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April 28, 2005
GDP quote of the day
I'm not sure I had ever contemplated what the day would look like when 3.1 percent growth was considered bad news, but now I know for sure.
He's got a lot of quotes from a number of sources detailing the good (not much), the bad (quite a bit), and the ugly (well represented), so check it out.
Kash at Angry Bear has a pessimistic, but fair, review of the numbers complete with charts. He concludes with:
That is not a horrible growth rate, but it is a bit disappointing to those who hoped for another year or two of strong economic growth in the US before this phase of the business cycle was over.
Right. Not horrible. Disappointing? A little, but not for the 3.1% number itself. The inventory part is a little troubling since it might indicate weakness in coming quarters. Imports are also a drag on GDP, and those numbers don't appear to be improving quite yet.
So I find myself in a rather odd position. I used to think that anything over 3% is doing well. I always tell people that one statistic doesn't make a trend. Yet, I won't tell you that this is great news either.
I take a little comfort in the fact that the advance estimate has typically been revised upward in the last few quarters. In fact in each of the last 5 quarters, the annual revision (or final estimate for the 3 most recent quarters) has been higher than the advance estimate. (page 5 of this link) I don't think that's a guarantee that the final numbers will be higher, but it keeps me from cashing in all of my chips yet.
Real GDP growth did cool down without causing a recession in 1995. (But then, you knew I was going to say that, right?)
The new information this report give me is that we need to watch things carefully to see if the inventory buildup is a problem. We also need to watch the trade numbers. That will be useful in seeing if this is the beginning of something more. What I hear in everyone's remarks is that this unambiguously lowers the forecast for Q2. Absent a marked fall in the price of oil or a slowdown of import growth, that is probably a correct assessment.
Posted by William Polley at April 28, 2005 5:46 PM
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Comments
With the employment-population ratio stuck at 62.4%, those of us who think its natural rate is closer to 64% are hoping for real GDP growth above the growth rate of full employment output. Kash's point was simply that the decline in investment demand growth was that there is not much hope for anything but normal growth at best. I hope he's wrong but I fear he's right.
Posted by: pgl at April 29, 2005 12:32 PM
And my point is simply that while 3% is typically thought of as good, I agree that strong inventory growth and weaker non-inventory investment in this situation lowers my Q2 forecast below 3%.
Sounds like we're saying about the same thing.
Posted by: William Polley at April 29, 2005 3:27 PM
Whatever happened to the notion that two economists have three different opinions on an issue? (Forgive me - it's not a cheap shot - I'm one too :) )
By the way - great sites - both of you.
Posted by: rjw at April 29, 2005 5:19 PM