Real GDP in Q1 (Jan-Mar) 2008 surged an impressive 4.0% (annualized) from the previous quarter. However, rising raw material prices have battered corporate earnings, causing business fixed investment to decelerate. This setback to the economy’s main driving force suggests that the economy probably peaked out in late 2007 and is now contracting. The cyclical trough should occur in the second half of fiscal 2008 as the U.S. economy recovers and the impact of raw material prices eases. We predict real GDP will grow 1.1% in fiscal 2008 and 1.8% in fiscal 2009. Led by surging petroleum product prices and ongoing food price increases, the general CPI (excluding fresh foods) will rise 1.4% in fiscal 2008, and 1.1% in fiscal 2009.
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