Economists react to GDP

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We once again rely on the very excellent Online WSJ for a quick mind meld with the Dismal Scientists  re: GDP.   Once again, the under was the way to bet!

Economists React
April 28, 2005 12:55 p.m.

The Commerce Department reported Thursday that U.S. gross
domestic product expanded at a 3.1% annual rate in the first quarter of 2005,
beneath the expectations of forecasters and the weakest showing for growth in
two years. Data within the report suggested that high oil prices were proving to
be a strain on consumer and business spending, and that core inflation pressures
were beginning to accelerate. Here’s a sampling of what some economists on Wall
Street and elsewhere had to say about the numbers:

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In any normal expansion, you have strong, moderate and
weak quarters and this one was not even a weak one. So don’t panic. Consumer
spending held up in spite of a slowdown in motor vehicle purchases. That was
expected after we had a huge jump in sales in December. … Inflation is slowly
but steadily accelerating and there is little reason to think it will ease
anytime soon. Indeed, the only thing keeping it down is quality changes in
durable goods.

— Joel L. Naroff, Naroff Economic Advisors

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Conventional wisdom on this number is that real GDP growth
is slowing, which could lead the Fed to pause at some point. However, our theme
remains that monetary policy is very accommodative, which we see fueling higher
inflation and a wider trade gap. There is plenty of private nominal demand
growth with C + I rising at 7.7% in the first quarter. However, between this
number and the bottom line of 3.1% real GDP growth, we have rising inflation and
surging imports. We do not expect the Fed to pause and speeches like [Fed
Governor Donald] Kohn’s on imbalances suggest to us the Fed is paying attention
to these themes.

— John Ryding, Conrad DeQuadros, Elena Volovelsky, of
Bear Stearns

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Business capital spending growth slowed markedly and, with
the slump in capital goods orders late in the quarter, may portend an earlier
and more abrupt slowdown than we had reckoned on. With both inventories and the
trade balance fairly close to our guesses, we can make no presumption about the
direction of future revisions to Q1 growth.

— David H. Resler and Gerald
Zukowski, Nomura Securities International

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The Fed faces a Hobson’s choice: reigning in inflation or
tolerating unacceptable levels of unemployment. Higher prices for imported oil
are weighing down consumer spending, and the growing trade deficit is
discouraging business investment. Recent retail sales and durable goods orders
confirm these trends. Paying so much for gas, consumers can no longer hold up
the economy, and the anticipated boom in business investment is not
materializing to pick up the slack.

— Peter Morici, Robert H.Smith School
of Business, University of Maryland

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Q1’s sharp jump in inventories sets the stage for a
correction in the pace of stockbuilding in Q2. We look for inventories to
subtract measurably from Q2 growth, although much of the drag will be offset by
lower imports (Import growth tends to be particularly sensitive to inventory
accumulation).
— Bethany B. Baldino, J.P. Morgan Chase

If we need to understand what’s happening to the economy
right now, next week’s employment report is a much bigger deal. We got the
expected number today for weekly initial unemployment claims and that suggests
that whatever is going on with GDP, the job market is not falling apart.
Consumer spending was weaker than expected, but for me the real surprise is how
strong spending has remained in the face of higher gas prices. The $50 it now
takes to fill the SUV is money that isn’t available to spend at Burger King or
Wal-Mart.
— Bill Cheney, John Hancock Financial Services

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Source:
Economists React
April 28, 2005 12:55 p.m
http://online.wsj.com/article/0,,SB111469678298719525,00.html