Tuesday, July 06, 2004

The Los Angeles Times has a funny story running today about the US economy.

The economy appears headed for a banner year despite a springtime spike in energy prices and a recent increase in interest rates.

In fact, many analysts are forecasting that the overall economy, as measured by the gross domestic product, will grow by 4.6 percent or better this year, the fastest in two decades.

There were strong 4.5 percent growth rates in 1997 and 1999, when Bill Clinton was president and the country was in the midst of a record 10-year expansion.

But if this year's growth ends up a bit faster than that, it will be the best since the economy roared ahead at a 7.2 percent rate in 1984, a year when another Republican president -- Ronald Reagan -- was running for re-election.

"We are moving into a sweet spot for the economy with interest rates not too high, jobs coming back and business investment providing strength," said Diane Swonk, chief economist at Bank One in Chicago, who is predicting GDP growth of 4.8 percent this year.
Let's stop and take all this in. If the US is to growth at a 4.6% rate this year, the economy needs to add another $385.6bn of GDP (in constant 2000 dollars) over the next three quarters. If divided evenly, 2004:II growth will have to come in at 4.8%. If Bank One's chief economist is right (and we assume even growth over the next three quarters), 2004:II growth will tally up to 5.1%! This is after growth rates of 4.1% in 2003:IV and 3.9% in 2004:I.

This is some pretty robust growth predicted, particularly in light of a second quarter made up of more record trade deficits, sluggish demand for durable goods, slackening growth according to the ISM, and unimpressive employment numbers.

I don't know what Diane Swonk is smoking, but it's clearly pretty potent stuff. And she's been smoking it for a while. Here's what Swonk said in January 2003 (Chicago Sun-Times, 17 January 2003):
Gross domestic product growth in 2003 may hit 4 percent, the Dow Jones industrial average "easily" will top 11,000.
Instead real GDP was just 3.1% for 2003 and the highest the Dow ever closed at that year was 10,453.92 -- and that on December 31.

But it's like at the Pentagon. No matter how often you're wrong, the media still acts like you're somebody who knows what the hell you're talking about.


At 3:53 PM, Blogger Chibi said...

Yes, wouldn't it be nice if we could get a scorecard for this sort of thing, sort of like a pitchers ERA in baseball? Economist X (ERA 16.763) expects robust growth over the remainder of 2004... Heh. OK, maybe I'm in a pretty slim crowd of people who would think this cool.

At 7:02 PM, Blogger PGL said...

Even if real GDP grew this fast, we would still be below full employment. But then Bush-Cheney would have more talking points.


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