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October 28, 2006
Was It Really That Bad?
From the Wall Street Journal (subscription required):
U.S. gross domestic product growth slowed to an annual rate of 1.6% -- the slowest pace in three years -- during the third quarter as the slump in the housing market took its toll on the overall economy. Economists had expected a much larger 2.2% growth rate.
Actually that 2.2% guess was higher than a lot of people were guessing -- Larry Meyer's Macroeconomic Advisers, for example, had been projecting 1.8% and, frankly, 1.6% was better than I was expecting. One reaction to the report, from the WSJ opinion round up:
[T]his report actually was not as bad as the headline number would have you believe. The major reason for the sharp deceleration in growth was that the housing sector took over one percentage point out of growth. … Basically, you really don't have a weak economy if consumers are consuming, businesses are investing, exports are growing and imports are strong. -- Joel Naroff, Naroff Economic Advisors
That seems about right to me:
There are doubters, of course:
Expect today the usual spin with the soft-landing optimists … This fourth-quarter rebound has, so far, no base or data behind it: residential investment will be falling at a faster rate in the fourth quarter … nonresidential investment that was, until now, growing very fast will sharply decelerate … residential and nonresidential construction will directly affect retail activity where employment has already started to fall. … I thus keep my forecast that fourth-quarter growth will be between 0% and 1% and that the economy will enter into an outright recession by the first quarter of 2007 or, at the latest, second quarter. -- Nuriel Roubini, Roubini Global Economics
Well, OK. But facts are facts, and forecasts are forecasts. And thus far the facts, so far as we know them, are not showing substantial weakness outside of residential housing.
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