"As the positive effects of federal stimuli diminish, we continue to project an economic recovery that is 'less spectacular' than in previous experiences. While output growth has improved as government programs spurred consumption relative to housing and autos, our concern rests on the economy’s ability to sustain these rates of growth as government programs wane. Indeed, personal spending fell 0.5% in September after the 'Cash for Clunkers' program concluded in August. Consumer confidence also weakened in October as the unemployment rate approached 10%. Until we experience a sustainable floor in housing and a ceiling on the unemployment rate, we suspect output growth will rely on exports, inventories, and government outlays, areas that we characterize as 'cushions' for growth. As the unemployment rate lingers within the range of 10% and Fed policymakers remain committed to keeping interest rates low for an 'extended period,' we look for real GDP to expand at an average rate of approximately 2.5% in 2010."
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