By Aaron Klein
The news that the U.S. economy contracted in the fourth quarter of last year came as quite a shock. Not a single one of the 24 economists surveyed by Dow Jones to develop the "consensus estimate" predicted an economic contraction. The Federal Reserve’s January Beige Book, which collected data through the end of the year from twelve different regions of the country, characterized, “the pace of [economic] growth as either modest or moderate.”
Of course, the economic consensus being wrong should come as no surprise. In September 2008, when the nation was in the midst of the worst recession in over 70 years, the Wall Street Journal’s survey of 50 economists expected growth of over 1%, and only 3 of the 50 forecast negative growth.
A Contracting Economy
Why was the consensus off again? To answer that we need to start with what turned the economy from a path of growth to contraction. Two main culprits stick out: A decrease in the growth of private inventories, and the sharpRead More »from No One Should Be Surprised By Disappointing Fourth Quarter GDP