The Economic Situation, December 2014

The GDP data in my first chart, above, contain some good news (view chart here). The recently received 3.9 percent second estimate for 3Q2014 real GDP growth gave two quarters hand running with the pace exceeding the long term 3.14 percent average. The estimate also answered a question about inventory buildup seen in the calculation for 2Q2014 growth. The second quarter had come in with a whopping 4.6 percent growth, but almost two percentage points of that was in unsold goods. 

Unsold goods can reflect accurate expectations of higher future sales. Or, sadly, they can represent bad consumer spending forecasts. We now know the answer. The buildup reflected some bad guesses. As a result, 3Q2014 saw a decrease in inventories.

Even so, the economy seems to be on its legs and operating in a three-lane (3 percent growth) economy. It feels good to get off that two-lane (2 percent) road. 

There are potholes in the road, but no doubt about it, the future is looking a lot brighter. We see this reflected in major GDP forecasts, which I report here. All of the 2014 forecasts shown in yellow have been raised significantly in the just the last three months.

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