Economy to Decline "For Some Time"

Here's the latest forecast on the economic outlook, courtesy of Lawrence Summers.

The director of the White House National Economic Council appeared yesterday on Fox News with a somewhat grim view of what lies ahead for the U.S. economy.

From Bloomberg by Matthew Benjamin entitled: Summers Says U.S. Economy to Decline "For Some Time"

"The U.S. economy will continue to contract "for some time to come," said Lawrence Summers, director of the White House National Economic Council.

"I expect the economy will continue to decline," with "sharp declines in employment for quite some time this year," Summers said today on "Fox News Sunday."

Summers said the economy will pick up as manufacturers rebuild depleted inventories and consumers replace aging cars. "These imbalances can't continue forever," he said. "When they are repaired they will be a source of impetus for the economy."

Texas Instruments Inc., the second-biggest U.S. chipmaker, said April 20 that customers have begun to increase orders after reducing inventories.

Summers said the Obama administration is "on a path toward containment and toward building a path toward expansion," he said, adding that "even sharp plans take time" to work, perhaps six months or more.

Summers reiterated the administration's assertion that "the vast majority of banks in the U.S. are well capitalized." Regulators have conducted stress tests on the 19 largest banks to determine whether they need more capital and are discussing their findings with bank officials this week.

"There's work that needs to be done," to fix the ailing financial industry, including raising capital and providing additional government money to banks "where necessary," Summers said."

By the way, the advance Gross Domestic Product figures for the 1st quarter 2009 will be released before the bell on Wednesday April 29th.  

How the markets react to those figures could be the key going forward―especially since they will be followed up by another jobs report the following week.

Other key data points this week include:

Consumer Confidence and Case/Shiller Home Prices on Tuesday

The Fed on Wednesday

Jobless Claims, the Personal Income and Spending report and the Chicago PMI on Thursday.

And the Michigan Sentiment, Factory Orders, ISM and Auto Sales for April on Friday.

So will we see the "Sell in May and Go Away" move expected by many or a push even higher?

That's the question we face now as the end of April nears. Food for thought....

Long story short, it pays to be cautious here.