Good News On The Economy

The Financial Times reports that the Fed is cautiously optimistic on the prospects for economic growth in the third quarter. 10 of the 12 Fed Districts reported positive news on economic growth factors like retail sales and consumer spending. The Boston and Cincinnati districts showed mixed results, but nothing indicative of a major economic problem.

This recovery has been slow mainly due to major geopolitical concerns and mixed reports on corporate earnings. However, if the economy continues to grow at this rate, the lagging indicator of employment should begin to pick up as well. If corporate earnings reports remain stable and econmomic growth continues at this rate, the prospects for a major economic pickup for the fourth quarter and the beginning of 2004 seem strong.

UPDATE: More good news. The Office of Management and Budget has sharply revised their deficit predictions downwards (link is a PDF). As they say:

The federal government incurred a total budget deficit of about $374 billion for fiscal year 2003, CBO estimates, more than twice the deficit recorded in 2002, although less than both CBO and the Office of Management and Budget projected this summer. In dollar terms, that shortfall represents the largest deficit in U.S. history—well above the $290 billion deficit of 1992. However, at about 3.5 percent of gross domestic product (GDP), it would still be smaller than the deficits of the mid-1980s and early 1990s relative to the size of the economy. (Emphasis mine)

While this isn’t great news, it does mean that the US isn’t in dire straights quite yet. While the deficit is the largest ever in dollar terms, dollar terms aren’t what’s relevent. What is relevent is the deficit in regards of percentage of GDP, and in that regards, the deficit isn’t nearly as bad as some have made it out to be. That isn’t saying that deficit spending is healthy – it’s not. However, it does mean that those who have suddenly become deficit hawks are making mountains out of molehills.

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