What the Future May Hold

Chris Isidore reports, for CNNMoney.com, that the Federal Reserve has revised its economic forecast.

The Fed, says Isidore, now expects unemployment to rise to between 9.2% and 9.6%. In January, the Fed anticipated that unemployment would peak between 8.5% and 8.8%.

That revision is bad news, right? Well, yes and no.

Yes, it's bad news because it is higher than the Fed expected at the beginning of the year.

And no, because the unemployment figure in April — 8.9% — already exceeded the Fed's prediction.

Clearly, the Fed expects more jobs to be lost. But that is hardly a stop–the–presses revelation. If the Fed's prediction turns out to be correct, the unemployment rate actually will be lower than many economists have been anticipating. Those economists have been predicting a national unemployment rate in double digits.

I suppose the really bad news in today's report is that the Fed now sees more of a decline in gross domestic product (GDP). In January, the Fed thought GDP would drop 0.5% to 1.3%. The expectation now is for GDP to fall between 1.3% and 2.0%.

Again, that may be a good news/bad news kind of scenario. It certainly isn't good news that GDP will be down for the year. But that was pretty much a given, since GDP was down 6% in the first quarter of 2009. The report suggests — and the minutes of the Fed's April meeting confirm — that Fed members believe GDP will increase — albeit slightly — in the second half of the year.

Initially, the Fed's outlook had negative results on Wall Street. Stocks were down between 0.39% and 0.62% on the Dow, Nasdaq and S&P.

Elsewhere today, there was some good news for consumers. Congress approved legislation making it difficult for credit cards to raise fees and interest rates.

The new rules will go into effect in February.

More Bad Economic News

In case anyone needed further evidence of the miserable job George W. Bush did as steward of the nation's economy, we have figures that show that the economy suffered its sharpest decline in more than a quarter of a century in the final three months of 2008.

Economic activity shrank by 3.8%, CNNMoney.com reports. And it has further bad news. Some economists think that, even though the decline wasn't as bad as some had feared, it's a sign that worse news lies ahead.

Meanwhile, as American consumers were absorbing the shift in economic fortunes, spending fell at a 3.5% annual rate, which CNNMoney.com says is the seventh largest drop on record.

And fixed investment dropped at the highest rate in half a century. As CNNMoney.com observes, fixed investment in equipment and software is "taken as an indication of business spending."

Economists expressed surprise at the growth in business inventories.

Chris Isidore, a senior writer for CNNMoney.com, says the increase was "brought about by businesses being unable to sell the goods they had on hand."

And, according to Gus Faucher, director of macroeconomics for Moody's Economy.com, "As bad as this quarter was, it means the first quarter will be worse."

It's hard to say what the impact will be on jobs. We'll get the latest report on jobs next week. But President Obama seems to have a pretty good idea of what's ahead.

"This isn't just an economic concept," he said. "This is a continuing disaster for America's working families. As worrying as these numbers are, it's what they mean to the American people that really matters."