Which Output Gap?

Recently, economists at the Federal Reserve Bank of Atlanta surveyed members of their Business Inflation Expectations panel to assess the state of their sector:

We asked our panel to provide a percentage estimate of how far their sales levels are above/below “normal.” Here’s what we found: On a gross domestic product (GDP)–weighted basis, the panel estimates that current sales are about 7.5 percent below normal. That’s more slack than the conventional estimates, like the Congressional Budget Office’s (CBO) measure of the GDP gap, which puts the economy about 6 percent under its potential.

Not surprisingly, sectors vary dramatically in their assessments, e.g., leisure and hospitality and transportation and warehousing firms report that sales are back to normal while construction and finance and insurance report that sales are far below normal even now. Thanks to Garett Jones for the pointer.

Reihan Salam — Reihan Salam is executive editor of National Review and a National Review Institute policy fellow.

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