What should we make of the U.S. Bureau of Economic Analysis (BEA) and their recent release of preliminary estimates of economic activity last week? It showed the U.S. economy growing at a less than expected growth rate of 2.2% in real gross domestic product over the months of January through March. During periods of historically average growth, the U.S. economy expands at a rate of 3%. Therefore, these numbers suggest that economic performance was moderate. Not only was this disappointing to analysts, it was less than last quarter’s 3% growth.
That does not coincide with labor force data that showed job growth increasing and unemployment rates falling. During the last quarter of 2011, the unemployment decreased steadily from 8.9% to 8.5%. At the same time, payroll employment actually showed greater strength this quarter in comparison to the previous quarter. There was average net job growth of 211.67 this quarter, which was more robust than last quarter’s figure of 164.
However in reviewing BEA’s own analysis, we can see that their previous estimates have been off significantly in the past. There have been instances where their quarterly analysis underestimated growth by an astonishing 2.1%. This occurred during the second quarter of 2010 where their initial estimate was 1.7%, which was revised upward to 3.8%! We must also point out that they have not always been good in predicting decline, either. For instance, an already dreary decrease of 6.8% was actually 8.9% during the fourth quarter of 2008!
Fed Chairman Ben Bernanke went so far as saying he was puzzled by the recent reports of less than stellar growth. Well, I think I might have the solution to this puzzle. It is my prediction that economic growth numbers will be revised upward in the future and would not be surprised if it exceeds 3%. Be careful what you place your trust in.