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Economy in Brief

Forecasters Expect Return Of Positive GDP Growth This Quarter, Slow Thereafter
by Tom Moeller  September 21, 2009

Each quarter, the Federal Reserve Bank of Philadelphia surveys a group of professional forecasters to gain perspective on the outlook for the U.S. economy. In the August survey, the panel expected the recession to have reached its end, though the recovery is expected to be subpar. That subpar nature is expected to keep unemployment high but it is not expected to prevent inflation and interest rates from rising.

Just 2.4% growth in real GDP is expected during the current quarter to be followed by growth at about that rate into next year. That follows the 3.9% y/y drop in real GDP through last quarter, which was the deepest decline since the Great Depression. Indeed, this recovery is subpar compared to prior periods of severe recession. Following the 1973-75 recession, when GDP fell at a peak y/y rate of 2.3%, growth shortly rebounded to 6.2%. Similarly following the 1981-82 recession, when GDP fell 2.7% y/y, a snapback came quickly at near an 8% rate.

The subpar nature of the coming economic recovery stems very much from the consumer who remains burdened by excessive levels of debt.

A swing towards inventory accumulation also should play a part in the pending economic recovery, yet here again it's not a huge part. Accumulation at near a $20 billion annual rate is expected by the end of next year. Certainly that is improved from the peak rate of decumulation of $141 last quarter, and the dollar swing is impressive. But as a percentage of the economy's overall real size it amounts to barely half the swing after prior severe recessions. As for the foreign trade deficit, recent improvement has helped forestall an even deeper decline in U.S. GDP during this recession. However, that improvement is expected to now end with little or no improvement through next year as foreign economies remain weak.

Weak economic growth is expected to do little reduce unemployment. The unemployment rate is expected to average 9.9% and then dip just to 9.6% by next year's third quarter. These rates are the highest jobless rates since 1982-83 and reflect little or no growth in expected employment. Pricing power is thus expected to be severely constrained. The y/y growth in the overall GDP price deflator is expected to drift up to 1.5% from its low of 1.0% this year. Perhaps not-so-surprisingly, forecasters expect that lift to stem from a liquidity-driven rise in core consumer prices to 1.6% from a low of 1.1% being reached now. Ten-year Treasury yields are expected to rise in tandem to highs near 4% by the middle of next year.

The full Third Quarter 2009 Survey of Professional Forecasters from the Federal Reserve Bank of Philadelphia is available here

. The data are available in Haver's SURVEYS database. 

FRB Philadelphia Survey of Professional Forecasters (AR) 2Q '09 3Q '09 4Q '09 1Q '10 2Q '10
Real GDP -1.0% 2.4% 2.2% 2.5% 2.8%
  PCE -1.2 1.7 1.1 1.7 2.0
  Non-Residential Investment -8.9 -7.3 -6.3 2.1 3.8
  Residential Investment -29.3 -7.3 1.8 5.6 13.4
  Federal Government  10.9 6.2 4.1 1.5 2.1
  Change in Business Inventories $-141.1B $-89.9B $-32.7B $-1.7B $9.5B
  Net Exports -339.3 -340.0 -342.1 -353.6 -366.0
Unemployment Rate (%) 9.3 9.6 9.9 9.9 9.8
Consumer Price Index (Y/Y, %) 2.4 1.7 1.1 1.5 1.5

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