Thank You, World (And Washington)
The revised preliminary US GDP figure for Q2, released today, was something of a stunner: 3.3% annualised growth, compared with the initial 1.9% estimate. And when put alongside the eurozone’s dismal 0.2% contraction over the same period, at first glance, a transatlantic reversal of fortune appears to be in play.
But not all is as it seems. A reasonable case can be made that the US is experiencing a recession of sorts, because the two biggest reasons the economy avoided contraction in the second quarter were the government and the external sector. In fact, the real shocker is that net exports and government consumption combined to contribute 3.9 percentage points to the headline outturn (reflecting mostly 3.1 percentage points from net exports). For those of you doing the mathematics at home, the US economy would have been in a deep hole last quarter without the rest of the world and Uncle Sam’s chequebook. In fact, by my calculations, the economy would have shrunk for three consecutive quarters (Q407-Q208) were it not for the contributions of government consumption and net exports, as the chart below indicates. So maybe we can call this one a quasi-recession?
As an aside, this, of course, is exactly in line with yours truly’s ‘rebalancing act’ thesis, which I have been promoting since late last year. In sum: the weak dollar, flexible US workforce, and increasingly wealthy global consumers mean that the US current account deficit is set to shrink considerably over the coming few years, as the US becomes less of an importer and more of an exporter. That will probably be good for the dollar (witness its rally in recent weeks), but bad for competitors like the eurozone.
August 28th, 2008 at 5:06 pm
The poor eurozone data must call into question the ECB’s recent hike. And yet Mr Trichet still talks in hawkish fashion. How bad does it have to get in Europe for him to realise that inflation is not his biggest concern….?
August 31st, 2008 at 5:24 am
when I saw the title of your piece I thought by thanking washington you were talking about the obvious book cookingness! I mean, I get the whole production/consumption deflator difference and hence why it feels like this country is in recession when it’s not(terms of trade shock seems to explain this feeling to some extent) but 3.3% growth seems like a bit of a joke. Also, does anyone know what’s going on with tfp?