Monday, January 26, 2009


Everybody is anxiously awaiting for the advance report on real GDP growth in Q4 of 2008, which is forecast by Macroeconomic Advisers to be a decline of -5.5%, but the big question is how Q1 of 2009 will play out. Macroeconomic Advisers does forecast another big decline of -4.2%, but I suspect that may be based on a presumption that little of the fiscal stimulus is felt in Q1. I suspect that Q1 will come in closer to a smaller decline of something on the order of -2.0%.

Given the news to date, January is clearly another big down month, but I suspect it will not be as bad as November or December.

February will also likely be a down month, but I suspect nowhere near as bad as November or January. Anticipation of the effects of fiscal stimulus will help to moderate the decline.

Finally, my suspicion is that we will in fact see at least a modest uptick in March due to the initial phase of fiscal stimulus and the anticipation of much more to come.

Yes, substantial job losses will continue, possibly into April, May, and June, but the vast amount of money from fiscal stimulus will be overwhelming those incremental job losses in terms of calculating GDP.

So, maybe January real GDP will be at a -4% annualized rate, February at -3%, and March at +1%. That would average out to -2% annualized real GDP growth in Q1 of 2009.

Sure, that will give us GDP that is "worse" or lower than Q4 GDP, but that will still be consistent with the biggest chunk of GDP bad news being behind us as of the end of 2008.

My suspicion is that Q2 will be a quarter of at least modest positive growth, or even strong growth depending on how the fiscal stimulus begins to play out. Maybe something in the range of +0.5% to even +5.0% annualized real GDP growth. That will not mean that we are out of the woods, but simply that the economic life-support systems are functioning properly. "Real" job gains may not begin until late in the year or even a year from now.

-- Jack Krupansky


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