Reducing GDP Negatives – US-FOREX.US
The U.S. economy is in transition, and the reduction of negatives expected in the second quarter, gross domestic product, will be an important guide to the rest of the year.”The consumer is still weak, making this a business-led recovery, which isn’t perfect, but we’re moving in the right direction,” said Joe LaVorgna, chief U.S. economist at Deutsche Bank, who expects a contraction of 2%. The Commerce Department will release its second-quarter GDP report on Friday, July 31, which is expected to show significant improvement from the 5.5% drop in the first quarter, and 6.3% contraction in the fourth quarter of 2008. The U.S. economy has been in a recession since December of 2007, having been beset by the worst economic and financial crisis since the Second World War. Separately, the second-quarter report will also include revisions dating back five years.Like LaVorgna, David Wyss, chief economist at Standard & Poor’s, expects the economy to shrink, but at a much less slower pace. “We’re looking for a drop of 2%, but if it falls further, it will cast a lot of doubt on the third quarter,” Wyss said. Wyss said consumer spending will be the most critical component of the report. “We expect it to be flat, but they say flat is the new up,” he quipped. “If it’s strong or positive, that’ll be a good sign going into the third quarter.” The other components Wyss will pay special attention to are capital spending and exports. “Capital spending will have a reduced rate of decline, but if it came out flat, or down only 4% or 5%, it would be encouraging,” Wyss said. Business spending has fallen dramatically throughout the economy, ranging from companies like Microsoft
, JPMorgan Chase
, Alcoa
and Walt Disney
.Steven Wieting, chief U.S. economist at Citigroup, anticipates a 1.3% contraction. “These developments are consistent with stabilization and the end to a recession,” Wieting said.
Alan Levenson, chief economist at T. Rowe Price, expects a decline between 0.5% and 1%. “There will be a contribution from inventories, consumer spending will be fairly neutral, and the fiscal stimulus begins to kicks in which will be a big contribution,” Levenson said. “It’s not exciting in terms of strength, but after being down so far for two quarters it’ll fell good.”Looking forward, Levenson said that, for the most part, the negatives that have confronted economic growth will disappear during the third quarter. These include consumer and business spending, housing, as well as inventory liquidation, which will take places at a slower rate.