Doubt and Drought Cools Economy

Drought conditions in the Midwest and a looming ''fiscal cliff'' of federal spending cuts and tax hikes have taken the economy sideways, as the markets idle under a cloud of uncertainty.

Now that the second quarter of 2012 (April through June) is solidly in the rearview mirror, analysts are more assured of the economy's latest reading: the markets have slowed down, and are showing no signs of picking back up again anytime soon.

This year marks the third consecutive ''summer slowdown,'' and external factors have added to the woes of each period ?EUR??,,????'??? the all-but-everlasting European debt crisis, the devastating earthquake and tsunami in Japan, etc. The crisis now making headlines is the worst drought Middle America has seen in a half-century. Agriculture and landscaping alike are struggling to survive the lack of rainfall and high temperatures throughout the Midwest, and the effects of a shortage of corn and other basics will have far-reaching effects into the produce and energy markets that are only just arriving.

Economists surveyed for MarketWatch.com are predicting flat readings on the June indicators scheduled for release this week. Jobless claims and new home sales are expected to fall and rise, respectively, but only by tenths of a percentage point; consumer sentiment will likely remain unchanged; orders for durable goods are expected to drop; finally, the second quarter's GDP, after rising to 3.0 percent in Q4 2011 and sinking to a downwardly revised 1.9 percent in Q1 2012, is expected to fall further, to 1.3 percent for the second quarter.

The housing market, long a drag on the sluggish recovery, is now losing its own head of steam after improving for the first half of the year. Existing home sales fell 5.4 percent in June, according to the National Association of Realtors, returning to a low not seen since October 2011. The new home sales number expected Wednesday (July 25) should provide more clues as to whether or not the housing market will begin to sink or stagnate with the larger economy.

The ''fiscal cliff,'' an oft-warned about round of spending cuts and tax hikes set to automatically trigger at the end of 2012, may also be having a calming effect on the market as businesses are hoarding capital to wait out the gathering storm.