The economy is growing again. Recent data reports have been consistent with a gradual recovery. While the advance estimate of 1Q10 GDP growth won’t be released until later this month (and most March data have yet to arrive), it appears likely that real GDP growth may have been close to a 4% annual rate. As with 4Q09 GDP growth, much of that is expected to be inventories (shifting from a moderate decline to a moderate increase). Underlying demand still appears relatively lackluster at this point in the recovery, but it is increasing.

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Weekly Commentary by Dr. Scott Brown
Where We Are Now
April 5 – April 16, 2010
The economy is growing again. Recent data reports have been consistent with a gradual recovery. While the advance estimate of 1Q10 GDP growth won’t be
released until later this month (and most March data have yet to arrive), it appears likely that real GDP growth may have been close to a 4% annual rate. As with
4Q09 GDP growth, much of that is expected to be inventories (shifting from a moderate decline to a moderate increase). Underlying demand still appears
relatively lackluster at this point in the recovery, but it is increasing.
Consumer spending, roughly 70% of Gross Domestic Product, was tracking at a little more than a 3% annual rate through February. Wage income fell during the
recession, but the economy’s automatic stabilizers (taxes fall and transfer payments rise during recessions) helped disposable income advance. These stabilizers
will fade away as job growth picks up, making the recovery more sustainable.

2. Business sales (factory shipments plus wholesale and retail sales) have been improving since the middle of last year.

3. The end of the inventory correction and a rebound in global trade have helped the manufacturing sector to recover. ISM’s monthly manufacturing survey showed
broader strength in March. Corporate profits, a key driver of business fixed investment, have improved through the fourth quarter.

4. A number of headwinds lie ahead in the second half of this year. The fiscal stimulus will start to ramp down. The Bush tax cuts will sunset at the end of the year.
State and local government budgets remain under considerable strain. Residential housing problems will linger and commercial real estate is expected to be a
problem for many small to medium-sized banks around the country. However, these forces are likely to only dampen growth, not send us into a double dip.

5. The biggest risk of a double dip would come from a policy mistake (interest rates or taxes are raised too soon). However, the price of oil is always a wildcard in
the economic outlook. A substantial rise in the price of oil would boost inflation in the short-term, but the more worrisome aspect would be the negative impact
on economic growth.