GDP Outlook

1
GDP Outlook
Real GDP at Seasonally Adjusted Annual Rates
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Risk Factors in 2003

• Iraq.
• Most important determinant for the performance of
  the economy in the next 6 months.
• Prolonged stalemate or unsuccessful military
  campaign disastrous.
• I think the war will occur soon late February
  or early March and will be completed
  successfully within a matter of a few weeks.
• In that case, pent-up demand, particularly for
  hiring and investment, will provide a lift to
  economic growth that should help to thrust us
  toward a hearty recovery.
• Tax cuts. A significant fiscal package seems
  inevitable. Im assuming the following
• Timing final passage around the same time of the
  2001 tax cut late May or early June.
• Size somewhere in the neighborhood of 400
  billion to 600 billion over 10 years, with
  perhaps around 30 billion in tax cuts before the
  end of the current fiscal year (September 30) and
  possibly 100 billion or more in FY2004.
• Composition Republicans give something on
  dividends and possibly high-income tax brackets
  and Democrats get more upfront stimulus, such as
  rebate checks and aid to states.
• Economic impact occurs in three waves 1) a small
  thrust now, as stock prices and confidence
  respond immediately to prospective tax cuts 2)
  this summer, i.e. right after the package passes
  into law, withholding tables change and rebate
  checks go out 3) next spring, when households
  file their 2003 tax returns and receive their
  refunds.