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The Worst Is Over: “We’re Going to Reaccelerate,” Mark Zandi Says

Aaron Task
·Editor in Chief

As the first half of 2011 came to a close, both the Fed and IMF downgraded their projections for U.S. economic growth and talk of a "double dip" resurfaced. But last week's stock market rally and Friday's stronger-than-expected ISM report, among other better-than-feared data, revived hopes that maybe, just maybe, the worst of the downturn has already occurred.

That, at least, is the forecast of Mark Zandi, chief economist at Moody's Analytics.

"We've seen the bulk of the slowdown….I think we're going to reaccelerate," he says. "The consensus is overly pessimistic."

Whereas most economists, including at the Fed and IMF, now expect second half growth below 3%, Zandi predicts the U.S. economy will rebound to close to 3% growth in the third quarter and approach 4% in the fourth.

Zandi's optimism is based on a view that the first half slowdown was due mainly to rising energy prices and the dramatic downturn in Japan's economy following the devastating earthquake and Tsunami last March.

"Those weights are lifting," he says. "The Japanese economy seems to be gaining traction, [that] augurs well for our manufacturing" sector.

To be sure, Zandi is predicting a robust, V-shaped rebound and predicts the job market will remain soft, predicting "another month or two of soft payrolls, around 100,000." (The consensus for Friday's June payroll report is 110,000.)

Zandi predicts the headline non-farm payroll figure will start to hit 200,000 per month later this year and the unemployment rate will "head toward" 8% by the end of 2012.

While that might not be fast enough improvement to satisfy the White House, Zandi does not believe more stimulus is warranted at this time.

"I wouldn't argue for additional stimulus," says the economist, who was an advocate for and defender of President's $787 billion stimulus package. "If I'm wrong and the economy is not reaccelerating in the fall, we can extend the payroll tax cut."

But while believing the economy doesn't need more fiscal stimulus, Zandi is worried that it can't handle austerity, something that's very much on the table in the ongoing debate over the debt ceiling. (See: Deep Recession & Financial Chaos: "Very Dark Scenario" If Debt Ceiling Isn't Raised, Zandi Says)

Aaron Task is the host of The Daily Ticker. You can follow him on Twitter at @atask or email him at altask@yahoo.com