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Economic Forecast Sees End of Free-Fall

LEXINGTON, MA-IHS Global Insight's Forecast Flash is predicting the GDP will bounce back in 2010, in spite of consecutive quarters of over 6% declines.

By Ryan Clark | Updated on May 07, 2009

LEXINGTON, MA-Locally based IHS Global Insight’s Forecast Flash is declaring that the free-fall of the US economy is over and should begin stabilizing in 2009. The report is looking at GDP bottoming out in the second half of 2009 after the rate of contraction slows to -2.5% in Q2 after consecutive quarters of +6% annual rates declines in real GDP. The report predicts a “3.1% decline in GDP for the year,” which is less severe than a previously predicted 3.5% decline, which should be “followed by a 1.5% rebound in 2010.” The silver lining, as the IHS sees it, is that during the back-to-back quarter declines, consumer spending experienced an uptick, helping reduce inventories.

In this vein, the rise in consumer spending topped out at a 2.2% in stark constrast with its 4.1% drop at the end of 2008. IHS points to large tax refunds and a “cost-of-living adjustment for Social Security” as the major culprits of positivity. The optimistic outlook is buttressed by a cavalry of “reduced tax withholding as of April 1, plus extra one-time payments to Social Security recipients.”

Consumers, however might want to put the champagne back in the freezer for now, though as not all the news looks good for an overall consumer recovery. The report considers “continuing steep employment declines, reduced household wealth, debt overhangs, and still-tight credit,” which leads IHS to predict flat Q2 spending, down roughly 0.4% overall.

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