The purpose of this post is to reiterate the forecasts and their economic or statistical basis, prior to the jobs report that is coming out in a few hours.
- real GDP will exceed 6 percent of its value at the time of the housing crash, sometime during 2009 or 2010. By comparison, private consumption will not increase as much.
- between now and then, real GDP will not fall below $11 trillion (year 2000 chained)
- between now and then, nonfarm payroll employment will not fall below 134 million.>
The basis for these 3: investment can continue even while banks are in a mess (see my nytimes piece in Oct).
(1) is not a short term prediction, because this basis does not say exactly how long it takes other sectors to absorb former construction and bank employees. (2) and (3) are both short and long term predictions.
If one of these turns out to be wrong, but investment remains strong then we will all be puzzled because it was the banks who were supposed to bring disaster through an investment collapse. But in this case I will admit that I neglected some very fundamental factors.
(4) housing construction will resume my summer 2009.
(4) is based on the combination of my view of the banking system (that it is able to make housing loans as soon as it makes economic sense to build houses) AND my estimate of the pre-"bubble" trend for housing demand. If I were wrong about the latter, then housing construction would resume later for reasons having nothing to do with banks. One way to confirm this interpretation versus others is to look at housing rents -- if they get high then I'll admit that banks are holding back supply.
(5) real GDP may grow Q3-Q4 less than -5 percent (annualized), but it is just as likely to grow more than zero.
(5) is NOT based on my hypotheses about the banking system. It is based on two things: (a) my view that productivity and employment move in opposite directions in this recession (this view has little to do with my view of banking and investment), which makes me a little more optimistic Q3-Q4 than the consensus forecast, and (b) my statistical analysis of October and November (all that I have right now) national income items. Thus, if (5) is wrong, it is because my productivity forecast was wrong or because the December data was dramatically different than Oct-Nov or because the national income accounts' "statistical discrepancy" (an official item) were large relative to the gap between my forecast and others'. The result of (5), and the reasons for it, will be known Jan 30, 2009.