Expectations Go Low For U.S. Growth

Apr 24, 2011



This is WEEKEND EDITION from NPR News. Im Liane Hansen.

On Thursday, the government will release its initial estimate for Gross Domestic Product in the first quarter of this year. GDP is a key gauge of how the economy is doing, whether it's still recovering from the Great Recession. And in recent weeks, it seems economists have been in a race to downgrade their expectations.

NPR's Tamara Keith reports.

TAMARA KEITH: The emails from economic forecasting firms seem to come almost every day. One report says: Trade is weak and we've lowered our GDP estimate by six-tenths of a percent, a few days later there's another: We've knocked off another one-tenth of a percent.

Jeff Rosen is an economist at Briefing.com, who puts out a weekly report called "GDP Monitor."

Dr. JEFF ROSEN (Senior Market Analyst, Briefing.com): We started a three percent at the beginning of the quarter.

KEITH: Three percent is a pretty healthy growth rate. But Rosen's projections didn't stay that rosy for long.

Dr. ROSEN: Every week, it seemed the numbers that were coming in were below what we had anticipated and we continuously cut our forecast.

KEITH: GDP measures the entire economic output of the country, all of the goods and services produced. Most economists now place first quarter GDP growth at an annualized rate of somewhere between one and two percent. So in other words, not all that healthy. But this doesn't necessarily mean the economy has fallen off a cliff.

Nigel Gault is chief U.S. economist at the forecasting firm IHS Global Insight. He says there are other factors.

Mr. NIGEL GAULT (Chief U.S. Economist, IHS Global Insight): If the weather was particularly bad, that will take down the GDP estimate for that quarter. But it won't tell us exactly what was happening to the underlying part of the economy.

KEITH: And in January and February, in a lot of the country the weather was particularly bad.

(Soundbite of a news clips)

Unidentified Woman: This monstrous storm is billed as the worst in decades...

Unidentified Man: The massive winter storm that's gripping the nation's midsection has paralyzed travel in several cities today, including Chicago...

Unidentified Woman #2: Wreaking havoc in dozens of states along the way...

KEITH: Gault says the economic models adjust for normal seasonal variations, but these storms weren't normal.

Mr. GAULT: These were big storms. These were worse than you would normally see at that time of year.

KEITH: So its possible bad weather is weighing the numbers down, or it could be the high oil prices or quirks in the calculations. Or it's possible the economy really is weaker than anticipated.

But Gault is also quick to point out that GDP isn't the only measure of the economy that matters. Lakshman Achuthan agrees.

Mr. LAKSHMAN ACHUTHAN (Co-Founder and CEO, Economic Cycle Research Institute): If you were only looking at GDP, you'd have kind of a weird picture of the U.S. economy.

KEITH: Achuthan is co-founder of the Economic Cycle Research Institute. And he says you have to look at other indicators too, like job creation and sales growth which point to economic revival. He says most economists - and probably by extension those of us who report on the economy - fixate on GDP too much.

Mr. ACHUTHAN: I think economists like to look at every wiggle as though it means a lot, and it actually doesn't.

KEITH: When that number comes out next Thursday, if it's as weak as many expect, Briefing.com's Jeff Rosen says it will make headlines.

Dr. ROSEN: The number itself is going to be scary looking. And there will be a lot of political banter about how the economy is not moving ahead and, you know, everything is slowing down. But the reality of the situation is the business side, you know, the economy is still moving ahead. The statistical way of calculating is making it look weaker than it really is.

KEITH: And whatever the GDP number is, that's not the final word. It will be revised in May and again in June, and likely many more times in the years to come.

Tamara Keith, NPR News, Washington. Transcript provided by NPR, Copyright National Public Radio.