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America's Recovery

FRED Graph  St Louis Fed

Greg Ip writes:

America's recovery: What is going on with GDP?: I'M STARTING to worry about the economy again. Last fall, I became bullish on the American outlook, concluding that deleveraging had slowed enough for consumption to accelerate. By December, with Congress and President Obama agreeing to massive new tax stimulus, the consensus also turned bullish, forecasting growth of 3.5% to 4% this year. The darned economy refuses to cooperate... new home sales hit an all-time low... it’s not just housing that has disappointed.... Macroeconomic Advisers today lowered their tracking estimate of first quarter GDP growth to a 2.5% annual pace.... Ben Herzon of Macroeconomic Advisers tells me:

It is puzzling how the year has started off so sluggishly. Part of it is weather, which I don’t think we had fully incorporated into our tracking estimates early this year. But this is only worth about ½ percentage point. The balance is simply unexpected (and, in our view, temporary) weakness.

If this is how growth looks in the quarter when the new stimulus took effect, how will it look later this year?

This is probably the natural variation in quarter-to-quarter growth.... The high frequency data, such as claims for unemployment insurance, are encouraging; there’s no reason to believe the labour market has suddenly fallen ill again. That means, however, that the second quarter better be a blowout. The same thing is happening in Britain where the Office of Budget Responsibility lowered its forecast for growth this year, in connection with the release of the budget, to 1.7% from 2.1% last November.

A helpful reminder that on both sides of the Atlantic, this is a post-crisis recovery. Do not expect miracles.

I am not expecting miracles. I am hoping for a rising employment-to-population ratio. But I am not getting one.