Friday, January 27, 2006

Expected Slowdown in U.S. GDP Growth

While most analysts seemed suprised by today's weak GDP report which showed a mere 1.1% growth rate in the fourth quarter, the numbers where actually roughly what I expected in December, when I wrote growth would be well below 3% but well above 0%. However, the composition of growth differed somewhat from what I had expected. While net exports and inventories came in as expected, private consumption was a lot stronger than I expected while business investments and government purchases was a lot weaker than expected.

As the estimated level of capital consumption fell from the temporary peak created by Katrina, net domestic product rose sharply at an annual rate of 15% after having fallen at an annual rate of 9.3% in the third quarter. Still, the two quarter growth of net domestic product was a unimpressive 2.1% at an annual rate.

As a result of the reduced capital consumption, the national savings rate likely moved into positive territory again, although the household savings rate was still negative.

And adjusting for terms of trade movements, both GDP and NDP was weaker than the headline number (0.7% and 14.5% respectively). Given the fact that the U.S. have a 1% population growth rate, this means that in terms of trade adjusted terms, GDP per capita fell slightly during the fourth quarter of 2005 for the first time since 2001.

What will happen during 2006 then? There are mixed signals, with some indicators (like the flat yield curve, the negative household savings rate and high debt burden, the weakening housing market, the weak purchasing managers report) suggesting a sharp slowdown or even a recession while others (like high corporate profits -outside the Detroit car industry-, strong stock market and falling jobless claims) indicating robust growth. For that reason , the outlook is more uncertain than before and more uncertain than for other countries. Most likely the mixed signals imply that growth will be mediocre by U.S. standards (which is to say around 3%), but there is a significant chance of both stronger and weaker growth.


Anonymous Anonymous said...

I appreciate your view Stefan. Do you have an opinion on the role that housing may have pinched the US consumer's pocket -particularly in this shopping spree quarter? It strikes me as hasty to think that the US consumer is high and dry but there was a convergence of factors: the high (maybe desperate)auto sales in previous quarters; the energy costs; the lame China tariffs; the higher mortgage costs and the reduced housing appraisals; the continuing lagging performance of wages/salaries.

4:14 AM  

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