Economic Growth Around the Corner
The economic data this week pointed to an economy at its bottom; growth should materialize in the back half of the year.
The economic data released this week, including the GDP report, the Case-Shiller price indexes, and initial unemployment claims are all supportive of 2%-3% GDP growth in each of the next two quarters, and continued growth well into 2010.
My growth expectations are above consensus levels but still well below the 5%-plus growth level typically experienced after a deep recession. An end to inventory destocking, a housing industry that is no longer in decline, and a return to more normal auto demand make me more bullish than most, but I'm still concerned about shaky consumer balance sheets and poor consumer confidence.
The GDP report was consistent with an economy in the bottoming process. At negative 1%, the June-quarter results were better than both my expectations (negative 2% to negative 3%) and the market consensus (negative 1.5%). The number was also substantially better than the previous quarter when the decline exceeded 6%. Sharply improved government spending (due mostly to defense spending, not yet the stimulus) and a huge decrease in the rate of decline in investment spending were the primary reasons for improvement, along with better-than-expected exports. The inventory draw-down in the quarter was the largest on record at about $150 billion, negatively affecting GDP by almost 1%. In other words, if inventories had just stayed the same as in the previous quarter, total GDP would basically have been flat.