What follows is a note from JPMorgan economists to clients in which they revise upward their GDP forecasts:
In what feels like the first time since the Babylonian era, we are making
an upward revision to our US GDP forecast. The attached table provides
details of a forecast which now has GDP gains at -0.5, 1, 2, 3,4 percent
over the four quarters beginning in 2Q09. We would not place too much
emphasis on the point estimates which move in a smooth step-wise fashion.
Instead, we would emphasize two key contours of the forecast. First, we are
looking for the recession to end around midyear. This stabilization in
growth comes as forces that have weighed significantly on GDP growth in
recent quarters — housing, consumer durable spending, inventories and
government spending — either add to growth or become significantly smaller
negatives (housing). This improvement is expected to offset continued large
drags from business spending, employment and exports. Second, we are
looking for this consolidation to give way to strong growth as we turn into
2010 where we now expect GDP to rise 3.6% (q4/q4).
In making these changes we recognize that activity data has not
significantly surprised to the upside of our existing forecast. Instead, we
are making changes based on three other considerations.
– The quick improvement taking place in Asia and in Emerging Market economies, which increases the likelihood that a synchronized turn in global growth will take hold in 2H09.
– The positive feedback loop emerging between better economic news,
improving financial market conditions, and rising consumer confidence.
– Better than expected news from high-frequency readings that are key to
watch at turning points (ISM, jobless claims, auto and home sales). These
series have not moved decisively from depressed levels. But when they turn in a synchronized fashion they are usually signal that a more fundamental change in the business cycle is afoot.
At this stage we are not changing our unemployment rate or inflation
forecast. As such, our Fed policy call is also unchanged
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