February Economic Report from Wachovia
Here are some of the highlights from the report:
* We continue to believe that the economy will nominally avoid that outcome, but effectively it is a recession-like environment for decision makers. We now expect real GDP growth to slow to just a 0.2 percent pace in the first quarter and look for only 0.8 percent growth in the second quarter. Moreover, fourth quarter growth will likely be revised down from the initially reported 0.6 percent pace to around a 0.3 percent pace. With three quarters of growth this weak, another adverse shock would push the economy into negative territory.
* On the plus side, many of the conditions that are typically present prior to a recession are not present today. At the onset of most prior recessions, business inventories were high and rising. Today inventories are low and declining. The Employment Cost Index (ECI) was typically high and rising at the onset of most previous recessions, which led to huge layoffs throughout the economy. Today the ECI is low and decelerating, lessening the need for massive layoffs.
* Finally, monetary and fiscal policies are reacting much more rapidly to the current slowdown. We expect at least two more quarter point cuts in the federal funds rate and for the stimulus plan along the lines President Bush and the House have proposed to be enacted in the second quarter.
Thanks to David Bell for providing these reports.
David L. Bell
Vice President
Wachovia Business Banking
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