You see my problem is this, I’m dreaming away wishing that heroes, they truly exist. I cry, watching the days, can’t you see I’m a fool in so many ways. But to lose all my senses, that is just so typically me. Oh baby, oh. Oops, I did it again. I played with your heart, got lost in the game. Oh baby, baby. Oops, you think I’m in love – that I’m sent from above. I’m not that innocent. Britany Spears suggested that she made a mistake in this 2000 song written by Max Martin and Rami Yacoub. While celebrities like Britany may not always recognize their errors, economists almost never do. You won’t see nearly every economic forecaster admit that they totally blew the prognostication of the first quarter GDP growth rate.
We were just as wrong as everyone else. Maybe it was because we got nervous and began to follow the heard. In fact, our forecast for first quarter growth was 3.5 percent late in 2018 but we revised that down to just 2.0 percent as we saw the early data come in. Our belief was that there would be a slow 2nd quarter, fed in part by reduced tax refunds. Rather than keep a very low projection for growth for just the 2nd quarter, we spread the reduction across the first half of 2019. We were apparently incorrect. We should have stuck to our guns but we didn’t.
The advance estimate of growth in real gross domestic product for the 1st quarter came in at a robust rate of 3.2 percent, and much of the growth came from some very unexpected places. In spite of a very strong dollar, about a third of the increase was due to growth in net exports. Exports were up by 3.7 percent while imports fell by the same amount. Investment was the next most important contributor, adding roughly 25 percent of the growth. Again, this is unexpected, particularly since investment in housing fell. And government infrastructure investment – particularly at the state and local level – was another big driver, contributing about one-seventh of the growth.
The way that the Bureau of Economic Analysis calculates GDP places inventory growth in the positive column. Inventories have been growing fairly rapidly for the past three quarters – up by $329 billion over the last three quarters. But while BEA calculates this as an addition to GDP, traditional economists would suggest that inventory growth is a prelude to recession. To put this into perspective, in aggregate inventory accumulation was responsible for about 80 percent of GDP growth over the past three quarters. Had inventory been excluded, GDP over the past 12 months was up by just 1.6 percent. This is hardly rocketing growth.
So, this suggests that most economists might have been right about actual growth. If you remove inventory growth from the 1st quarter numbers, GDP is up by 2.55 percent, much closer to the 1.8-2.0 percent that forecasters were calling for. But that is, of course, changing the rules. Much like saying that Senator Clinton won the Presidency because she won the popular vote. The fact is that economists were wrong, I was wrong, about GDP growth in the 1st quarter. Its not the first time, and it won’t be the last.
All I can say, is Oops, I did it again.