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Economy in Brief

Economists Forecast Moderate Rebound in Second Half
by Tom Moeller February 23, 2009

A survey of 47 top economic forecasters released today indicates that the current U.S. recession should end in the second half of this year. The subsequent recovery would start quite slowly, compared to historic norms, then pick up steam during 2010.

The National Association for Business Economics indicated in its latest survey that positive growth in U.S. GDP would resume in 3Q of this year at a 1.0% rate. For the second half of 2009 as a whole, the average forecasted rate of growth of 1.5% is on a par with the recoveries from the moderate recessions of 1990 and 2001. However, the recovery falls well short of growth after the more severe recessions, such as those in 1960, 1974 and 1982.

Improved (2.2%) growth in personal consumption expenditures and a recovery in residential building are expected to lead the economy from recession. The gains are expected to be moderate, however, compared to sharp rebounds typical of the postwar period. Business investment is expected to continue to decline sharply in 2010.

Corporate profits also are forecasted to rise in 2010 at a 7.3% rate, which would just reverse this year's decline. Again, that rebound is quite moderate compared to prior periods.

Inflation during the forecast period is expected to remain quite tame. Growth in the core PCE chained price index is expected to amount to roughly 1.0% for the rest of this year as the recession continues and the level of excess capacity remains high. The economic recovery next year as well as this year's significant injection of liquidity (money) by the Fed is forecasted to raise prices by 2010 at a quickened rate.

The bond market is forecasted to deteriorate next year with rates on the 10-year treasury rising to an average 3.8% from 3.1% this year. The catalysts for this deterioration are economic improvement as well as a significant rise in the federal budget deficit ($1.5 trillion this year and $1.1 billion in 2010) which could give rise to "crowding out" and higher inflation. In the foreign exchange market, the dollar's value is expected to remain roughly stable.

The forecast figures from the National Association of Business Economists are available in Haver's SURVEYS database.

Nat'l Assn. of Business Economists 1Q'09 2Q '09 3Q '09 4Q 09 2008 2009 2010
Real GDP (%) -5.0 -1.7 1.0 2.1 -0.2 -0.9 3.0
"Core" PCE Chained Price Index (%) 0.6 1.0 1.0 1.2 1.8 0.9 1.5
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