Re: Rosy Economic Projections

A reader sends me this e-mail:

I don’t see how you can write a post like that and not even address the fact that initial estimates of real gdp growth in Q4 of 2009 was an annual rate of 5.7%:

I would think someone arguing your position who is trying to convey an impression of being in command of the facts would at least throw in a sentence like “while it’s true that Q4 GDP ‘09 growth was quite high, this is not likely to last because . . .”

This is true. According to the advance estimate by the Bureau of Economic Analysis, gross domestic product increased at a 5.7 percent pace in the fourth quarter of 2009. This growth was faster than forecasters had expected. However, here is why I didn’t mention it. For one thing, I was using the president’s growth number for 2009, it didn’t cross my mind to give the detail of each quarter. Second, I don’t think that the Q4 growth affects my statement that the president’s estimates are rosy for two reasons.

A. This number is an advance estimate. The BEA will revise this figure next month and the month after that, and it will revise it periodically over the next few years.

B. More importantly, much of the Q4 growth reflects businesses restocking their shelves and warehouses: Inventories accounted for 3.4 percentage points of the overall 5.7 percent of growth. And from everything I have read on the topic, if consumers don’t buy the things that are being made, Q1 and Q2 of this year will look bad.

This reader also noted that I should have used real GDP. I agree that I should have. However, the jump of real GDP between FY2009 and FY2010 doesn’t change my mind about the fact that the president’s estimates are rosy.

Check for yourself. According to Table S-13 in the budget, real GDP estimates are: