NEW YORK -- Three years after the worst economic downturn in generations, the American economy increasingly appears vulnerable to another recession.
Months of slow growth and external shocks have wounded the economy to a critical extent, economists say. After Washington lawmakers agreed to raise the nation's debt ceiling in exchange for hundreds of billions in federal spending cuts over the next decade, investors breathed only momentary relief. They quickly changed focus to the increasingly ugly fundamentals: Gross domestic product is barely growing, the unemployment rate is high, home prices are falling and the manufacturing sector is suffering, with little relief in sight.
A stream of data in recent days vividly portrays a sick economy. One more obstacle, experts say, might put an end to growth.
"The economy has so little momentum that if something were to happen -- if there were some exogenous shock -- that might tip us into recession," said Mark Vitner, a senior economist at Wells Fargo.
Many economists say it is too early to write off the fragile recovery, arguing that in such an enormous economy, growth is an almost organic process. Disappointing manufacturing numbers, for instance, do not on their own signal a broader economic slowdown, Ian Shepherdson, chief U.S. economist at High Frequency Economics, said in a recent note.
But even the optimistic experts suggest that a prolonged period of slow growth is a likely outcome, even if the United States manages to avoid a second recession.
The economic situation may be worse than the headline numbers make it seem. Economic output grew at an annual rate of just 0.85 percent in the first half of the year, the government announced Friday. Growth in the first three months clocked in at a meager 0.4 percent.
Officially, at least, the economy is not in a recession. But dig below those numbers, and the outlook is more grim: Seen in relation to population growth, gross domestic product has hardly expanded at all this year, Wells Fargo economists said in a research note Tuesday.
By this measure -- known as real gross domestic product -- growth actually shrank in the first quarter, at an annual rate of 0.4 percent, Wells Fargo said. It then grew at an annual rate of 0.6 percent in the second quarter.
Small wonder, then, that the current slowdown feels like an outright recession to many Americans.
"If you're one of the unlucky people who have lost their job and are struggling to find another one, I'm pretty sure that to your mind there's been no recovery at all," said Paul Dales, senior U.S. economist at Capital Economics.
The unemployment rate has ticked steadily upward for three straight months, reaching 9.2 percent in June. And with more companies planning to lay off workers, economists expect July's reading to be similarly gloomy.
When fewer members of the workforce have jobs, less money circulates through the economy, and general economic progress slows. A job loss can cause a person to default on their mortgage, which can lead to a foreclosure. That in turn can further depress home prices, again weakening the broader economy.
In a widely circulated research note this week, Goldman Sachs economist Andrew Tilton described a formula for predicting recession. If the unemployment rate rises to 9.3 percent in July and stays that high in August, that means the economy has either already entered recession, or will do so within six months, Tilton said.
Experts see an economy vulnerable to shocks. Bill Gross, who manages the world's biggest bond fund at PIMCO, said the economy had stalled, in a Tuesday interview on Bloomberg TV. He stopped short of predicting a return to recession, but called the current situation a "tipping point."
Larry Summers, former Treasury Secretary and recently head of the White House's National Economic Council, said in a Reuters column Tuesday there's a one-in-three chance the economy will revert to recession, "if nothing new is done to raise demand and spur growth."
Government stimulus programs, such as the payroll tax cut and unemployment benefits, are set to expire at the end of the year. The deficit-reduction deal passed this week doesn't renew them, instead enacting a decade of cuts.
"The economy’s problem remains a lack of aggregate demand," author Bruce Bartlett, who was a senior policy analyst under President Ronald Reagan, said in an email. "The unwinding of the 2009 stimulus has already had a depressing effect on growth, and any further fiscal contraction from the budget deal will make matters worse."
Economic growth this year will likely average less than 2 percent, said John Richards, head of strategy at Royal Bank of Scotland in the Americas.
"Empirically, growth at that level is not a stable long-run point," Richards said. "You move off it rapidly, in one direction or another."
Financial markets reflect the dismal mood. Stocks have taken a relentless beating in the past couple weeks, with investors eying the fight in Washington over raising the government's debt ceiling. After days of selling, the Standard & Poor's 500 Index at Tuesday's close had erased all of the gains it had made so far this year.
If stocks hadn't risen Wednesday, the Dow Jones Industrial Average would have logged its longest losing streak since 1978, Bloomberg News reported.
Perhaps a more telling indicator is the interest rate on Treasury debt, which plunged this week to fresh lows. Yields on the 10-year note fell to the level of early November, when the Federal Reserve was beginning a massive stimulus program, Bloomberg data show.
Falling Treasury yields are typically a sign that investors foresee a weak economy, as they clamber for a safe-haven investment. Fears that the Treasury might default, which were hardly reflected in the data to begin with, are now wholly irrelevant, as the darkening economic picture pushes rates down, economists say.
Indeed, there's been little cause for hope in the stream of data released in the last few days. Consumer spending, a key driver of growth, fell in June, the government said Tuesday. It was the first decline in nearly two years.
On Monday, the Institute for Supply Management announced that activity in the manufacturing sector hardly increased at all in July. New orders in manufacturing actually shrank, for the first time since June 2009, the ISM said.
Manufacturing, used as a gauge for the health of the economy, had been showing strength earlier in the year. But now, that seems to have changed.
At Vista Metals, a manufacturer outside Pittsburgh, orders shrank by about 15 percent in June, according to Mark Shelleby, the company's treasurer.
"This may be more of a fundamental decline in demand than just summer doldrums," Shelleby said.
Others in his field see the slowdown as seasonal, he said. But Shelleby insists it's based on the weakening economy.
"I hope I'm wrong," he said.