Markets: News  

U.S. growth forecasts slashed after weak data

WASHINGTON (MarketWatch) -- The more data that gets released, the gloomier economists have become on growth for the second quarter.

After the reports on retail sales and business inventories released Monday, a MarketWatch-compiled economist poll for second-quarter GDP growth is down to 1.3%, down from 1.5% on Friday, 2% a month ago, and as high as 2.6% six months ago.

The gloomiest new forecast came from Stephen Stanley of Pierpont Securities, who now sees just 0.6% growth in the April-to-June quarter, and only 1.25% in the current September-ending quarter.

"The economy has downshifted from muddling to near-stagnation," said Stanley, who called the report showing retail sales sliding 0.5% in June "awful."

He does see two big implications from the ever-deteriorating economy. The first is that the Federal Reserve, which Stanley calls "hyperactive," is likely to attempt to ride to the rescue.

Federal Reserve Chairman Ben Bernanke is due to speak to the Senate Tuesday and the House of Representatives on Wednesday, but many see the annual Jackson Hole, Wyo. conference held by the Kansas City Fed at the end of August as the most likely venue for the chief to announce a third round of quantitative easing.Read Bernanke preview.

The second implication, Stanley says, is that there is a "low" but increasing chance that Congress and the president could try to reach a deal to avoid the so-called fiscal cliff before the election. The fiscal cliff is the name given to the series of tax hikes and spending cuts that will be triggered at the beginning of 2013 unless legislative action is taken.