Is the U.S. Economy About to Do Something It Rarely Does?

 

The US economy just might do something in the second quarter that it hasn’t done too often of late: grow at a 4% or faster annual rate, adjusted for inflation. Economists at Deutsche Bank are looking for 4.2% real GDP growth in the period. And OECD economists aren’t far behind with a 3.9% forecast.

Now it used to be fairly common for the US economy to post a quarter of 4% or faster growth. In the 1980s (1981-1990), there were 18 such quarters. In the 1990s (1991-2000), another 18 quarters. When a big economy like America’s is growing 4% or faster, it’s really cooking. Indeed, those two decades are recalled as ones when the economy snapped out of its 1970s malaise.

But in the 53 quarters since then, the US economy has generated only six three-month periods of 4% RGDP growth or faster, including just two (4Q 2011 and 3Q 2013) during the Not-So-Great Recovery.

Of course, the bad winter weather is playing big role here. Deutsche Bank: ” … we continue to maintain the view that whatever growth was ‘lost’ in Q1 due to inclement weather will be made up in the current quarter.” Although the first print of first-quarter RGDP showed a 0.1% gain, new data suggests the economy may have shrunk by 0.2% or so.

And for the rest of the year? Well, the OECD gives the bullish case:

Economic activity is projected to pick up in 2014 once the effects of severe winter weather dissipate. Given ample corporate cash flow and an improved demand outlook, business investment should accelerate significantly. Sizable gains in asset prices have boosted household wealth, which, combined with steady progress on the labour market, should provide support to private consumption and residential investment.

Fiscal contraction is creating less of a drag on economic growth, although further consolidation at a slower pace will be needed to ensure fiscal sustainability. Monetary policy appropriately remains very accommodative, with slack remaining in the labour market and inflation remaining weak. The Federal Reserve began the process of reducing the pace of its asset purchases, which should continue through most of 2014. It will be appropriate to keep policy rates low for some time, but they are expected to begin to rise by mid-2015.

The OECD expects growth to average 2.6% this year and accelerate to 3.5% in 2015. The big question, of course, is how fast the US economy can grow over the long-term. The new Obama budget accepts a “new normal” growth potential of just 2.3%, much like the CBO does. That compares to average growth of 3.5% from 1950 through 2007. If those White House and CBO economists are correct, we might not see too many 4% quarters in the future. It should be a primary goal of policymakers to nudge growth closer to the postwar average and away from that new normal forecast. We can do better — and should.

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  1. Arahant Member
    Arahant
    @Arahant

    Yes, we should.

    • #1
  2. True Blue Inactive
    True Blue
    @TrueBlue

    How good have the OECD predictions been lately?  Not very good at all.  Actually, pretty terrible.  Even their own propaganda only claims that they are in the 58th percentile of forecasters.

     http://www1.oecd.org/eco/outlook/2742088.pdf

    Why bother posting stuff like this?

    • #2
  3. Arahant Member
    Arahant
    @Arahant

    True Blue: Why bother posting stuff like this?

    There is a simple answer to that.  When one compares the policies of the ’70’s and of today and their results and then contrast them with the policies and results of the 80’s, the lessons are obvious to anyone who is not self-deluded.  The call to do better is also part of the post.

    • #3
  4. Arahant Member
    Arahant
    @Arahant

    Here is another reason to post this: More Businesses Shutting Down than Starting Up

    So long as we, as a nation, pursue policies that kill entrepreneurship and destroy businesses, 4.0% growth is going to be rare and only an after-effect of disaster, as implied by this article.  We are not getting 4.0% or close to it because the economy is improving.  It’s because people are restocking and trying to cure their cabin fever after a long, hard winter.

    • #4
  5. True Blue Inactive
    True Blue
    @TrueBlue

    Arahant:  I agree with all those points.  It’s just a pet peeve of mine when so much financial “news” involves regurgitating “forecasts” that have no track record whatsoever of success.  It would be like starting every post about the weather with an update on what the Farmer’s Almanac as to say.

    • #5
  6. Arahant Member
    Arahant
    @Arahant

    True Blue: It’s just a pet peeve of mine when so much financial “news” involves regurgitating “forecasts” that have no track record whatsoever of success.

    It’s worse than that as stock prices fluctuate on whether the earnings meet the expectations, even when the company is spot on about predicting their earnings, but the “experts” think they know better.

    • #6
  7. Ross C Inactive
    Ross C
    @RossC

    This post is worth it for the Fred Graph alone, which gives you an enormous amount of perspective on the US Economy at a glance.  Every newscast that talks about the economy should show this graph to provide viewers some perspective as to whether or not the news is good, but then they are not really in the information business (If you are curious they are in the selling ads business).

    • #7
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