Economists react to GDP

Thursday, April 28, 2005 | 06:05 PM



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 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




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

Thursday, April 28, 2005 | 06:05 PM | Permalink | Comments (3) | TrackBack (1) add to | digg digg this! | technorati add to technorati | email email this post



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» U.S. Economy On Thin Ice 2 from None of Your Business
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... [Read More]

Tracked on Apr 29, 2005 12:03:03 AM


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.

Posted by: touche | Apr 28, 2005 10:58:21 PM

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