Spring Breezes Turn to Summer Doldrums

- "In much of the United States, the refreshing breezes of spring gave way some time ago to
stifling summer heat and humidity. So it is with the economy, as the twin boosts from early-cycle inventory accumulation and fiscal stimulus have begun to fade, taking growth with them. Real GDP growth decelerated to a 2.4% annual pace in the second quarter, from 3.7% in Q1 and 5.0% in Q4 2009. Revisions to 2007-2009 data took down growth by 0.2 percentage point on average."
- "Although the second-quarter GDP report featured a number of minor surprises, final demand continues to expand at the sluggish pace of the past year—only 1.3%. This is close to our 1.5% expectation for secondhalf GDP growth."
- "The inventory cycle continues to run its course, with signs from various surveys that it was starting to weigh on growth in July. We think the ISM manufacturing index fell to 54.5 in July (from 56.1), and a move to 50 by yearend would be fairly typical given the extent of the recent upswing."
- "This week we trimmed our expectations of fiscal outlays in 2011, based on what appears to be limited appetite for further stimulus. Folding in the impact of state and local budget cutbacks, we estimate the net impact of fiscal policy will swing from a 1.3-percentage point boost to GDP in early 2010 to a 1.7-point drag next year."
- "Monetary stimulus also does not appear to be forthcoming in the near term, though the
deterioration in economic data has clearly weighed on the confidence of at least a few Fed officials."

GoldmanSachs US Economics Analyst 20100730

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