Daily Archives: October 23, 2011

It has become commonplace for economists to attempt to “nowcast” the growth rate of real GDP from the dozens of sources of activity data which appear during the quarter. Lately, most of these estimates have suggested that US real GDP has risen at a fairly healthy rate during Q3. For example, Dave Altig at the Atlanta Fed “nowcasts” that the growth rate may be as high as 3.2 per cent when the official estimate appears next Thursday.

This compares to an average growth rate of only 0.8 per cent in the first half of the year. Although much or all of the rebound has probably been due to temporary factors (notably the improvement in Japanese component supply after the earthquake damage in Q2), it will support the Fed’s expectation that growth will recover somewhat from now on.

However, we need to view this small improvement in the context of the much less satisfactory picture which emerges from a longer term perspective. The Wall Street Journal points out that the level of US GDP remains 6.7 per cent below the CBO’s estimate of potential GDP, which means that the economy could be producing $900 billion more per annum without risking higher core inflation rates. Furthermore, Dave Altig reckons that, at the current pace of job creation, the unemployment rate will remain in a 9-10 per cent range until at least 2017. Read more