US GDP & COMPONENTS

The surprisingly high rebound to an annual growth rate of 5.7% in 4th quarter of 2009may (most likely) be revised downwards in the coming quarters. It depends on a suspiciously low inflation rate and a probably inflated value inventory build-up. Those of you aware of the high government borrowing requirement (budget deficit) may be surprised at the low contribution of Government consumption, but this is because the deficit is mainly to replace lower tax revenue, not to increase provision of government services and government employment. I would not be surprised to see growth in Q4 to be revised down by a third to a half. At the end of 2007 economists in banks were generally advising that growth would be positive in 2008 - how wrong was that? In Jan. 13, Bloomberg News reported, just as Obama was sworn in as President, from a survey of Economists in US banks that they had slashed forecasts for U.S. growth in 2009 and projected Federal Reserve policy makers won’t be able to start raising interest rates until 2010 - as if that was a possibility in 2009? The banks' economists consensus prediction was that USA would contract 1.5 % in 2009, a half percentage point more than projected in December. This was the median view of 59 forecasts, and that the slump will push inflation below what some Fed officials consider price stability. median consensus views are ALWAYS totally wrong! Banks' economists really must get their act together, like investment bankers they need to sit up and smell the cold coffee! How in darnation are banks to be relied upon to know the seas in which they are piloting their ships with this kind of groping-the-dark analysis. Back then, a year ago, the chief economist at JPMorgan Chase & Co. New York, said “It’s very hard to get anything into place to change the course of the economy in the first half of this year. We’re in the middle of something very deep here.” The economists were doubtful about the Obama government's
$775 billion stimulus package. The economists generally were hapless disbelievers and expected a long dark deep recession, worst since World War II.
What are they saying now that Obama has stopped the rot and is confidently pushing more stimulis bills to replace millions of lost jobs? 2009 4th quarter growth rate was the fastest since 2003 and marked two straight quarters of growth after four quarters of decline. Growth exceeded expectations mainly because business spending on equipment and software jumped much higher than forecast, plus improvement in external trade balance and continuing low inflation.
US economists' consensus expect 2010 growth to slow as companies finish restocking inventories and as government stimulus efforts fade. Many estimate the nation's GDP will grow 2.5-3% in the current quarter and 2.5% or less for the full year. But, already we are seeing massive jitters about Asia and a flight to USA pushing up the dollar. Economists are not good at assessing the global picture - it is not neutral.
At 2.5% GDP growth - that's not enough to reduce unemployment, now 10%. Yet, Obama has said clearly this will not be a low employment creation recovery like under Bush. This time jobs creayion is the number one priority - I believe him, why can't the banks?! Most analysts say they expect the jobless rate to keep rising for several months and remain close to 10% to end of the year.
High unemployment and stagnant wage growth will likely keep consumers cautious about spending. Wages and benefits paid to U.S. workers posted a scant gain in the fourth quarter. And for all of last year, workers' compensation rose by the smallest amount on records going back more than a quarter-century. The economic recovery could falter if consumers, who account for 70 percent of economic activity, lack the income to ramp up spending.
Well, I don't believe any of that doomster pish!