable with as much money as this in the stock market,' and we had a big sell-off," he says.
After the biggest sell-off in a year Wednesday, U.S. stock bounced around Friday and the Dow Jones industrial average and S&P 500 indexes ended slightly lower.
But Vintner says he doesn't think the economy is likely to slide into recession again.
Diane Swonk, chief economist and senior managing director at Mesirow Financial in Chicago, agrees.
She says a number of the negative reports were just temporary speed bumps, particularly those in autos and manufacturing that were caused by the Japanese earthquake and tsunami. She says their effect on the markets reveals how fragile confidence is and how difficult it is to recover from a financial crisis.
"The financial crisis really left the economy hobbling. We're lucky to be growing after a financial crisis. But we're not growing enough to recoup the losses that we endured during the recession," she says.
This financial crisis was rooted in the housing bubble and that's a double problem, Vitner says, because a housing recovery usually leads the way out of recessions.
"This mountain of foreclosures that we're facing, they're not going to go away overnight; they're not going to go away in a year," he says. "We still haven't figured out what we're going to do with Fannie Mae and Freddie Mac. We know we're going to reform them, but until we do I don't think that housing is going to get much momentum."
And without a recovery in housing, Vitner says, it's hard to get the kind of vigorous growth necessary to rapidly bring down unemployment. Especially with so many low-skilled workers in the labor force who aren't qualified for jobs in other industries.
Another challenge for the economy, Swonk says, is the completion of the Federal Reserve's quantitative easing — a massive bond-buying program aimed at lowering interest rates — and the end of federal stimulus programs for the states, which means more pink slips for public workers.
Swonk says the problems created by the financial crisis are like those faced by a person who has had a massive coronary.
"We had a massive heart attack, and rehab takes a long time," she says.
That means years of slower growth and higher unemployment than the economy would have coming out of a normal recession.