Indiana Model of the United States
Summary of Current Forecast: October 2009
The final release of NIPA data for the second quarter contained revisions that were mostly positive, but small in magnitude. In particular, the estimates of consumption spending and of business investment in IP equipment were slightly increased. The overall rate of growth for the quarter was raised to -0.7% from -1.0%. Final sales (which exclude inventory change) shifted up by a similar amount to +0.7%.
Like the NIPA revisions, other pieces of new data have had little effect on our guardedly positive perspective. Some specifics:
- Payroll employment declined in September by 263 thousand, while unemployment rose to 9.8%. The employment number was a little worse than we expected, and it has led us to a slightly more pessimistic outlook for the labor market. We now show unemployment peaking at about 10.2% early next year. We think employment declines are likely to persist into 2010 as well.
- Both ISM indexes were above 50 (the breakeven level) in September. For their non-manufacturing index, this was the first venture into positive territory since September 2008. For the manufacturing index, however, the latest value was down slightly from August.
- The Conference Board Consumer Confidence Index, which rose over 7 points in August, fell back slightly in September.
- September sales of autos and light trucks plunged to an annual rate of only 9.2 million following the “Cash for Clunkers” induced spike in August. The spike causes our current estimate of third quarter growth to be slightly above our August forecast.
In our baseline forecast we now expect growth o 3.2% during the just completed quarter, with about a one-half percent fall-off this quarter. Growth rises to 4.3% in the first quarter of next year, but then decelerates to just match potential during 2011. Phase-out of stimulus spending, and also increases in taxes play a role during this period. Unemployment remains above 8% beyond 2011.
