US Economy: Reason for Optimism?

Despite the best efforts of some policymakers to reduce aggregate demand by way of austerity measures [0], there are glimmers of hope for more rapid growth.

2013Q3 q/q GDP growth has been revised up to 4.1% SAAR; higher consumption is part of the reason. The impact on the path of GDP is noticeable.

Figure 1: Log GDP, December release (bold blue), October release (dark blue), Macroeconomics Advisers forecast of December 23 (bold red), and forecast of October 30 (pink), all in billions Ch.09$, SAAR. NBER defined recession dates shaded gray. Source: BEA 2013Q3 advance and 3rd release, NBER, and Macroeconomic Advisers. 

Notice that not only has the trajectory of GDP moved up noticeably, the forecasted growth rate for 2013Q4 has moved up. The IMF is also revising upwards forecasted growth for the US in 2014. [1]

Employment seems to be growing more rapidly. In addition to the acceleration in November employment growth, it’s likely that the benchmark revision, to be reported in February 2014, will shift up the trajectory of nonfarm payroll employment and private nonfarm payroll employment. For the first, Figure 2 shows the likely revision, based upon the preliminary benchmark revision (released 9/26).

Figure 2: Nonfarm payroll employment as reported (blue), preliminary revision for March 2013 (red), and household employment series adjusted to conform to payroll concept (green). Source: BLS via FRED, BLSBLS, NBER, and author’s calculations.
Notice that the household adjusted series matches the revised payroll series toward the end; however, the household series is subject to considerably wider variation due to smaller sample, so not too much should be made of this.

Private nonfarm payroll employment shows a similar phenomenon.

Figure 3: Private nonfarm payroll employment as reported (blue), preliminary revision for March 2013 (red). Source: BLS via FRED, BLS, NBER, and author’s calculations.
Finally, indicators of production show an acceleration of growth.

Figure 4: Log industrial production (blue, left scale), log manufacturing production (red, right scale). NBER defined recession dates shaded gray. Source: Federal Reserve Board vis FRED, NBER, and author’s calculations.
Other forward looking indicators are positive; today’s CFNAI release indicates a shift from contraction (-0.06) to expansion (0.7). Consumer sentiment has also increased, according to theReuters/UMich index.

Finally, I think the factor that makes the growth more likely to be sustainable going forward, barring another debt-ceiling crisis or some sort of financial crisis overseas, is the fact that real household net worth has nearly reattained pre-crisis levels.

Figure 5: Log real consumption, bn Ch.09$, SAAR (blue, left scale), and log real household net worth, bn Ch.09$ (red, right scale). Net worth deflated by PCE deflator. NBER defined recession dates shaded gray. Source: BEA and Federal Reserve Board via FRED.
Despite these positive notes, in this season, it would be wrong to forget those that the recovery has left behind, and particularly those whom some of our policymakers [2] have decided would be better off without our help — namely the 1.3 million long term unemployed who will receive their last unemployment benefit checks on December 28. [3]

So to all — even those who are happy to see extended UI and SNAP cut — a happy holidays.

This piece is cross-posted from Econbrowser with permission.

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Emre Deliveli The Kapali Carsi

Emre Deliveli is a freelance consultant, part-time lecturer in economics and columnist. Previously, Emre worked as economist for Citi Istanbul, covering Turkey and the Balkans. He was previously Director of Economic Studies at the Economic Policy Research Foundation of Turkey in Ankara and has has also worked at the World Bank, OECD, McKinsey and the Central Bank of Turkey. Emre holds a B.A., summa cum laude, from Yale University and undertook his PhD studies at Harvard University, in Economics.

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