Economists react to GDP



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:

* * *

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


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


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


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


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
— 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
— Bill Cheney, John Hancock Financial Services




Economists React
April 28, 2005 12:55 p.m,,SB111469678298719525,00.html

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. touche commented on Apr 28

    We plunged into globalization and got our ass kicked. Jobs are moving to Asia ever more rapidly.

    In response, consumers in the US are borrowing to make up the lost wages, racking up 10 trillion dollars in debt. This debt is growing by 11% per year, up from 8% per year just a few years ago.

    These processes are both accelerating. Anyone but a dismal scientist can figure out what’s about to happen.

  2. None of Your Business commented on Apr 29

    U.S. Economy On Thin Ice 2

    Angry Bear has a fantastic analysis by Kash on the emerging picture of the trouble in the U.S. economy.

    Here is a CBC online article echoing the problems with the economy.

    The Big Picture also has a great post on some Economists responding to the…

  3. rjw commented on Apr 29

    Not a good idea to read too much into one set of figures. But the contribution of (presumably unintended) inventory growth to the GDP rise seems a worrying sign.

  4. Scott Peterson commented on May 2

    I see a boom in US business investment as unlikely as there remains gross overcapacity in a number of industries such as autos, airlines, retail, and software and potential for future gluts in industries such as steel and building materials.

Read this next.

Posted Under