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Bloodied yet again, but still largely unbowed. The July consensus of 50 economic seers lowered its sights on the economic outlook even further for the fifth straight month. But it still foresees growth of real gross domestic product reaccelerating through the second half, to an annualized rate of 3.2%, and about maintaining that pace through all of 2012.
The latest consensus estimate, released July 10 by Blue Chip Economic Indicators of Kansas City, Mo., puts real second-quarter GDP expansion at an annualized 2%, barely higher than the dismal 1.9% of the first quarter.
As recently as last month, the consensus—a simple average of the forecasts of the 50 economists surveyed—believed that GDP would rise at a 2.6% clip in the second quarter. The revision to 2% is based mainly on lowered expectations for consumer spending, which has been slowed in part by higher gasoline prices and the unavailability of various car models, due to supply-chain constraints in Japan. We'll know a lot more about second-quarter GDP growth by July 29, the final Friday of the month, when the advance estimate will be released.
As recently as February, when optimism was at its height about the first four quarters of the expansion following the recovery, the consensus expected first- and second-quarter growth to run 3.5% and 3.4%, respectively. It expected gross domestic product to climb by 3.5% in both the third and fourth quarters, but now foresees the third and fourth quarters each running at an annualized 3.2%.
That is still a significant rebound from the disappointing first half, and an outlook that will depend on a significant comeback by the consumer. Real personal consumption expenditures in the second half are projected to grow at an annual rate of nearly 3%, up from an estimated 1.7% in the first half of 2011.
Monthly employment gains, which proved so disappointing in May and June, are expected to return to more respectable levels—although here, too, previous projections have been scaled down. Total nonfarm-payroll employment is now projected to increase by an average of 175,000 a month through the second half, up from a monthly average of 126,000 in the first half.
Slow growth in the first half means that 2011 performance will end up looking worse than last year's. Real GDP in the fourth quarter will be 2.6% greater than the level in the fourth quarter of 2010, but that's a slower rate of growth than last year's fourth-quarter-over-fourth-quarter pace of 2.8%. By the same measure, however, the fourth quarter of 2012 could see growth of 3%.
These growth rates, although subpar by any standard, will be high enough to put downward pressure on the unemployment rate, currently at 9.2%. By the fourth quarter of this year, the consensus expects the jobless rate to be at 8.7%, and by the fourth quarter of next, at 8.1%.
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ONE KEY REASON FOR THE MEDIOCRE performance of this expansion: the recessionary conditions that still prevail in the small-business sector. The chart at left tracks the Index of Small Business Optimism released quarterly by the National Federation of Independent Business. Notice that following the two recessions comparable to the recent debacle—those in 1974-75 and 1981-82—rebounds in the NFIB's Optimism Index were much stronger, moving to levels above 100.
In contrast, the optimism index reached a first-quarter high this year of just 94.1, only to fall back in the second quarter to 91.2. The monthly update for June, released last week and based on a smaller sample of respondents, was even weaker, at 90.8.
Rarely a man to mince words, NFIB chief economist Bill Dunkelberg declared last week: "Small-business owners are registering a vote of 'no confidence' in the federal government." He added, "Who can blame the prevalence of pessimism when administration officials are telling Congress that small businesses need to pay more in taxes to support government-spending programs?"
The peak in the index over its 37-year history happened in the Reagan years, from mid-1983 to early '84, when the index exceeded 107 for three straight calendar quarters. The update for third quarter 2011 will be released next month.
E-mail: editors@barrons.com
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