The Economy: U.S. Economy Confounded Views Of Economists
Economists were blindsided by the economy's surprisingly strong growth rate during this year's first quarter. But Daniel Laufenberg did better than most.</br></br>Mr. Laufenberg, chief U.S. economist at American Express Financial Corp., was the most accurate prognosticator in The Wall Street Journal's semiannual forecasting survey, coming within a hair's breadth in his forecasts for interest rates, currency movements, inflation and unemployment. He predicted 2.5% growth in inflation-adjusted gross domestic product in the first quarter -- well below the actual 6.1% growth rate, but still ahead of the consensus forecast of just 0.9%.</br></br>Mr. Laufenberg had started stressing the economy's resilience shortly after Sept. 11, when most other economists were racing to slash their growth estimates. He went against the grain and said the economy would be growing again before the year was over. He proved to be on the mark. By December, he says, "I was saying the recession was over and it was the mildest one on record."</br></br>Joining the ranks of top forecasters in the latest survey were newcomers Robert Shroud and Robert Fry, a tandem from DuPont Co.; Henry Wilmore of Barclays Capital; David Resler of Nomura Securities International; Ram Bhagavatula of the Royal Bank of Scotland; and Saul Hymans of the University of Michigan at Ann Arbor. The winner of the last survey, Brian Wesbury, of Griffin, Kubik, Stephens & Thompson Inc., sank to the middle of the pack because he stayed a bear too long. James Smith, of the University of North Carolina at Chapel Hill, had the best forecast for gross domestic product. He projected 5.4% growth in the first quarter. However he saw long-term bond yields falling far more than they did and was off the mark on currencies, helping to keep him out of the top spot. Mr. Hymans was among the two best forecasters on interest rates. He projected the yield on three-month Treasury bills would finish June at 1.7%, and it finished at 1.68%. He also projected the 10-year treasury bond would finish June at 4.7% and it finished at 4.8%. Mr. Hymans was kept out of the top spot because like so many others, he underestimated economic growth early in the year. He projected just 1% growth for the first quarter.</br></br>In retrospect, the strong first-quarter gr owth shouldn't have come as too much of a surprise. On average during the past nine recoveries, gross domestic product has jumped by 12% in the first three months of the rebound. The economists were correct in seeing that things were different this time around and assuming the economic rebound would be subpar when compared with those past rebounds. But they went overboard in marking down their estimates. "I wasn't quite sure when the inventory [turnaround] was going to kick in," Mr. Laufenberg says, explaining his miss on GDP. Inventory building accounted for more than half of the first-quarter economic rebound, but Mr. Laufenberg expected the inventory turnaround later in the year. "Nobody gets it perfect every time," he says.