Economists were incredibly aligned on their 2013 forecast, which is ridiculous given the amount of uncertainty in the economy. In a typical year, the gap between economic forecasts is about 2% (predictions ranging from, say, 0% to 2% for growth). For 2013, the gap was only .4%, predictions ranging from 2.1% to 2.5%. I'm going to separate from the herd on this one. My prediction is GDP growth of over 3% for the US economy in 2013.In spite of a slow start, it is looking increasingly probable that GDP growth will top 3% for the year. Even if growth in the fourth quarter drops by 0.5% from the third quarter, it will be at least 3%.
There are some interesting numbers in the Commerce Department's report on the third quarter. For me, it's worth noting that GNP is 4.4%. GNP includes income that Americans receive from foreign production; the fact that it is slightly higher than GDP suggests that the rest of the world is beginning to boost rather than drag down the domestic economy. With Europe slowly pulling out from under the shadow of imminent collapse and China recovering, the global economy may start helping.
Also, cuts in government spending are becoming less of a drag on the economy. While federal spending is down for the quarter, state and local government spending is up. As Ben Bernanke pointed out in his press conference yesterday, fiscal policy has been a real drag on the economy. At this point in the last recovery, he said, government employment was up 600,000; for our recovery, it is actually down by 400,000; this difference of 1 million would be enough to noticeably lower unemployment and increase spending. If state and local governments are no longer adding to the downturn, this is good news for GDP.
Another thing worth noting is how the economy has seemed to take off faster than expected. A lot of economic prediction is based on past trends so it misses inflection points. As you can see here, the initial estimates for the last two quarters missed by nearly 1 percentage point. That's a lot. Nearly 50% (0.8% is nearly half of the initial estimate of 1.7%).
It could be that the economy is taking off faster than even current estimates are capturing. As I've said, the Great Recession reminded everyone that bad things can happen. And it's always true that forecasts should consider this. But good things can happen as well and those come more readily to mind to folks in 1999 than folks in 2009. Still, the unexpected is - by definition - unexpected. Good is likely to blindside forecasters as bad. It may be that the economy has already taken off.
My bold prediction? 4th Quarter GDP growth comes in at 4.6%, putting 2013 well over 3% for the year. And then next year gets really interesting.