A year that was supposed to mark a turning point both for the US and global economy is rapidly turning into the recovery that wasn't.
At a time when things were supposed to be getting better they are instead turning worse: Commodity prices are eating into consumer spending, historically low interest rates haven't done a thing to help housing, and, most worrisome, the job market rebound has been stopped in its tracks.
Is it too early, then, to talk about a double dip? Probably.
Economists busy ratcheting down their forecasts for gross domestic product, unemployment and other metrics still think growth will resume later in the year. But GDP gains, both in the US and around the world, are likely to be considerably slower than anticipated.
"The economy appeared to have everything going for it as we entered the New Year," London-based Capital Economics said this week in an updated analysis of its 2011 outlook. "GDP growth had picked up over the closing months of last year, the activity surveys hit multi-year highs and yet another round of fiscal and monetary stimulus was being put in place."
But that was before inflation pressures—considered by Fed Chairman Ben Bernanke and other central banks to be muted this year—escalated and changed the recovery's dynamics.
"Unfortunately, the surge in commodity prices ended up constraining real incomes, which largely offset the potentially positive impact of the payroll tax cut," Capital said, referencing last year's tax deal between congressional Republicans and President Obama. "Growth slowed and the activity indices dropped back."
That has had cascading effects across the economy.
Government data released Friday showed consumer spending remains weak, pressured by food and gas prices that Bernanke has famously described as "transitory." That has come on the heels of a miserable week for economic news in manufacturing and jobs.
At the same time, the Fed's zero interest rate policies and quantitative easing programsmay have spurred the stock market to a stunning recovery but have done virtually nothing for housing, which has become the elephant in the recovery's living room.
"The ongoing decline in house prices is only causing further damage to households' balance sheets, offsetting any benefits from rising stock markets for many people," Capital wrote. "House prices are on course to fall by at least 5% this year and we don't anticipate any rebound until the second half of 2012."
So even if Bernanke's position in "transitory" inflation holds true and the consumer gets relief—such as in the recent fall in gasoline prices—there are other problems with which the economy must contend.
For instance, the Goldman Sachs Analyst Index—a measure of business activity similar to the Institute for Supply Management's report—showed its fifth-largest drop ever in May.
"May’s GSAI result is not encouraging, but it is consistent with other recent surveys of economic activity," Goldman economist David Kelley wrote in a research note. "The general business conditions or composite indices of all of the major Fed surveys released so far in May have declined."
As such, that has resulted in more pessimistic revisions for economic growth.
Goldman Sachs already has moved its second-quarter GDP projections down for the US to 3.0 percent and its global outlook from 4.8 percent to 4.3 percent.
Deutsche Bank also has pared down its 2Q expectations, putting domestic GDP at 3.2 percent from earlier expectations of 3.7 percent.
Moreover, Deutsche also has backed off its rosy hopes for the May nonfarm payrolls number. Earlier the firm projected the month to show jobs growth of more than 300,000 and a drop in the unemployment rate to 8.7 percent from the current 9.0 percent.
But a continued slowdown in Japanand worsening weekly jobless claims numbers have sent the firm's economists in the other direction, now predicting employment growth of 225,000 and just one tick lower in the unemployment rate, to 8.9 percent.
But Deutsche is far from backing off in terms of its broader economic views.
"The overarching theme remains that productivity is broadly slowing as the economic expansion continues, which means the pace of hiring should accelerate—as is typical at this stage of an economic expansion," Deutsche economist Carl Riccadonna wrote in a note. "Our May employment forecast alterations merely reflect a slightly softer pace at which this is occurring."
But pessimism remains the overarching theme, even if an outright return to recession is not part of the consensus forecast.
Bank of America Merrill Lynch has cut its quarterly—2.0 percent GDP gain from 2.8 percent—and yearly growth forecast—3.0 percent for the second half—aggressively as headwinds continue to build.
"The weakness reflects both the temporary impact of disruptions to global supply chains and more lasting shocks from higher oil prices, fiscal tightening and slower growth overseas," BofAML economist Ethan Harris said in research. "Hence we continue to expect a disappointing bounce back to just 3% growth in the second half of the year. The slowdown feels very similar to last year's soft patch."
The good news, and what likely will prevent a technical double-dip, is that corporate America is faring well.
Aggressive cost-cutting through layoffs and production efficiency has resulted in healthy bottom lines, with about 68 percent of Standard & Poor's 500 companies beating first-quarter profit and revenue estimates.
And most market pros expect the stock market to endure a bumpy summer but then regain traction and end the year on a stronger note.
"There are positive signs in the underlying data in the major economies, even if some of the short-term data have disappointed." Nomura Securities economist Owen Job told clients. "We do not expect risk to be repriced lower, and think equities are likely to enter a range."
The downside remains, though, as companies use their excess profits not to hire but to do deals and issue debt at historically low interest rates.
As such, a year that began with great promise could end with recovery hopes that will have to be delayed a while.
Of projections that economic growth could still reach 4 percent this year, Capital Economics' experts simply say, "We are not convinced."