Updated data showed US gross domestic product contracting at an annualised rate of 6.3 per cent in the fourth quarter of last year, compared with last month’s estimate of 6.2 per cent. That previous 26-year record came after an overly optimistic January projection that the economy contracted by just 3.8 per cent in spite of anecdotal evidence of a more severe downturn.
Economists predict that the impact of the $787bn government stimulus package will not be felt until the second half of this year and that the economy could contract by another 6 per cent in the second quarter before flattening. The US government’s 10-year budget outline unveiled last month projected that the economy would contract by 1.2 per cent in 2009 before rebounding to 3.2 per cent growth in 2010. The Congressional Budget Office, however, found those estimates to be exceedingly hopeful.
Meanwhile the number of people continuing to claim unemployment benefits through the second week of March rose by 122,000 to 5.56m, the highest total since tracking began in 1967.
But:
In spite of Thursday’s grim data, recent figures have shown signs that the US economy could be starting to stabilise. On Wednesday the Mortgage Bankers Association said that applications for US mortgages surged last week as banks lowered borrowing costs after the Federal Reserve’s decision to buy Treasuries pushed interest rates to record lows. Meanwhile sales of new homes rose for the first time in seven months in February as falling prices began to lure buyers to the market and companies increased spending on durable goods. [FT]
[Update:] From Tyler Cowen:
I do not believe the rosy scenario, as I think there are still other "shoes to drop," most of all internationally. I also think we will see a double-dip or triple-dip recession, as the Fed must eventually withdraw some of new money from the system. Good news is then, in fact, simply a sign that some bad news is on the way, sooner or later.
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