Even with some signs of improvement in the US financial markets and a temporary boost from the economic stimulus package, the growth outlook for the second half of this year has deteriorated, according to a panel of economic forecasters. The weakest annual consumer spending since 1991 will lead to a darker outlook, the Blue Chip Economic Indicators found.
The consensus of economists polled between May 5 and 6 in the survey said the economy will grow at a 1.7 percent annual rate in the third quarter, down from the 2.0 percent forecast a month ago. For the fourth quarter, GDP is expected to grow by 1.5 percent, down from 1.9 percent seen earlier.
The outlook for 2009 has also darkened, with economists expecting growth of just 2.0 percent, down from 2.2 percent forecast earlier. Consumer spending, which accounts for 70 percent of economic growth, is expected to grow by a weak 1.5 percent for the year. That would be the smallest rise since 1991 and will, in turn, impact corporate profits.
"Given the erosion in the outlook for consumer spending and business investment, the consensus now predicts pre-tax corporate profits will contract by 2.9 percent this year and register growth of 5.3 percent in 2009," the newsletter said.
Business inventories are expected to subtract from GDP growth through the third quarter but then add to growth in the final quarter and into next year. However, total industrial production will grow only 0.7 percent this year, the worst performance since 2002, according to the consensus.
Even so, the economists do not anticipate further monetary easing from the federal reserve, which since last September has reduced its target interest rate by 3.25 percentage points. "Indeed, the consensus, seems to think the Federal Open Market Committee will begin to raise interest rates by late next spring," the newsletter wrote.
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