The Numbers Don't Add Up: US economy is in 'twilight zone'
busrep.co.za
US economy is in 'twilight zone'
December 11, 2003
By AFP
Washington - The US economy is in a "twilight zone," showing unusually strong expansion with little growth in traditional areas of manufacturing and services, an economic forecast said Thursday.
The Anderson Forecast of the University of California at Los Angeles projects 2004 gross domestic product growth of 3,6 percent, following an estimated 2,9 percent in 2003.
But forecast author Edward Leamer said the traditional notions of growth have been turned upside down by the puzzling 8.2 percent growth surge in the third quarter of 2003.
"The strength was in consumer durables, consumer nondurables, and business equipment - all material stuff," he said
'It's the Twilight Zone economy'
. "Factory workers aren't making them, the factory sector isn't producing them, and delivery men aren't bringing them, but the goods are nevertheless ending up at your doorstep and in GDP. It's the Twilight Zone economy."
Leamer said he was at a loss to explain the surge in GDP, saying the component factors of economic growth do not add up.
"Since humans don't seem to be making all this stuff, you are probably thinking that it is being made by aliens from outer space working secretly in our factories during the graveyard shifts," he said in his forecast.
The report said the service sector did not explain the surge in economic activity either.
"If anything, the service sectors have shown abnormally weak growth throughout the 'recovery' and even more so in third quarter," the report said.
Asked in an interview if he could explain the paradox, Leamer said, "I don't yet understand it. The correlates of GDP growth are not there. Industrial production, employment, cargo growth are not there."
Leamer, who is a professor of management and director of the UCLA forecast, said his analysis suggests a flaw in the way the government measures GDP.
"GDP is meant to be a measure of stuff we produce in this country," he said. Of the latest quarterly GDP report, he added: "I don't believe it."
For 2004, the UCLA Anderson School of Business forecast called for moderate economic growth with inflation in check around two percent for the next two years.
"Our basic story remains in place," the report said. "Expect next year to be OK, but not great. Expect some employment growth, but not enough to drive down the rate of unemployment.
"Expect the Federal Reserve to hold on desperately to the Fed Funds rate until there is very substantial improvement in the job market and/or the depreciation of the value of the dollar causes enough inflation to force the Fed's hand." - AFP
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Note this post is linked to another that expresses due skepticism about the numbers emanating from Washington. |
