Weak Data Push Down Growth Forecasts

By Jon Hilsenrath
Payroll employment fell in June and so are economists’ forecasts for growth in the second half of the year.

J.P. Morgan economists took out the razor to their projections Thursday, saying in a note to clients that market turmoil and Europe’s government debt problems have been “weighing on the economy: export orders tanked, confidence has stumbled, and the hit to households’ equity wealth is becoming a considerable impediment to consumer spending.”

J.P. Morgan took down its estimate of second quarter gross domestic product growth to 3.2% from 4% and chopped their third quarter GDP forecast to 3% from 4%, and warned that their inflation forecast might need to come down too.

UBS economists followed suit today, cutting their second quarter growth estimate to 3% from 3.5% and cut their forecast for the second half of the year to 2.5% from 3%. On a hopeful note, UBS says, “recent interest rates are much lower than we have been expecting — an important factor supporting some stabilization and moderate housing recovery in coming quarters.”

Bernard Baumohl of the Economic Outlook Group said his second-half forecast has been downgraded to a 3.0% annual pace from 3.4%. Though, he expects growth to pick up in 2011, averaging above 3.5%.

Stephen Stanley of Pierpont Securities says he’s paring back his estimates for growth, employment and inflation. “The key economic data for June confirmed the notion that the bond and stock markets had sniffed out, namely that the economy has lost some momentum over the past few months,” he says. He’ll put actual numbers to his gloomier outlook next week.

The bottom line: Economists still don’t buy the worries about a double-dip recession, but they do think there’s a serious threat that the recovery is losing some momentum.

It’s safe to expect there will be more downward revisions to forecasts given the spate of weak data in the last week — falling consumer confidence, signs the industrial recovery is cresting, falling stock prices, commodity prices rolling over, initial unemployment claims stalled at high levels and scant private payroll employment gains.

source:wsj