Second quarter GDP growth came in at 2.4%, after a growth rate of 1.4% in the first quarter of 2003 and 1.4% in the last quarter of 2002.  That is still pretty weak, but improving.  Likewise, jobless claims are finally starting to trend down a little bit.

Presuming growth stayed relatively strong in July (which it probably did), tomorrow's jobs and unemployment report might be the first in a while to show a little improvement.  Certainly by September the jobs picture should have started to get a little better.

Ultra-high productivity growth in the U.S. is a double-edged sword.  It has held down jobs as the economy sputtered over the last couple years. But it has held up raises for people who kept their jobs.  And high productivity growth would allow the economy to grow very rapidly if it ever gets its momentum back up.

Most forecasts believe payrolls and business investment will recover pretty soon. The decline in the dollar will start to help manufacturers.  But consumers don't have much pent-up demand after all the houses and furniture and cars we've financed over the last couple years.

So the economy will flip.  Investment and jobs (which have been depressed) will start to look better, but consumer demand (which has stayed strong) may fall back a little as people decide to save more.

Looking forward a year or two, the chances of a productivity-led boom with GDP growth back at 4 percent or above (and noticeable prior to the 2004 election) are probably 20 percent.  The chance of slow growth (less than 2 percent a year) with continuing job losses, is probably also 20 percent.  The chance of medium growth with some improvements in jobs and unemployment (but still a sense of labor market tightness and unease) probably about 60 percent.

The wild card is the stock market.  No one can predict that.  But continued low inflation will probably put enough drag on profits (because businesses can't raise prices) that a big boom seems unlikely.

Links:
Centrists.Org No-BS Budget Baseline Homepage (last updated July 20, 2003)
Centrists.Org Economic Charts and Graphs Homepage (updated July 31, 2003)