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Pastimes : Clown-Free Zone... sorry, no clowns allowed -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (243639)	6/3/2003 2:13:58 PM
From: ild	Read Replies (1) \| Respond to of 436258

U.S. Economic and Interest Rate Outlook Second-Half Recovery? May, 2003 We will be uncharacteristically brief. Arguments for second-half recovery: Additional federal fiscal stimulus is on the way. A 50 basis point cut in the fed funds rate on June 25. Oil prices have dropped from about $38 a barrel in early March to about $27 a barrel. Export demand is being "chummed" by a rapidly depreciating dollar. The economy's natural inclination to grow if not impeded by government. Arguments against second-half recovery: Unprecedented decline in household net worth in the postwar period is curbing consumer spending. Household demand for liquidity is rendering money supply growth less stimulative. Terms of lending to consumers are likely to tighten as household credit problems escalate in the face of rising unemployment. The slowdown in productivity growth will adversely affect corporate profits. Debt paydown and cash contributions to underfunded pension plans will limit corporations' ability to finance capital spending. Excess capacity and weak final demand will curb corporate enthusiasm for capital spending. State and local governments will continue to pare spending and raise taxes. Export demand will be damped by weak economic growth abroad. Probability of second-half recovery in economic growth is 55.1% (with a margin of error of plus or minus 5.2 percentage points). Forecast changes from last month: 50 basis point decline in the fed funds rate on June 25, 2003 instead of two 25 basis point cuts - one on May 6, the other on June 25. 2003 real GDP growth has been lowered to 2.4% Q4/Q4 and to 2.1% annual average/annual average. In both cases these downward revisions amounted to only 0.1 of a percentage point. The downward revisions are really our way of saying that our confidence in the second-half "bounce" went down. 2003 annual average unemployment rate was revised up to 6.1% from 6.0%. Q4:2003 unemployment rate revised up to 6.3% from 6.0%. The upward revisions to unemployment are because of the downward revision to real GDP growth, the falling labor participation rate, and the rising self-employment rate. The rising self-employment rate reflects laid off white collar workers who start their own consulting firms. 2003 CPI inflation was revised down to 2.3% on a Q4/Q4 basis from 2.8% because of decline in energy prices. On an annual average basis, CPI inflation was revised down to 2.5% from 2.8%. Paul L. Kasriel Director of Economic Research northerntrust.com