Here are a couple of more examples of why I find the administration’s and the Fed’s estimates of GDP growth for 2010 so unbelieveable. Joe Wiesenthal at Business Insider highlights some remarks from Barclays:
Incoming data suggest that growth in Q2 10 may be revised down to around 1% saar from the 2.4% advance estimate. One important reason is the June trade report, which showed a significant widening in the deficit. For Q2 10 as a whole, the Census data indicate that real goods imports rose an annualized 23.2%, a record, while real goods exports rose only 6.9% (Figure 1). Imports of capital goods surged 47.3% on the quarter, also a record and more than twice as fast as the 21.0% rise in equipment and software spending (Figure 2). Similarly, core consumer goods imports rose 26.1%, compared with 3.4% growth in core goods consumption (Figure 3). Where were the imports going? There seems no clear answer. One might expect that they were going into inventories, but the inventory contribution faded on the quarter (Figure 4). One might have thought the surging imports replaced domestic production, but manufacturing production rose a robust 7.8% in Q2 10, highlighting the discrepancy between the weak GDP growth and strong production gains. By themselves, imports subtracted a record 4.0pp in the advance release (partially offset by a 1.2pp positive contribution from exports), and the June trade data suggest the drag from imports will be even larger in the second release. It seems likely that the trade drag will soften in H2 10; record import growth with little offset from inventories seems unlikely to continue, especially if domestic demand remains moderate. This is one reason we still see expect moderate growth.
Remember exports add to GDP, imports subtract from it. On the prospects for growth in the months ahead, Doug Short takes a look at the Consumer Metric Institute’s projection which has had a pretty fair track record:
The Consumer Metrics Institute’s Growth Index hasn’t been in operation very long, but thus far it has been an effective leading indicator of GDP. As such, the prospect of a double-dip recession, something that’s happened only once since the Great Depression, remains a possibility.
Meanwhile, consider Donna Brazile’s advice to the Democrats for the November election:
Where the economy is in August is no guarantee of where the economy will be in November. So this spate of bad economic news isn’t as damning for Democrats as many naysayers would like to predict. Democrats have plenty of time to get the ball turned around and rolling in the right direction before voters head to the polls. It is less important where the economy is than where it’s heading, so if Democrats can sow seeds of economic optimism over the next two months, they may reap rewards come November.
Go delusional! It’s worth a try!
From the same article the advice from other worthies varies from leveling with the voters to going angry and blaming everything on Bush and the Republicans. While I’d prefer that candidates leveled with the voters, my guess is that the tack, particularly from the White House, will be to fan anger with the previous administration in the hopes of energizing the base. It’s worked pretty well so far.
