GDP: What Goes Up Must Come Down?

By John S. McClenahen The U.S. Commerce Dept.'s third and final calculation of GDP growth in this year's second quarter is 5.6%, about 5% higher than its previous estimate of 5.3%. For the calendar quarter that ends this weekend, growth is likely to be less, "probably" about 3%, says Bruce Steinberg, chief economist at Merrill Lynch & Co., New York. "While business inventories rose by $72 billion and were responsible for 30% of GDP growth in the second quarter, this pace is not sustainable," says Dave Heuther, director of economic analysis for the National Assn. of Manufacturers, Washington. "Firms will most likely work these levels down in coming months, which should slow GDP growth to a less feverish pace." But maybe not. Merrill Lynch's Steinberg figures GDP growth will come close to 4% in both the fourth quarter of this year and all of next year. "That implies no Fed tightening, but no Fed easing" either, he adds.

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