The race to the bottom for first-quarter GDP projections has a new leader: Bank of America Merrill Lynch.
With a succession of mild unemployment drops unable to ease concerns about the larger slow-growth story for the US economy, BofAML now sees the quarter’s growth prospects at just 1.5 percent.
The firm’s forecast, in a research note Monday from economist Ethan S. Harris, makes JPMorgan Chase’s outlook of 2.5 percent seem downright rosy and jibes with a recent warning from Capital Economics that the economy is at a crawl and unlikely to do better than 2 percent in growth.
“A lot of the recent ‘strong economy’ talk ignores the events of recent weeks. While payrolls were solid, we now expect just 1.5% Q1 GDP growth,” Harris wrote in a note to clients. “This weak patch is happening before the impact of rising energy prices is felt.”
While the projection may be the lowest yet, the themes are familiar: Inflation in food and energy prices will undercut the modified holiday in last year’s tax agreement, while consumers remain weak and housing lags.
The service sector, which is supposed to lead the economy out of recession, has been lackluster as well, with spending on housing, transportation and recreation, among other categories, all below trend.
“Households will continue to constrain spending, with much of the weakness on the service side of the economy,” Harris wrote. “With high unemployment, but rising commodity prices, we also expect ongoing disinflationary pressure for labor-intensive services, even as commodity pressure seeps into goods prices.”
Because the economy is so weak, Harris expects the Federal Reserve to wait longer than most expectations to raise rates—in fact, until the third quarter of 2012.
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