1st Quarter Advance 2007 GDP Growth (to be Carried Through the Announcement)
Here are the four quarters of 2006 for context:
- 1Q06 — 5.6%
- 2Q06 — 2.6%
- 3Q06 — 2.0%
- 4Q06 — 2.5%
Predictions:
- From Australia –
Economists expect the data could show the US economy grew at an annual pace of 2.2 per cent.
”(But) there some speculation that the Q1 GDP due could surprise on the up side,” (RBC Capital markets economist Sue) Trinh said.
- From Reuters –
Economists polled by Reuters expected the data to show economic growth, measured by gross domestic product, slowed to a rate of 1.8 percent in the first quarter from 2.5 percent in the fourth quarter last year.
I think that the predictors are overlooking the rubber-band effect of the inventory reductions that dragged fourth quarter GDP down from its original estimate of 3.5%. A similar bounceback in inventory levels could easily send GDP back over 3% again, though as was the case in the fourth quarter, its effect may not be recognized by the government’s Bureau of Economic Analysis until next month’s GDP revision.
The news: Up 1.3%.
Initial reax: That seems artificially low. Economies that are near full employment (with a 4.4% unemployment rate, we’re pretty darn close) usually don’t have growth rates in the 1% range. Given what I noted in the last full paragraph — By the time the revisions are done, I would not be surprised if it ends up at between 2.0% and 2.5%, which, though still not acceptable, is at least not anemic.
One reason why the economy isn’t doing better is discussed here. The other thing that should be obvious, but isn’t to those in Washington, is that it’s time for another supply-side tax cut (see: Hong Kong, Ireland, Iceland, and Estonia), which would not only juice the economy but would bring more money into the federal treasury to reduce the deficit, as the 2003 tax cuts have for nearly the past four years. Instead, the talk is of massive and extremely harmful tax increases.
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UPDATE, 4 PM: It’s clear that the markets aren’t seeing today’s GDP release as a recessionary sign. The Dow closed at yet another above-13000 record, while S&P 500 and NASDAQ were essentially flat. I would suggest that many investors believe that today’s GDP number is going to be adjusted upward, as I do, by the time the final first quarter is released in June.
