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Expectations Rise For Second-Quarter U.S. GDP

By John S. McClenahen For all the recent talk of persistent weakness in the U.S. economy, this week's preliminary GDP figures for the second quarter of 2001 could be stronger than earlier expected. Merrill Lynch & Co. is characteristically bullish, anticipating that the U.S. Commerce Dept. will report on July 27 that inflation-adjusted GDP rose at a 1.2% annual rate between April and June. That would be considerably better than the consensus forecast of 0.5% real growth and match the first quarter's GDP growth mark. Meanwhile, bearish Maury Harris, UBS Warburg's chief U.S. economist, is raising his expectations -- although not to Merrill Lynch's level. In contrast to his earlier expectation of a 1% contraction in the economy during the second quarter, Harris now anticipates the numbers will show a 0.5% expansion -- right in line with the consensus forecast. "The main reason was a plunge in the trade deficit in May, with imports taking a bigger brunt of the weakening in domestic demand than expected," Harris explains. Nevertheless, "even 0.5% is extremely weak; growth probably needs to be at least 3% to prevent unemployment from rising," Harris emphasizes.

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