Economic growth trend predicted slow for 2010

Worst recession in seven decades

In a statement released in conjunction with its third quarterly report of 2009, they conclude that the worst recession in seven decades likely ended in the third quarter. But they go on to state that the negative impact of the downturn will last in the economy well into the next decade.

UCLA Anderson Forecast Senior Economist David Shulman states that the forecast for quarterly economic growth for all of 2010 will average 2 percent, but will improve at the end of the year. Overall economic growth is predicted to be sluggish, as the unemployment rate will be above 10 percent well into 2010.

Short-term economic growth

Shulman adds that the majority of short-term economic growth will come from an increase in inventories, as real inventories are expected to increase by $12 billion in the fourth quarter of this year. Economic investment will be important as swing factors so that exports and residential construction recover.

Consumer spending and economic growth

Shulman is cautious about near term growth, because he believes that the consumer spending spree has ended. The consumer spending in the last two decades were a result of first the rise in stock prices, followed by rocketing home prices which was fueled by easy credit. But since this is no longer the case, consumers will be saving as they did in the past, by reducing spending. This will impact overall economic investment.

Credit impaired lower income consumers can’t spend the way they used to and wealth impaired affluent consumers won’t,” Shulman writes.