GDP Growth 'Muddling Along Above Zero'

U.S. Gross Domestic Product preliminary estimates came out today (Thursday), and they are higher than previously thought -0.9% growth in the first quarter as compared with previously estimated 0.6% growth for the quarter. (The government releases three estimates for each quarter -Advance, Preliminary, and Final.)
 
A Q&A feature by Knowledge(at)Wharton (a service of the Wharton School at the University of Pennsylvania) recently featured finance professor Jeremy Siegel and management professor Witold Henisz talking oil prices and what's next for the U.S. economy. Here's what they had to say about their prognosis for the economy as a whole:
 
Siegel: I just did some kind of 'back of the envelope' type of calculations and it was pretty sobering. We import about 12 million barrels of oil a day, and at $130 a barrel -no one knows if it is going to stay there; it could go higher or lower -that's about 4% of GDP, almost $600 billion. That's doubled over the last year. First oil was occupying 2% and now it's gone to 4% ... And given that productivity is up on the average, around two years of GDP, this whole process so far would cost a whole year's productivity gain into the U.S. economy. Now with that said, it still seems like we're muddling along above zero. Our quarter is two months over and most people are still staying that this is going to be a positive quarter, just like the last one was, too. It is nothing great, but nothing negative the way that you would think of in a recession.
 
Henisz: The impact so far has been substantial, but we're still above zero. There are uncertainties as to whether the credit crunch spills into auto loans, as was reported this morning, or spills into other highly leveraged debt; whether the oil price affects food prices, such as already mentioned; whether it leads to other spill-over effects in instability in Africa and instability in Asia. These are things that we can't foresee and that could really cause something devastating in the coming months.
 
And here's what they had to say on the effect of oil on prices of other goods:

 
Siegel: These recent increases in oil have been so massive and so rapid that we haven't really had time to see how they might figure into the indices. That's why I think that over the next couple of months, it's going to be really important to look at these price indices. I don't think that they're going to be as good.
 
Henisz: I think that there are two channels, one direct and one indirect, that are really interesting to watch. One is just the cost of transportation and that will spill over into certain goods, including food and others. And also, the indirect costs. As the price of oil keeps going up, we are starting to spend more on alternative fuels and divert efforts into renewable fuels. That is driving up the cost of agriculture. So there are both direct and indirect channels which we can foresee in the next 12 to 24 months.
 

See the full Wharton interview here.

In a recent MDM article, Pembroke Consulting's Adam Fein wrote about The Outlook for Distribution. Read it here.