GDP UPDATE

The recent estimate of 0.8% GDP growth was slightly ahead of what I was initially forecasting at 0.5%. A few notable items on this..

Typically Q1 has been one of the weakest quarters of the year. There is much optimism heading into Q4 that “This will be the year” only to have an inventory overhang to digest in Q1.

Many economists are predicting more robust growth this year. Many are predicting 3.0%+ growth this year, however, my forecast puts the US economy in the 1.5% – 2.0% growth range for the year. What is the reason for the differences in forecast.

1) The USA is the only economy that has domestic growth that is sustainable

2) The other economies are soft. EU is arguably negative, China is very soft in their attempts to convert away form an export driven economy, The BRICS are also very soft. Given all of the softness, there is no where else for the demand to come from that will drive additional US growth

3) Globalization is consuming demand that would have normally been concentrated in the US economy. The aggregate demand is spread out around the world now, so one should expect softer growth in the US both in the near term and the long term

No longer is it the case that when the US sneezes, the rest of the world catches a cold. Now the entire world is either healthy or sick, with very little middle ground that can provide the medicine to cure the economic blues.

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