Indiana Model of the United States
Summary of Current Forecast: June 2009
The revisions in the preliminary NIPA data for the first quarter were slightly positive, with the rate of decline in overall economic activity lowered from -6.1% to -5.7%. The change came from smaller declines in business investment and in exports. But the broad picture of the quarter remains unchanged – some signs of improvement in consumption, more than offset by total collapse in all categories of investments and international trade.
Like the NIPA data, the other pieces of new data since our quarterly meeting have been bad news that is slightly encouraging for the future. In particular:
- Payroll employment declined in May by “only” 345 thousand, just half the average rate for December through March.
- The May unemployment rate jumped to 9.4% (from 8.9% in April), but this was partly due to a large increase in the labor force, perhaps indicating workers perceive an improving possibility of finding a job.
- Both ISM indexes rose in May, but both still remain far below 50 (indicating contraction). The manufacturing index is at 42.8, 10 points above its December low.
- The Conference Board Consumer Confidence Index has more than doubled since hitting an all-time low in February.
- Sales of autos and light trucks improved in May, but they were still below a 10 million annual rate.
In this environment our updated forecast is very similar to our May outlook. In our baseline forecast we continue to expect the recession to end during the third quarter, followed by a relatively unimpressive recovery during 2010. Unemployment peaks toward the end of this year a little above 10% and remains above 7% through the forecast’s 2012 horizon.
