Wednesday, November 30, 2005

Who's afraid of GDP growth?

I had faith that we would still have robust growth, robust expansion, despite the doomsayers flailing their arms about in the wake of hurricanes and high crude oil prices.
GDP growth expands
Broad measure of nation's economy shows far more strength than earlier estimate or forecasts.

NEW YORK ( - The nation's economy grew far faster than earlier estimates in the third quarter, according to a government report that came in much stronger than Wall Street's expectations.

The gross domestic product, the government's broad measure of the nation's economic activity, grew at a 4.3 percent annual rate in the quarter, compared with the original estimate of 3.8 percent growth in the period. Economists surveyed by had forecast that GDP would be revised up to 4 percent in the period.

It was the fastest pace of growth since the first quarter of 2004.

The growth came despite major hurricanes that hit in the quarter, slowing growth, coupled with energy price shocks and higher interest rates that likely slowed the economy.

"I think if you would have excluded the hurricanes, you would have been talking as much as 4.7 percent. I don't think anyone would argue 4.6 percent," said Anthony Chan, senior economist with JPMorgan Asset Management.

But Chan said the report also shows various inflation readings in the report remaining in check, even creeping backwards. The price index for personal consumption expenditures excluding food and energy, one of the more closely watched inflation readings, fell to a 1.2 percent rate.
Yet as the same article notes, there are always people looking for the downside. There's a big double standard when it comes to reporting U.S. GDP. In early September, the Financial Times described Spain's economic growth, in the mid-3% range, as robust. Such reports come with cheering and applause. We in the U.S. are damned if our economic growth is sluggish, and damned even if it's very good because it supposedly leads to inflation.

Update: Don Luskin notes the same "Where's the bad news?" attitude at the New York Times.

I really wish economists would stop treating inflation as anything but a purely monetary phenomenon (as Milton Friedman himself described it). Real inflation is strictly a decline in domestic currency's purchasing power, which is engineered solely by central banking and thus leads to market distortions and errors.


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