Chicago Fed analysts predict sluggish end to ’08

The second half of 2008 will see higher unemployment, inflation will remain at a high level, and gross domestic production will be lower than previous years, according to an analysis in the August 2008 edition of the Chicago Fed Letter, a monthly publication of the Federal Reserve Bank of Chicago.

The Federal Reserve Bank of Chicago represents the Seventh Federal Reserve District, which covers most of Wisconsin.

"The forecast for 2008 is for economic growth to continue to be restrained by the struggling housing sector," the article states. "However, growth in 2009 is expected to improve to a rate that our consensus group would consider to be above trend growth for the U.S. economy. Real GDP is anticipated to rise by 1.2 percent this year and by 2.9 percent in 2009."

The report anticipates an average unemployment rate of 5.4 percent by the fourth quarter of this year, lowering slightly in 2009. Inflation is expected to stay around 3.9 percent for the remainder of the year and falling to 2.8 percent next year. Oil prices are expected to fall to about $107 per barrel during the fourth quarter and to $105 per barrel by the end of 2009, the report states.

Residential housing investment is expected to fall another 16 percent this year. Housing starts are expected to reach their lowest levels of 930,000. Residential investment is expected to rise by about 5.6 percent next year, the report states.

The report, written after the Chicago Fed’s annual Automotive Outlook Symposium, held in June in Detroit, also forecasts stronger small to mid-sized domestic auto sales, while trucks and sport-utility vehicle sales will continue to fall. Total light vehicle sales are predicted to fall to 15.2 million units, down from 16.1 million in 2007 and 16.5

Commercial vehicle sales are expected to increase by the fourth quarter of the year and through 2009. The full report is available here.

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