(ENG) US Q1 GDP and beyond

» Posted by on Nis 30, 2015 in Bildiriler | 0 yorum

US Q1 GDP and beyond

No-one likes a smart-arse,  but the shocking flash estimate of 1Q GDP growth of just 0.2% annualized doesn’t look so strange when you consider the deterioration of my monthly momentum indicators for domestic demand, the industrial sector and monetary conditions; or alternatively, when you look at the plunge in the US Shocks & Surprises index.


US momentum indicators

But what’s next? How are the US growth factors holding up? Depreciating nominal fixed capital formation over a 10yr period generates an estimate of capital stock which is growing by 0.7% qoq and 2.6% a year  (with capital formation rising by 5.5% yoy in nominal terms in 1Q15).  Meanwhile, nominal GDP was unchanged on the quarter. As a result, for a second quarter in a row, my return on capital directional indicator declined slightly – the first two consecutive declines since 2009.

This does not necessarily point to a new slowdown in the capex cycle since a) there is usually a lag between the downturn in the return on capital indicator and a clear downturn in investment spending and b) the ROC indicator remains at historically very high levels. However, this two-quarter fall in the ROC indicator is consistent with the uninterrupted decline decline in capital goods orders seen since August. Moreover, the fall in the  orders/shipments ratio to below 100% is also consistent with more falls to come.

For labour, the data makes easier reading: in yoy terms, the number of employees rose 2.3% yoy and real GDP rose 3% yoy, so output per worker rose 0.7% yoy in real terms.  Perhaps surprisingly, this is the highest yoy rise since 4Q13. With capital per worker rising 0.4% yoy, output per worker adjusted for changes in capital per worker still showed a rise of 0.3% yoy. This is hardly inspiring, but is probably sufficiently positive to maintain positive momentum in labour markets.

The rise in output per worker has been running ahead of capital per worker now almost uninterruptedly since 2010. However, it is worth noting that even in today’s dour GDP report, capital per worker also rose 0.2% qoq and 0.4% yoy, which is the highest it has been since the Great Recession. 

In the immediate future, this combination of rising output per worker (deflated by capital per worker) and (probably) still rising capital per worker is likely to sustain both labour markets and GDP growth.

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