Tags: OSullivan | economy | stronger | GDP

High Frequency's O'Sullivan: Economy Stronger Than GDP Indicates

By Dan Weil   |  

The 1.8 percent growth rate in GDP over the past year likely understates the economy's true strength, says Jim O'Sullivan chief U.S. economist for High Frequency Economics.

There is good reason to believe that gross domestic income, which expanded 3.1 percent over the past year, is measuring the economy more accurately than GDP, he tells MarketWatch.

Weak consumption growth, especially for services, has curbed GDP. But services are more difficult to quantify than goods.

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Meanwhile, payrolls are expanding at a rate of 190,000 per month, and that's more in line with 3 percent GDP growth than 2 percent growth, O'Sullivan says.

That discrepancy partly accounts for the Federal Reserve's slowness to taper its quantitative easing, as Fed officials worry that job gains may have been overstated, he says.

Not surprisingly O'Sullivan maintains "the data are clearly making the case for the taper." But he doesn’t expect the central bank will announce a curtailment of its bond purchases at its policy meeting next week. That's because he thinks inflation is too low for the Fed to move.

Consumer prices rose 1 percent in the year through October.

Mark Zandi, chief economist at Moody's Analytics, thinks the economy will grow more than 3 percent next year.

Legal and regulatory issues have been a burden on the economy, he tells CNBC. But, "I think the regulatory and legal uncertainty . . . is lifting slowly but surely," he said. And if the Fed can taper smoothly, the economy will thrive, Zandi says.

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The 1.8 percent growth rate in GDP over the past year likely understates the economy's true strength, says Jim O'Sullivan chief U.S. economist for High Frequency Economics.
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