JP MORGAN: Thanks Congress, Now Here's Our Huge Upward Revision To 2012 GDP Growth

Sam Ro 

 Dec. 23, 2011

Image: Chip Somodevilla / Getty Images

So, Congress finally approved a two-month extension of the payroll tax cut and unemployment benefits, in a drawn out process that Politco's Ben White described as a "dazzling display of legislative incoherence."

 

Anyway, JP Morgan economist Michael Feroli thinks this development is a good thing. 

 He just boosted his GDP growth estimate for the first half of 2012 from 1.0% to 2.5%.  

 However, he also assumes this two-month extension will be extended by another ten months. 

 Here's an excerpt from his note:

Following their "Airing of Grievances," Congress today approved a two-month extension of expiring payroll tax and unemployment benefit measures. This extension removes a significant fiscal headwind that had been holding back 12H1 growth in our forecast. Because it is only a two-month extension, the acute fiscal tightening is only pushed back for a short while, however our forecast now assumes that lawmakers will follow through on the stated desire of Congressional leadership to extend these measures for the entire year. The change in fiscal policy mostly affects growth in the first half of the year, for which we are revising up the average annualized real GDP growth rate from 1.0% to 2.5%, due to better personal income and consumption outcomes. The measures to pay for the two-month extension -- higher GSE mortgage fees -- mostly exert their drag after 2012. We assume whatever measures pay for the remaining ten-month extension similarly defer the pain until later years in the ten-year budget planning horizon. Our fiscal year 2012 budget deficit forecast is revised up from $1,000 billion to $1,150 billion. Obviously today isn't the most ideal time to be changing forecasts, but it is the day Congress chose to change policy...