Economic Commentaries

Entries for July 2013

22

At the start of the spring quarter we forecast about a 2.5% rise in nominal GDP with real growth about 1.5% and inflation at about 1% annually. While this forecast was initially viewed as pessimistic it now appears optimistic as nominal GDP appears to be about 2%, evenly split between growth and inflation. Jobs growth accelerated in the quarter but productivity declined. Residential investment continued as a positive for growth, but consumption, capital investment, and government were drags.

We think this same sectoral performance will remain pretty much in place through the second half. Our overall forecast is still for about 2.5% to 3% nominal GDP growth for the second half, which would now actually be an improvement from the first half, but below the Federal Reserve's official forecast. At this stage our view for 2014 is for more of the same.

Two big questions overhang our outlook. The first is the role and impact of government policy. The Affordable Care Act still appears operative for later this year and by all accounts it will boost the aggregate health insurance burden while reducing job growth from what it would have been. Nonetheless, with the timetable for the employer mandate being pushed back, some shift from part-time to full time employment may be a consequence.

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