James Pethokoukis

Politics and policy from inside Washington

5 quick takes on the 2Q GDP report

July 31, 2009

Here is a smattering of quick opinion on today’s second quarter GDP report from around the Street:

1) Nariman Behravesh,  IHS Global Insight:

Today’s GDP release is very much in line with IHS Global Insight’s view that the U.S. economy is at—or very near—the bottom of the deepest recession of the postwar period. We expect real GDP growth in Q3 to be a small positive.However, the early phases of the recovery are likely to be quite weak.We expect growth of only 1% to 1.5% in Q4 and Q1.After that, we expect growth to pick up gradually, and exceed 3% by the end of 2010.

2) Michael Darda, MKM Partners:

Full-year 2008 growth was revised lower, which means the recession is deeper than previously estimated. To wit: GDP has fallen 3.9% from one year ago, the largest annual decline in post-war history. … The  silver lining here is that the largest declines in GDP, including those in the 1930s, all produced robust recoveries, even if they didn’t last long enough to produce full-employment. This is why we continue to believe consensus forecasts for 2010 are far too pessimistic (assuming full-year real growth of just 1.8%). Our credit-based indicators, which captured the depth of this recession nearly perfectly, continue to point to 4% real GDP in 2010. A recession of this magnitude would be expected to produce at least a 6-8% GDP recovery, so our 4% growth outlook could still be considered conservative.

3) Bruce Kasman, JPMorgan:

Today’s GDP report provides considerable new information on the economy’s recent path.  … It is important to express the central point that the report bolsters confidence in both our strong growth and low inflation forecast for the coming quarters. On growth, the composition of demand looks increasing favorable with final sales stronger and inventory drawdowns larger than we had expected in 1H09. As a consequence, we are revising up our forecast for current quarter GDP growth to 3% (from 2.5%). We continue to anticipate GDP growth close to 4% over the course of 2010.

4) Robert Brusca, Fact and Opinion Economics:

The clearest point is that force of the down turn has been muted. The second clearest point is that and true upswing has not yet started. Only government spending among the main domestic components of GDP turned positive and that is on artificial stimulus although that impact should grow as the stimulus package takes hold.

More important than the government sector is that the consumer retrenchment is diminishing. Population growth continues and normal forces should restore positive growth to consumer spending, especially as job losses ease and as the fear of job is eradicated by better economic performance. It could happen in Q3.

5) Andrew Busch, BMO Capital Markets:

It will take very little snap back in either inventories or CAPEX to see a decent rebound in Q3 and Q4 GDP.  I guess where I’ve been incorrect is understanding that the economy fell so far that it has no where to go but up for a bit.  There will be questions of where earnings will come from besides cost cuts going forward, but growth should return with minimal effort.  This shift in expectations has occurred with all the subtlety of a sledge hammer the last two weeks and does draw concerns over additional strength.

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