The GDP's Magic Number

by: Eddy Elfenbein

Eddy Elfenbein submits: First-quarter GDP growth was revised higher to 5.3%. Even though that's an impressive number--the best in 2-1/2 years--it still came in below Wall Street's forecast of 5.7%.

Here's how the economy has done for the last 10 years:

GDP growth is highly "trend-like." The magic point is 3%. When GDP growth is over 3%, there's a 70% chance that the following quarter will also be over 3%. If GDP growth is below 3%, then there's only a 39% chance that the next quarter will be over 3%.

The key is spotting those points when the economy breaks out of its trend. In the fourth quarter of 2005, the economy fell to 1.7% leading to fears of a recession. But we defied the odds and are growing strongly again. For now.