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Tuesday, June 08, 2010

Has the 2nd half slowdown started?

by Calculated Risk on 6/08/2010 01:21:00 PM

I've been forecasting a 2nd half slowdown in GDP growth based on:
1) less Federal stimulus spending in the 2nd half of 2010,
2) the end of the inventory correction,
3) more household saving leading to slower growth in personal consumption expenditures,
4) another downturn in housing (lower prices, less residential investment),
5) slowdown in China and Europe and
6) cutbacks at the state and local level.

Some recent reports - like the disappointing employment report for May, reports of pending home sales collapsing in May (after the expiration of the tax credit), soft retail sales in April, a soft month for rail traffic in May - might suggest the slowdown has already started.

However other recent reports - like the ISM manufacturing and service surveys, Industrial Production and Capacity Utilization in April and U.S. auto sales - suggest decent expansion in Q2.

My guess is GDP growth in Q2 will be close to 3% - sluggish for a recovery, but about the same as Q1. So I don't think the 2nd half slowdown has started yet.

Note on housing: I think the news flow will soon turn negative for housing. Existing home sales will be strong in May and June (reported at close) and house prices will be decent through June (reported with a significant lag), but housing starts, new home sales, and house prices later this summer will probably all turn down. And pending home sales will collapse in May, and existing home sales will follow this summer. I think we will see new lows (but not huge declines) for the repeat sales house price indexes later this year.