No Rose Colored Glasses in The Short Term Says UofM
In their annual spring forecast update of the U.S. economy, University of Michigan professor emeritus of economics Saul Hymans, and colleagues Joan Crary and Janet Wolfe, predict a 1.5 percent decline in national economic output growth (as measured by real Gross Domestic Product) for the current quarter, a drop of $44 billion. But a "no-growth" second quarter, thanks to smaller declines in vehicle sales, nondurable consumption and residential construction, gives reason for hope.
According to the forecast, the weak pattern of GDP growth during the first half of 2008 is followed by a 2.5 percent growth rate during the second half and an even stronger 2.9 percent gain in real GDP during 2009.
"Some of this second-quarter improvement is undoubtedly due to the tax rebate checks that come through in May and June, but the fiscal stimulus has much larger effects in the second half of this year," Hymans said.
Hymans went on to say "The housing industry continues to be a substantial drag on the economy... Whether or not economic conditions turn out to be weak enough for a recession to be declared, there can be little doubt that the economy is now and will feel subpar, at least in the near term."
The report continues, saying:
Finally, concludes the summary, the price of oil should back off from current levels of about $110 per barrel to an average of $88 per barrel in 2009, while core inflation should remain in check at about 2.5 percent this year and next, they say. Consumer spending will remain low, as well, growing by just about 1 percent in 2008, before heading back up next year at a 2 percent rate, still down from the 3 percent growth in spending of the past two years.
The U-M forecast is based on the Michigan Quarterly Econometric Model of the U.S. Economy and compiled by the U-M Research Seminar in Quantitative Economics.
The complete release from the University of Michigan may be found here.