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Wednesday, April 22, 2009

Northern Trust's Kasriel: Are we there yet?

by Calculated Risk on 4/22/2009 03:56:00 PM

From Paul Kasriel and Asha Bangalore at Northern Trust: Are We There Yet?

Is the economic recovery at hand? No, we still are mired in a recession that is going to be of the longest duration in the post-WWII era (the previous record was 16 months) and is likely to involve the largest annual average contraction in real GDP for a single year (the record to beat is a decline of 1.9%, which occurred in 1982). But there is a good chance that the worst for the U.S. economy in terms of quarterly contractions in real GDP is behind us, occurring in the fourth quarter of 2008. We currently are forecasting an annualized rate of contraction in real GDP of 3.8% in the first quarter of this year vs. the annualized rate of contraction of 6.3% in the fourth quarter of 2008. So, economic activity still is descending, but our forecast has the rate of descent moderating. We do not expect any growth in real GDP until the fourth quarter of this year.
See the research note for much more.

I'm surprised Kasriel has revised up his Q1 GDP forecast all the way to minus 3.8% (from -4.9%). It appears PCE will probably be flat or even slightly positive in Q1, the investment slump in Q1 will be stunning (See Q1 GDP will be Ugly). Also, it appears the inventory correction in Q1 was significant, however trade might be a little more positive than I expected earlier.

Note: Kasriel has revised down his GDP estimate for Q2 (now -3.3% and -1.0% respectively).