Thursday, May 28, 2009

Give me the Bad News

This post is going to make a new economic forecast look a bit less hopeful. If you're looking for better news, I recommend that the reader link over The Good News Economist instead.

Yesterday, the National Association of Business Economists (NABE) released it's May economic outlook. The outlook predicts that the recession will end this year and that 2010 will see 2.7 percent growth (Q4 to Q4). Now NABE is not a group of bulls, they call the growth beginning this year a "subpar 1.2 percent rate in the second half."

The group gives a fair estimate. It just buries some of the information. When talking about 2010, the release says that growth "is slated for a return to near its historical trend." That's true growth in the high 2 to low 3 percent range has not been uncommon in the US of late. The problem is that we still had a recession, so while growth is back on trend the level of GDP remains off trend.

Taking a look at the rates predicted by NABE, one can produce the chart below (if you also pull in the BEA's GDP data).

I do assume that the 2.7 percent annualized rate is constant across quarters. This is not entirely realistic but if the 2.7 holds then shifting the quarter growth will likely only make the recovery happen more slowly. In either case until the third quarter of 2010, GDP is lower than it was when the recession began and by the end of 2010 growth since the beginning of the recession (according to NBER in December of 2007), is only .0456 percent.

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