Expected Slowdown in U.S. GDP Growth
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.