By Mark Gilbert
July 22 (Bloomberg) -- Merrill Lynch & Co. economists clipped their forecasts for U.S. growth, making revisions that they described as ``adjusting to the new reality.''
``Just like consumers, who are insulating their windows and making fewer trips to the malls, we are adjusting our economic forecasts to the new high-oil-price reality, not to mention the latest round of trauma in the mortgage markets,'' New York-based economists Sheryl King and Drew Matus wrote in a report.
The chart of the day shows the quarterly change in U.S. gross domestic product in green, with the annualized figure in red. Merrill now expects the economy to contract by 0.5 percent in 2009, after previously forecasting growth of 0.5 percent.
``We expect GDP to plummet 2.5 percent in the fourth quarter, and see a similar decline in the first quarter'' of 2009, wrote King and Matus. ``With the consumer likely to remain under duress into 2009 and inflation fears likely to abate, we continue to expect the Federal Reserve to cut interest rates early next year.''
Figures scheduled for release on July 31 are expected to show that the U.S. economy grew at an annualized 1.8 percent in the second quarter, according to the average forecast of 23 economists surveyed by Bloomberg News, up from 1 percent in the first three months of the year.