The Stuff That Dreams Are Made On

A consensus of economists is predicting higher growth next year:

Economists have grown more optimistic about the outlook for U.S. growth next year, predicting the expansion will accelerate as 2011 progresses, according to the latest Wall Street Journal forecasting survey.

The 55 respondents, not all of whom answer every question, raised their growth projections for gross domestic product for nearly every period, including the current quarter. On average, the economists now predict GDP will grow 2.6% in the current quarter at a seasonally adjusted annual rate, up from the 2.4% growth they projected in last month’s survey. The economy grew 2.5% in the third quarter.

The economists now see stronger expansion in the first half of 2011, with growth picking up speed as the year progresses. For the year, they expect GDP will rise 3%. Meanwhile, they have reduced the odds of a double-dip recession to 15%, the lowest average forecast of the year, from 22% in September survey.

It’s a bit hard for me to identify the basis for such predictions. I would think that improved economic growth would require improvement in one or all three of energy prices, home prices, and unemployment.

Energy prices

LONDON—Crude-oil futures gained more ground on relief that China, one of the world’s global economic motors, refrained from hiking interest rates over the weekend despite rising inflation.

Stronger equities markets also provided some support to oil futures.

The front-month January Brent contract on London’s ICE futures exchange recently was up $1.48, or 1.6%, at $91.96 a barrel. The front-month January light, sweet crude contract on the New York Mercantile Exchange was trading up $1.24, or 1.4%, at $89.03 a barrel.

Home prices

NEW YORK ( — U.S. home prices fell 2% in the third quarter after having gained steadily since early 2009.

The S&P Case-Shiller Home Price Index has recorded gains in four of the previous five quarters, including a 4.7% jump between April and June 2010. That leaves national home prices down 1.5% year over year and off 2% compared to the second quarter, according to the Index, which was released Tuesday.

David Blitzer, chairman of the Index Committee at Standard & Poor’s, attributed some of the decline to the end of the government program that paid tax incentives to homebuyers but he pointed to other problems weighing on the housing market.

Unemployment rate

The unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported today. Temporary help services and health care continued to add jobs over the month, while employment fell in retail trade. Employment in most major industries changed little in November.

On top of that employment has declined through the year.

I can only speculate that economists’ views reflect the Wall Street/Main Street divide that we’ve seen operating for the last couple of years. It’s quite possible for the financial sector to grow as the remainder of the economy stalls or even contracts. And we’re about to hit a wall—we’re nearing the point at which (hat tip: Calculated Risk) those who lost their jobs at the trough of the now technically over Great Recession will exhaust their unemployment benefits and the bills before Congress do nothing to alter that. The current proposal extends the program, not benefits.

4 comments… add one
  • john personna Link

    Economists cluster and follow one another on such things. It’s an area were a median opinion is no more reliable than a random one.

    What they are really saying is that this feels like a bottom, and that much might be true.

    Pretending that they can translate that feel to a future GDP is pretty silly. See Tetlock.

  • Drew Link

    On the negative side – don’t know if you saw it – but Shilling is predicting another 20% down for home prices. That would be a mess.

    Potentially on the upside, have people and businesses previously factored into their thinking the looming tax hikes? But if the status quo is retained, is that really a stimulant?

  • steve Link

    I would note that we just had two banks fighting each other for our business. Earlier this year, few would even talk with us without making what we thought were pretty unreasonable demands.


  • Icepick Link

    Here are the three scary things for me.

    (1) In his recent 60 Minutes interview Bernanke stated that another recession is extremely unlikely because the cyclical elements of the economy are already at rock bottom. That is, a downturn in new construction can cause a recession, but since one can’t effectively go down from zero construction then that cannot cause a recession. Fine reasoning. That means that if there’s another downturn it must be structural in nature. Given the continued drag from declining wages, unemployment and participation rates what is the likelihood that nothing else will fail in coming months? (Not to mention state and local governmental financing issues, or external stuff like the coming disaster in Europe and potential problems with China, possible new wars in Korea and Iran, etc. etc.) What are the odds that everything goes right?

    (2) If the economy were really in recovery would the Fed need to pump another 600 billion dollar adrenaline shot into the heart of it? And I believe I just saw a report that some muckity-muck on Wall Street is expecting QE 2.5 to inject another 400 billion. Plus the implicit promise from the Fed that they’ll keep the money coming come Hell or high water?

    (3) If the economy were really in recovery would the federal government be looking to inject another 900 billion (over two years) of adrenaline?

    (1) is scary for several reasons. Most immediately because those cyclical elements that can bring the economy down also typically bring it back up – and that ain’t happening. Housing isn’t coming back because we’ve got too much inventory, and demographics dictate that isn’t likely to get better any time soon. It’s scary long term because I believe the structural damage will continue.

    (2) and (3) are scary because it means those at the heart of our governemnt and financial sector really don’t believe the economy can recover on its own. So at best they believe that the economy is now an invalid that requires constant nursing care. But given their actions they believe it needs constant life support. But who’s going to pay the bills to keep that life support running? I believe that at least one of the commenters here likes to say, “That which can’t be sustained, won’t be sustained.” And how, Brother!

    At this point it really looks like the guys at the top are just playing out the string. Given that the dollar is still the safest currency in the world (the worst save for all the others) I’ve got a bad feeling about the next 10 years. I think one of the years in the coming decade will be looked upon in the same way people look at 1914. Not necessarily war, but something that in the future will look like an effort at civilization-level suicide.

    PS Actually the scariest thing is Bernanke’s assurance that he can completely manage everything going forward so that nothing unpleasant happens. Given his track record that’s damned near a guarantee that the Trump and the Shout are at hand.

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