Wednesday, July 02, 2003

The Commerce Department thinks the US economy will grow 3.2% annualized in 2003:III. Well, it's always nice to have a rosy outlook, but what if you're interested in making your way around Tomorrowland instead of lingering in Fantasyland?

Here are some golden not-so-oldies from last year:

They said: "the U.S. economy is poised to grow at an annual rate of 3.5 to 4 percent through the end of next year, the Fed chairman said. That should bring the current 5.9 percent jobless rate down to 5.25 to 5.5 percent by late in 2003, according to Fed policymakers' forecasts, he said." (Washington Post, 17 July 2002, p. A1)

What happened: In the three quarters since Greenspan's prediction, the US economy has grown 2.3% annualized. Things will really have to pick up over 2003:II-IV, but even if they do, there is no way unemployment is coming down to 5.5% by the end of the year.

They said: "[San Francisco Federal Reserve Bank President Robert] Parry estimated that the national economy will be growing at about a 3 percent rate by the end of the year [2002], a pace that would allow for a 'gradual trend down in the unemployment rate.'" (San Francisco Chronicle, 22 August 2002, p. B1)

What happened: In 2002:IV the US economy grew at a 1.4% annualized rate. Parry wasn't even close! If you remember, Parry was also the only Fed Governor to vote for a 50 basis point cut in the federal funds rate this month. The guy's a real outlier. Another interesting tidbit on Parry: back in the 1980s he argued that the US economy was incapable of growing faster than 2.5% a year. What a schmuck!

They said:"UCLA's economists predict gross domestic product will grow at an annual rate of about 2.5 percent through the first quarter of next year, slightly weaker growth than their previous forecast. They also predict that unemployment will peak at 6.15 percent in the first half of 2003, as the nation's economic growth fails to generate enough new jobs to bring unemployment down."(San Diego Union-Tribune, 25 September 2002, p. C1)

What happened: Over the two quarters 2002:IV and 2003:I, the US economy grew an anemic 1.4% annualized. Unemployment in May 2003 stood at 6.1%; it had better peak to make the esteemed Anderson Forecast half right.

So who knows, maybe the Commerce Department is right this time around? If it is, however, dumb luck is going to play the biggest role.

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