Friday, January 27, 2006

Significant but not Overwhelming, Take 2

Back in September, the CBO made a forecast of the likely effect of Hurricanes Katrina and Rita on economic growth for the remainder of 2005. In my post on the subject, I noted that the bottom line prediction was about a percentage point off annualized growth in the third and fourth quarters. It didn't seem like we saw too much of that in the third quarter, and that wasn't surprising, given how late in the quarter the hurricanes hit.

Today, the BEA released its advance estimate of GDP growth in the fourth quarter. It comes in at a lackluster 1.1 percent, well below the forecasts of about 3-3.5 percent. I wonder--and at this point, it is only wonder--if the CBO got its forecast about right and we now see most of the impact in this fourth quarter number. That provides no explanation of why the forecasters were off, but it does suggest that we should have been expecting slow growth. The composition of the decline--a big slowdown in personal consumption expenditures--fits with this story.

If it was the hurricanes, we expect a rebound. If it was not the hurricanes, we don't. Read more on the latter over at Angry Bear.


Arun Khanna said...

Strong inventory growth is consistent with business confidence not dipping at all. Consumer spending slowdown is due to Hurricanes Katrina and Rita and a seasonal effect i.e. lower than expected Christmas sales.

Dave Schuler said...

Nah, inventory growth is latency. Orders were placed before the dip in consumer spending and they haven't been able to turn off the spout.

Anonymous said...

Retail is slow right now. Even high-end stores with jewelry are getting squeezed a tad more than expected. I see a lot of inventory sitting around and sale signs. The sale signs came out too early this year for a super-strong economy. All this is, of course, anecdotal.

Inventory (excess) is a big risk for business profits.

I am not sure how to interpret the 10-year treasury yield. It increased to more than 4.5% recently.

bakho said...

oil prices

GM and Ford announce layoffs. This is the "little" number. The big number is the parts suppliers. If GM and Ford cut production by 20-30% then auto parts suppliers will?????
Fill in the blanks.

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