THEY WERN'T EVEN COUNTING ON GREENSPAN BEING STUCK IN THE '70S:

U.S.: Why Economic Growth Is Galloping (James C. Cooper & Kathleen Madigan, 12/08/05, Business Week)

For all of 2005, real GDP is on track to expand by 3.7%.

That's a bit higher than the 3.5% projected by the economists surveyed by BusinessWeek at the end of 2004. But what's more revealing is that the consensus forecast was predicated on oil prices slipping back to $39 per barrel by now and the Federal Reserve hiking its target for the federal funds rate to only 3.4% by yearend. Instead, oil remains well above $55 and fed funds have already reached 4%, with more hikes on the way.

So why has the economy performed above expectations amid unexpected developments? The main explanation seems to be that, despite the Fed's desire to tighten monetary conditions, consumers and businesses, on average, still have access to cash, whether through cheap borrowing, better income and profit growth, or rising housing and stock market wealth. Accommodative financial conditions are proving to be the economy's Peyton Manning, quarterbacking the steady forward movement in demand.

Attractive bond yields, a rising stock market, robust profit growth, and, thanks to the recent fall in oil prices, more household buying power are allowing consumers and businesses to spend. Since nothing in the outlook suggests any sharp reversal in these stimulative trends, the economy should enter 2006 with much more momentum than seemed likely only a few months ago.

Especially impressive because those real interest rates have been pushed above historic averages while the Fed fights non-existent inflation.

Posted by Orrin Judd at December 8, 2005 9:50 PM