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(CEP News) - U.S. economic growth is expected to continue staggering with yet another steep drop in GDP forecast for the first quarter. However, many economists say the results won't be as bad as in the fourth quarter.
According to CIBC World Markets economist Meny Grauman, as long as GDP is better than in the fourth quarter of 2008, there should be little market reaction. The consensus forecast is for first-quarter GDP to fall by 4.7%, against a 6.3% drop in the fourth quarter. However, Capital Economics economist Paul Ashworth said the results are particularly hard to predict for this quarter. Both consumption and trade - components that dragged down fourth-quarter GDP - are set to deliver a boost to first-quarter results, he said. He added, however, that "it appears that the positive contributions from consumption and net external trade were nowhere near big enough to offset the collapse in investment and inventories." Many economists agreed with this assumption. A report from JPMorgan estimates that business inventories fell by an annualized pace of $95 billion, the largest decline since the last quarter of the 2001 recession. However, the report noted that this sets the stage for a return to growth in the second half of 2009 as low inventory leaves room for production to resume expansion. As for business investment, TD Securities economist James Marple said "excess capacity in the business sector likely led to a dramatic pullback in business investment as firms cut back on all types of expenditures from equipment and software to construction to inventories." Marple, like Ashworth, said the only "glimmer of hope" is the pickup in consumption in the first quarter. Looking ahead, even if GDP slightly improves, Grauman said it's too early to be talking about a recovery. "However, there is no denying that the US economy has stepped back from the brink in recent months," he said. By Megan Ainscow,
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