Positive surprises from government reports on retail sales, industrial production, and housing in the past few months are leading economists to revise their real gross domestic product (GDP) forecasts upward supporting the notion that the recession ended in December or January.
Bear in mind: This recovery won’t have the vitality normally associated with an upturn. Economists now expect real GDP growth of about 1.5 in the first quarter. That’s better than the 0.4 the consensus projected in December, but much of the additional growth will come from a slower pace of inventory drawdowns, not from surging demand.
Moreover, the economy won’t grow fast enough to help the labor markets much. The only good news there is that jobless claims have fallen back from their spike after September 11 and that their current level suggests the pace of layoffs is easing.
The recovery also does not mean the Federal Reserve will raise interest rates soon. The January price indexes show that inflation remains tame. Consequently, the Fed can take its time shifting monetary policy from extreme accommodation to relative neutrality.
Perhaps the best news from the latest economic reports was the January data on industrial production. Total output fell only 0.1, its best showing since July. Factory output was flat, also the best performance in six months. Those numbers may not sound encouraging, but manufacturers have been in recession since late 2000. The data suggest that the factory sector is finding a bottom from which to start its recovery.
Production of consumer goods, for instance, is almost back up to where it was a year ago. That’s because consumer demand for motor vehicles and other goods and the housing industry remained healthy during the recession, and they are still growing in early 2002.
Besides, both the monthly homebuilding starts number and the housing market index for the past two months are running above the averages for all of 2001, suggesting that home-building is off to a good start and probably won’t be big drag on GDP growth this year.
Equally important to the outlook is how the solid housing market will help demand for home-related goods and services. Traditionally, consumers buy the bulk of their furniture, electronics, and textiles within a year of purchasing their homes. Thus, spending on such items will do well this year, even as car sales slip now that incentives are less attractive. Look for the output of consumer goods to top year-ago level in coming months.
Even the business equipment sector seems to have bottomed out. Its output rose 0.4% in January, led by a 0.6% jump computer gear. A pickup in orders for capital goods in the fourth quarter suggests that production will keep increasing—although at a relaxed pace—in coming months.
1. American economists are surprised to see that______.
[A]they have to revise the GDP forecasts so often