Last week's post noted the bottoming out of residential and business investment as well as consumer spending. These components make up private domestic demand and are the key elements to returning positive growth in the second half of 2009.
Not surprisingly my estimates don't vary greatly from the latest from the Fed (provided in the late April FOMC minutes). The Fed's revisions in August will include the latest data which suggest a stronger decline in 2009 GDP (gross domestic output) to near 2.8% from the Fed's -2% to -1.3% estimate. I expect a very moderate rise in the current Q3 quarter and a stronger but modest gain near 1.5% in the final quarter of the year after the dramatic plunge at the turn of the year. Any number of factors can alter the outlook.
Last week's reports suggest that the rise in unemployment is slowing. Continued claims for unemployment benefits may have peaked in late May (or could be due to run off as the long term receivers reach their end dates) as June unemployment rose just 0.1% after the 0.4% average of the prior six months. I'm holding with a year end rate just below 10% as the Fed will boost its April estimate of 9.2% to 9.6%.
Inflation will reflect the run off of the late 2008 plunge in energy prices and end the year with an annual growth rate above 1% from the near flat level currently. I expect core prices (less volatile non food and energy) to continue to soften and end the year in the 1% to 1.5% range the Fed noted in April. The inflation wary may want to note that the Fed doesn't see core inflation rising above 1.6% over the three year forecast horizon.
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