Sure, the economy is looking weaker these days, but fears about a double-dip recession are “overblown,” according to researchers at the money management firm Lord Abbett.

That’s the word from Lord Abbett partner and senior economist Milton Ezrati, who blames some of the current anxiety to excessive optimism in late 2010 and early this year.

He notes that in late 2010, the housing decline stabilized and even showed some recovery, with existing home sales actually rising 27% between August and January 2011 and residential construction also showing gains. As well, over the same period, consumer spending jumped by 5.4% on an annualized basis, as did new manufacturing orders, up 16%.

But, as Ezrati points out, these impressive figures were “never sustainable.” 

This year, housing has moved backward into a double dip and consumer spending, which Ezrati said had “gotten ahead of income growth,” has also slipped. Meanwhile, layoffs in state and local employment have put a further damper on general economic growth.

Having said all that, Ezrati says investors need to stop worrying about a double-dip recession.

He suggests that the latest poor jobs figures and rising unemployment numbers are primarily in the leisure, hospitality and retail sectors, which he says may be a delayed response to the uptick in gasoline prices. And, he said, the dip in manufacturing was mainly automobiles, which are also impacted by gas prices and by supply problems caused by the Japanese earthquake and tsunami.

The Institute of Supply Management’s May index of 53.5%, while down from over 60% earlier in the year, is still over the 50% line, which he says is the demarcation line between growth and decline.

Home sales too, while low by historic standards, are nonetheless 2.6% above February and 30% above the lows of last summer. Also consumer spending, while growing slowly, is still growing, up at a 55% annualized rate in April, the last month the figure is available for.

Ezrati’s conclusion: “None of this points to a robust recovery, but a second recessionary dip is highly unlikely.” 

Instead, he says, the U.S. economy should “carry on with middling growth of 2.5-3%.”


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