Economists are hastily upgrading their forecasts for the US economy after a series of surprisingly strong reports suggesting the so-called "soft landing" may be over and growth is accelerating.Over the past week, surprises have come in stronger-than-expected reports on US job creation, the trade balance and retail sales -- all key contributors to economic activity.Lehman Brothers chief US economist Ethan Harris on Friday boosted his forecast for fourth quarter 2006 growth to an annualized rate of 3.3 percent, a leap from the firm's prior call for just 2.0 percent growth."After slowing in November, the economy seems to have regained its stride," Harris said...... The latest data defy predictions that the slump in real estate would filter into other areas of the economy, notably consumer spending.The latest data showed US employers added a healthy 167,000 new jobs in December (196,000 with revisions to prior months -- Ed.), with unemployment holding at a low 4.5 percent. Average wages were up 4.2 percent annually.
That's what happens when economists like Ethan Harris read too much Paul Krugman and Rex Nutting, and not enough of yours truly (see cautious "3% or more" prediction about halfway through the post).Even the above report doesn't get it right, because the "slowing" in November cited by Mr. Harris isn't supported by facts he and other analysts should have known. While the 14% of the economy represented by the manufacturing sector barely went into contraction mode in November, the other 86% representing services and everything else was in serious expansion mode (that was also a reported "surprise" at the time). That, and November's addition of 174,000 jobs (132,000 plus revisions to prior months), render the idea that there was any kind of "slowdown" in November quite silly.Whether these upward revisions, or for that matter the late-January preliminary result, get wide coverage beyond the business pages remains to be seen. Prognosis: doubtful.As to 2007, Mr. Harris provides the formerly Mainstream Media plenty of cover with his skeptical optimism:
Harris at Lehman Brothers said "a natural question is whether the solid fourth-quarter growth is a fluke."He said data could be distorted by things such as the introduction of the new Windows Vista operating system, shifts in holiday shopping patterns, problems in the auto sector, the plunge in energy prices and unusually warm winter weather."However, looking closely at these factors on net they argue for more, not less strength in the first quarter of 2007," he said.
Of course, I fully realize that there's no victory dance until the official announcement of preliminary GDP, which won't be until (zheesh) January 31, followed by two more revisions in late February and March.Cross-posted at BizzyBlog.com.