October 09, 2003

Updated Forecasts from the Wall Street Journal's Survey

Updated forecasts from the Wall Street Journal forecast. It is interesting that 100% of upward revisions in forecasts over the past two months has been in expected productivity growth, and none has been in expected employment growth:

WSJ.com - Consumers Give a Boost To Economists' Forecasts: The average forecast of the 53 economists who participated in The Wall Street Journal Online's economic-forecasting survey this month put growth for the third quarter at an inflation-adjusted annualized rate of 5%, up from the 4.7% rate they predicted in a September survey and from 3.6% in August. But while economists have been walking third-quarter expectations higher, they have largely left unchanged forecasts that growth will moderate in the current quarter and the first half of 2004.

For early next year, they put growth in gross domestic product, the broadest measure of output in the economy, at just under a 4% rate. That is still considerably stronger than what was seen early this year. Second-quarter growth was at a 3.3% rate, while first-quarter growth was at a 1.4% rate.

Many economists attributed the strength in consumer spending to the latest federal-tax reductions. Some economists said they were caught off-guard by the extent of the stimulus created by the cuts, which included rebate checks for some families of as much as $400 per child. Consumer spending rose a strong 0.8% in August from July, after a 0.9% advance the previous month. September data aren't yet available, but if the rate continued -- and economists have their doubts, given a slowdown in auto sales last month -- that could mean quarterly spending growth not seen in more than 15 years.

But while consumer spending accounts for a significant chunk of all economic activity, businesses remain a major focus of recovery-watchers. The slow-but-encouraging expansion in manufacturing activity that cheered economists in the summer has since eased, and businesses remain cautious about making significant investments in equipment -- and people -- without solid signs that the recovery is under way. Moreover, many businesses are concerned because they are unable to lift the prices they charge.

Economists expect job growth to remain a roadblock to meaningful economic expansion for some time. "We're well on the road to recovery, but that doesn't mean employment recovery. It's going to be a while before we return to the employment levels we had a couple years ago," said David Resler, a forecaster with Nomura Securities International Inc.

Economists surveyed see unemployment rates of 6.1% in November, matching the current rate, and 5.9% in May 2004. Both forecasts are unchanged from the previous survey...

Posted by DeLong at October 9, 2003 07:49 PM | TrackBack


5.9% unemployment will mean that either productivity will drop or expansion will go through the roof.

Posted by: bakho on October 9, 2003 10:00 PM

As a non-economist, I've been perplexed by the whole "productivity miracle" phenomenon. Not the logic (which is obvious even to the layperson--if one person can do the job that previously needed two persons, then output/labor costs increases), but by the continued persistence of productivity growth. I have come across an article that purports to debunk the view of continuing increased productivity by arguing that it is simply a statistical artifact of less than valid GDP growth numbers. Can anyone vouch for the plausibility of the argument below and the credibility of the publication. Thanks.

"...Statistics have clouded the picture and concealed the underlying poor quality of growth in America. This has also resulted in unfair comparisons that depict European economies in poorer light relative to America. Deeper examination reveals a different picture...But for the hedonic adjustment to prices (quality-adjusted price change) of IT equipment, American real GDP over the last three years would have stagnated at best or contracted at worst. So should one be surprised that the American economy still sheds jobs?..."

V. Anatha Nageswaran [the author of the article] is the director of global economics and asset allocation for Credit Suisse (Asia-Pacific). This article originally appeared in The Business Times Online (Singapore).

Posted by: oneangryslav on October 10, 2003 08:31 AM

Strange to notice only two points here on something which seems to be pretty important. It seems the stimulus may have shot its bolt. It also seems a fair bit of it may have gone to people who were going to go out and spend it. But the traction still isn't coming.

I may be a bit slow, but surely this indicates that BOTH sides in the partisan debate may be missing something. I cannot help noticing at the same time a whopping 48 comments on the post above. This I think is my main critique of Krugman, he's taken everyone off on a nonsensical horserace, when he's old enough and intelligent enough to know better. Meantime the real problems seem to float by unacknowledged.

Like a few paragraphs he wrote back in 1998 in 'Whoops its Back', suggesting that Japan's problems might be demographic ones. Unfortunately, for reasons which are hard to understand, he hasn't been able to find the time to go back and pick up the thread.

BTW I could make a political point just for the record. Why is it that in the Europe and Japan the kind of job creation problems the US is having lead to talk of the need for 'structural and labour reforms', yet we don't hear any calls in this direction from the Bush administration in connection with the US itself?

Posted by: Edward Hugh on October 10, 2003 12:29 PM

There really is not a lot new to discuss. Practically the same article could have been written last year. Does this administration get serious at some point? If they go into May with 5.9% unemployment they will get hit with the throw the bums out buzzsaw. The Kling post about Krugman is compelling because Kling is making the argument that motives/goals do not matter.

Posted by: bakho on October 10, 2003 02:14 PM

Edward, I doubt strongly that anything that Krugman does matter much to its critics.

I have seen often that in the USA they claim to have free ideas, but I can't shake the feeling that they are like the color of Ford Model T, of which I've read that Henry Ford claimed you could get in any color you wanted, as long as you wanted it black.


Posted by: Antoni Jaume on October 10, 2003 02:25 PM

there was a time when substantially all the economy's measured productivity improvements could be attributed to improvements in the production of IT goods, but I was under the impression that that was no longer true.

it's been a year or three since I looked at hard numbers; does someone have them at hand or do I have to do my own legwork?

Posted by: wcw on October 10, 2003 03:58 PM

WCW: Check Robert Gordon's web site he has a recent paper. It is in IT, but mainly in the application in retailing. I'm not sure whether this hasn't a lot to do with using IT to leverage Big Box product outsourcing to China.

Bakho, with respect, I really don't think so. The stimulus was out in front then, and the deficit wasn't there. Where's the leverage for more stimulus now?

Look, in 2001 K felt he couldn't speak out too much about Argentina, since he might cause a run. I think he was wrong, but that is beside the point. Now he tells the world that the US is going to have an Argentina style crisis, and no-one outside the political arena takes a blind bit of notice. Who is bothering with K now, Arnold Kling and Larry Lindsey. I think it's a tragedy. Maybe there are 5 really good economists out there who can hack both the theory and the practice. We lost one earlier this year in Rudi Dornbusch, now we've lost another in his own 'unravelling'.

K could have had an impact on Japan, that could have been important. Throwing away your mind like that in a street brawl with GWB an co, it's so irresponsible. It's worse it's self-immolation. And the rest, like good 'suti' widows climb on the pyre to accompany him.

Last count 76 horses in the race. Forgive me if I can't join in. It's too sad.

Posted by: Edward Hugh on October 11, 2003 11:55 AM

Edward, you're wrong.

K is doing much more good where he is now and has a wide audience listening to him. A "street brawl" is hardly an adequate way to describe a debate which deeply affects 280 million people and in many senses the rest of the world as well.

Posted by: hbj on October 12, 2003 12:20 PM
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