Updated Economic Forecast for 2010: Slight Progress Lowering Unemployment

I've updated my economic forecast for 2010. Here's a chart showing quarterly growth rates:

Key features: consumer spending on durables dips this quarter (after cash-for-clunkers), then grows at a pace that mixes conservative attitudes with pent-up demand and limited credit availability. I spent more time this round modeling inventories. It's still a big wild card, that can swing quarterly numbers hugely. For instance, an optimistic--but not implausible--figure for the change in inventories this quarter adds another 1.5 percentage point to GDP growth.

This growth rate is well above productivity growth, so we'll make progress lowering the unemployment rate. Note huge, sudden progress, but gradual improvement.

I'm assuming that the Fed will slow its stimulus, preventing an upside breakout. With this in place, the inflation rate should be tame.

Comments

[Wildebeest:]

If growth were really currently occurring at the rate touted and if it were predicted to occur at the rate you expect then rates would be rising. Rates aren't rising because the Fed doesn't believe this story any more than SA readers do.

Nov 11 01:58 PM

[conceptwizard:]

Amply documented, humanity is undergoing in the post-Cold War era an economic and social crisis of unprecedented scale leading to the rapid impoverishment of large sectors of the World population. National economies are collapsing, unemployment is rampant; Wall Street banks are "taking over countries" one after the other; regional wars have erupted along strategic gas-oil pipelines and often behind the various "insurgencies" are powerful corporate interests which coincidentally are also lobbying for trade reform... In most countries the standard of living has collapsed...

This Worldwide crisis of the late twentieth century is more devastating than the Great Depression of the 1930s. It has far-reaching geo-political implications; economic dislocation has also been accompanied by the outbreak of regional conflicts, the fracturing of national societies and in some cases the destruction of entire countries. This crisis is by no means limited to the developing countries. In Europe and North America the Welfare State is being dismantled, schools and hospitals are being closed down creating conditions for the outright privatisation of social services. By far this is the most serious economic crisis in modern history.

In a large number of developing countries, the services economy and banking are already in the hands of foreign capital, peasant economies have been devastated as a result of the dumping of EU and US grain surpluses. Genetically modified seeds produced among others by Cargill and Montsanto (together with carefully engineered farm inputs produced by these same agribusiness conglomerates) have been forced upon farmers throughout the World often leading to mass poverty and the fracture of rural economies, not to mention the contamination of the food chain derogating the rights of consumers Worldwide.

In turn, international agribusiness is intent upon driving the family farm into bankruptcy. This process is by no means limited to developing countries: up to 30 percent of grain farmers in Western Canada are on the verge of bankruptcy specifically as a result of the enforcement of WTO provisions concerning farm subsidies by the Canadian government. And if this is happening in Western Canada which constitutes one of the World's most resourceful "bread baskets", what will be the fate of farmers in other regions of World?

Nov 11 03:50 PM

[ArizonaGlen:]

First, I think your graph is wildly optimistic but certainly within the realm of possibility especially if we are using BLS statistics as our measuring stick. Still I am curious about a couple details.

1. Why the forecast drop in GDP growth rate at the end of 2010? This seems to indicate to me that you are believing that the GDP growth is going to be due to the stimulus package (whose largest impact is in 2010, an election year of course) and then will drop off (i.e. the stimulus package will not follow the Keynesian theory of jumpstarting growth in the private sector).

2. What about prospects beyond '10. We will need several years of 3-4% growth to get back to full employment.

Nov 11 04:17 PM