U.S. Gross Domestic Product
U.S. GDP Forecast for 2011 Revised Downward
JP Morgan and Macroeconomic Advisors have lowered their growth projections for the United States economy for 2011 to 1.4 and 1.7 percent respectively, according to information recently published in The Wall Street Journal.
In the final quarter of 2010, many popular economists jumped on the growth bandwagon by forecasting that the U.S. economy would grow even more in 2011 than the 2010 annual average of 2.78 percent. The average growth forecast as documented by CreditPulse was 3.5 percent (see chart below).
As the new year began, optimistic growth forecasts were everywhere. The USA Today, which reported that it surveyed 46 economists from January 13-19, ran an article on January 24th of this year with the heading, "Economists forecast U.S. growth on the upswing in 2011." One of those economists, Mark Zandi, chief economist of Moody's Analytics, could hardly contain his optimism as he expected the U.S. economy to grow 4.4 percent in 2011, according to the article. "This growth is now becoming self-reinforcing," said Zandi, "businesses are going to take their stronger sales and begin to hire more aggressively, generate more income, and we're off and running."
Now, however, two respected economic analytical outlets that were on the growth bandwagon themselves have decided to get off. In information that first appeared on an April 13th blog by Commentary magazine columnist John Podhoretz, and recently reported in the notable and quotable section of the WSJ, it now appears that JP Morgan and Macroeconomic Advisors have significantly cooled their 2011 growth forecasts to 1.4 and 1.7 precent respectively, according to the blog, far lower than their original estimates only a few months ago (see chart).
The April revisions are much lower than the 2011 consensus growth projection of 3.5 percent forecast just two months ago. Upticks in consumer spending created some of the euphoria as evidenced by a December 24, 2010 article in the Wall Street Journal that quoted Barclays Capital economist Dean Maki as saying, "It looks like we've transitioned into a period of solid consumer spending...that makes it hard not to be optimistic about economic growth," Maki said when commenting on both Q4 2010 and 2011 GDP prospects.
On December 7, 2010, the Financial Times online website, FT.com, published an article titled "Economists raise forecasts for 2011 U.S. growth." In its article, FT.com made the case that an increase in government fiscal stimulus resulting from a proposed budget deal between the Republicans and Democrats would keep the U.S. economy sailing in 2011. As a result, Michael Feroli of JP Morgan lifted his 2011 growth forecast from 3 percent to 3.5 percent, according to the article.
Some of the new found pessimism regarding 2011 growth may stem from the final results from 2010. Fourth quarter 2010 GDP was reasonable at 3.1 percent but that figure was lower than the estimates of many economists. For example, in December 2010, the economists at Morgan Stanley were so confident in consumer spending that they boosted their Q4 GDP forecast from 4.3 percent to a lofty 4.5 percent, according to the aformentioned WSJ article published that month.
Not all economists painted a euphoric picture for 2011. Noted economist Arthur Laffer, creator of the Laffer Curve that showed how low tax rates boost economic growth, has predicted for the past year that the U.S. economy is headed for a collapse in 2011. In an interview in January 2010 in Human Events magazine Laffer said, "All the factors that will make 2010 (and have already made the last half of 2009) look so good will reverse direction, and 2011 will be a train wreck," he said then in his forecast.
Fourth quarter 2009 GDP rose 5.1 percent and the average annual rise in 2010 was 2.78 percent.