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Friday, April 29, 2011

Wells Fargo Weekly Economic Forecast

U.S.
- Real GDP grew 1.8 percent year-over-year in the first quarter, which Federal Reserve Chairman Ben Bernanke stated was likely due to “transitory” factors such as lower defense spending, weaker exports, and weather.
- The Fed lowered its economic growth projections for 2011 to a range of 3.1 to 3.3 percent, down from 3.4 to 3.9 percent, and confirmed that QE2 would end in June as planned.
. Our economic growth forecasts for the year have been consistently below consensus expectations, and we continue to expect real GDP to grow 2.4 percent in 2011 and 2.8 percent in 2012.
. We also believe that inflation will run slightly higher, with overall CPI rising 3.3 percent this year and core CPI increasing 1.4 percent.
- Consumer spending growth declined during the first quarter to a 2.7 percent annual rate, as households continue to cope with rising food and energy prices.
- Initial jobless claims rose to 429,000 for the week ending April 23, the highest level since January and the third consecutive weekly increase, while the four-week moving average increased to 406,500.

International
- Real GDP in the United Kingdom grew 1.8 percent year-over-year during the first quarter, and remains four percent below its pre-recession peak.
. The services industry expanded 0.9 percent during the quarter, but real retail spending was essentially flat due to contractions in real personal disposable income.
- Future growth in the United Kingdom will likely be limited by fiscal tightening, as the government plans to cut over £30 billion from this year’s budget, with further cuts planned over the next few years.
- The Consumer Price Index for the U.K. indicated prices rose 4.1 percent year-over-year in March, while payrolls are up just one percent from 2009 lows.
. Although the inflation rate is well above the 2.0 percent rate mandated by the Monetary Policy Committee, we believe interest rates will remain unchanged over the coming months.

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