Wachovia’s Monthly Economic Outlook – April 2008

U.S. Overview

Now that nonfarm employment has declined for three straight months, virtually all economists have conceded the U.S. economy is in recession. Ironically, the data are not nearly as accommodating. First quarter real GDP will likely be slightly positive, rising at a 0.6 percent pace. We do see real GDP slipping into negative territory during the second quarter, but only modestly, falling at a 0.7 percent pace.

U.S. Overview

Now that nonfarm employment has declined for three straight months, virtually all economists have conceded the U.S. economy is in recession. Ironically, the data are not nearly as accommodating. First quarter real GDP will likely be slightly positive, rising at a 0.6 percent pace. We do see real GDP slipping into negative territory during the second quarter, but only modestly, falling at a 0.7 percent pace.

 

We have often noted that economics is just common sense made difficult and our common sense tells us there is more pain in the economy than is evident in current economic data. We expect the weakest period for the economy will be in the first half of this year.

 

We continue to believe domestic demand will remain much weaker than overall GDP, which is a point we made in prior outlooks. We project real final sales to domestic purchasers to be flat in the first quarter, decline sharply in the second and rise just 0.4 percent for all of 2008. By contrast, real GDP will likely post only one quarterly drop and rise 1.3 percent for the year.

 

The Federal Reserve began to ease well ahead of any actual weak economic reports and will likely stop cutting interest rates before the recent run of bad economic news ends. We expect one more quarter point cut in the federal funds rate at the April 29/30 FOMC meeting and then look for the Fed to wait and see the impacts of previous policy moves and the tax rebates, which will begin to arrive in May.

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