With food and energy prices marching upward, paychecks aren't stretching as far. Although tax rebates helped to energize shoppers and give major retailers better sales in May, analysts still believe that anxious consumers will be keeping a close watch on their purchases and their budgets in the months ahead. A weakening job market could make people feel less inclined to spend.
Worried about inflation, Federal Reserve Chairman Ben Bernanke has signaled that the central bank's rate-cutting campaign, which commenced last September to help bolster the economy, is probably over for now.
Fed officials and the Bush administration are hoping that the Fed's powerful doses of rate reductions and the government's $168 billion stimulus package, including tax rebates for people and tax breaks for businesses, will pull the economy out of its deep funk in the second half of this year.
Even if that happens, the unemployment rate is expected to climb to 6 percent or higher early next year. Employers won't want to ramp up hiring until they feel more sure that an economic recovery has strong legs.