Fed Sees 2011 GDP Growth A Little Stronger

The Federal Reserve Board released the minutes of its December meeting today. OK, they're a little stale, but still notable because the collected group of regional bank heads was feeling better about the economy for 2011, although they're no more optimistic than they were on growth for the two following years.

Here's my summary of their published minutes:

• Total industrial production posted solid increases in November and December, in part because colder weather boosted the output of utilities. Most indicators of near-term industrial activity point to further increases in production in the near term. Motor vehicle production dropped off but was scheduled to move up again in early 2011.

• Retail spending picked up in December, probably based on increases in personal income, although consumer sentiment is not strong. Purchases excluding cars continued to rise after four months of increases. Cars and light trucks added to two months of sales increases.

• Housing still is very slow, and commercial real estate activity is slow as well.

• New orders for equipment increased, although not as fast as earlier in 2010. Purchases of transportation equipment looked slower.

• Employment is growing slowly if at all, as we already know. This note was not encouraging:

In discussing the staff presentation, meeting participants mentioned various factors that were seen as influencing the path of the unemployment rate. Several participants noted that estimates of the contributions of the individual factors depended importantly on the approach taken by researchers, including the models used and the assumptions made.

Here's the punch line -- as a group the Fed board members and governors of the regional banks have ratcheted up their forecasts of growth for 2011. The general view is an increasing growth rate for this year and the two following. Inflation will continue to be low, and unemployment will be stubbornly high.

For 2011, the average forecast of GDP growth is at 3.4 to 3.9 percent, up about 0.3 percent from the November meeting. For 2012 the forecast is 3.5 to 4.4 percent, down slightly, and 2013 at 3.7 to 4.6 percent, also down a little. Unemployment is thought to drop to about seven percent in 2013, from nine percent today. Here are some of the additional pushes and pulls:

Although higher equity prices and a lower foreign exchange value of the dollar were expected to be slightly more supportive of economic growth, the staff anticipated that these influences would be about offset by lower house prices and higher oil prices.

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I hope Congress does not cut the Fed's budget -- they provide such complete information and I would hate to see that go away. Besides, the Fed has been a real profit center lately.