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Inside Kendall

School of Business Students Predict 3rd Quarter GDP

This past summer, 16 School of Business students took ECO311, Service Industry Economics. This course focused on the basics of micro-economics and its application in the services industry. Among other things, the students surveyed the capital markets and labor markets. In addition, they learned about basic economic principles such as competition, supply and demand, price elasticity and comparative advantage. Finally, during the course they followed changes in those components of the U.S. economy that contribute to our standard of living as measured by the Gross Domestic Product. To complete their final exam, they were required to predict what the measure of GDP would be for the third quarter ended September 30, 2010.

The students provided a well-reasoned prediction supported by publicly available data. The consensus prediction made by these students was for an increase in 3rd quarter GDP of approximately 1.4% from the 2nd quarter ended June 30. The predictions ranged from a drop in GDP of 1.3% and a double dip recession to a gain of over 2.3%.

In reaching their consensus, many students expressed their concerns about the tepid increase in hiring by corporate America, and the overhang of over 14 million Americans who are unemployed as of September 30. In addition, they believed that the miserable conditions in the U.S. housing sector experienced this past summer would hold back any gains associated with increases in manufacturing activity and retail sales. They indicated that the financial markets appear to be poised to predict strong growth in GDP and an expansion in the U.S. economy as illustrated by the steeply-sloping Treasury yield curve. Finally, they did note that the recent measures of consumer attitudes as published by the Conference Board and the University of Michigan would appear to indicate that American consumers are brightening their economic outlook for the 4th quarter of this year.

We’ll be watching to see whether the consensus views of these Kendall students will track closely to the official GDP report to be issued by the U.S. Commerce Department later this month.

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