USA Today Economic Outlook

The USA TODAY/IHS Global Insight Economic Outlook Index shows moderating but firm growth in the first half of 2010 after a strong recovery in the second half of 2009.

The January update of USA Today/IHS Global Insight Economic Outlook Index indicates that the economy is recovering strongly from the recession. The last months of 2009 are likely to post strong real GDP gains as trade and inventories provide a strong boost. However, as the inventory cycle turns, credit conditions remain tight, and consumer spending loses the support of government stimulus programs, the Economic Outlook Index foresees a downshift to a more subdued pace in the first half of 2010.

The index predicts future real GDP growth (gross domestic product, adjusted for inflation) based on 11 leading economic and financial indicators. The decline in real GDP growth, at a six-month annualized growth rate, slowed from -5.9% in March to -0.7% in August. Real GDP growth is back in positive territory posting an increase of 4% in January. It's expected to moderate in the spring.

Six of the eleven leading indicators in the Economic Outlook Index were positive contributors in January, down from eight in December. Positive indicators include hours worked, building permits, real capital goods orders, stock prices and the yield curve, all of which increased. Also positive was a fall in the AAA corporate bond spread, a sign that investors perceive less risk in top-rated corporate debt. Negative indicators include declines in the real money supply, ISM export orders and light-vehicle sales and increases in seasonally adjusted crude oil prices and the April 2009 real federal funds rate. This model assumes it can take 15 months for interest rate changes to affect economic activity, so it uses the February-April rolling average to forecast real GDP in June 2010.