USD GDP at last 0.7 or an annual growth rate of 2.8 is obviously sill quite low eight years after the crisis but what’s holding US GDP from falling into negative territory is Residential Fixed Investments and Federal Government spending. The drags in GDP is found in Private Inventory Investments, Non Residential fixed investments and Exports. As Federal Government spending in Keynesian forms remain the economic drivers, negative interest rates must feel further effects later if a savings as expected materializes since more non Americans are buying larger sized houses yet Fixed investment in non residential reveals investor confidence in future projects is low.
The lower DXY is not helping exports as Imports surpass exports by $43 billion. December Exports at the February release was $181 billion vs $224 billion in Imports. South and Central America lead the way in Imports with a surplus of $2.8 billion, UK 0.6, and Brazil 0.6 billion. In deficit nations, China clearly leads the way with $29 billion, Eurozone $13.3, Germany $6.4, Japan $6.3 and Mexico $4.8 billion. Canada recorded 1.4 deficits, India 2.0, 2.5 billion for South Korea.
GDP in current US Dollars increased by a $68 billion market value, measured as Goods and Services minus Goods and Services in productions and an increase of 1.5% to $18, 128 billion. How is the US doing? , Okay. Its the percentages in the release throwing commentators off track. The next GDP release will see higher numbers because the percentages are oversold so the current $68 billion market value will also increase. In the 3rd quarter, GDP in current dollars increased 3.3% or $146 billion. What helped was 2% rises 9 times in the last 14 releases, or approximately 3 years. The more GDP increases in percentages, the more current dollars rise. Current GDP dollars imparts the message the US is doing okay, not terrific but its muddling along on slow, slow growth paths. Its a questionable call for Yellen to continue Fed Funds raises into a low growth economy yet the same scenario holds to lower Fed Funds.
While headline Nominal was down 0.7%, Real GDP rose 2.0% and Real Gross GDP by domestic purchasers increased 1%. GDP is measured by prices of goods and services or by a quantity of goods and services. The current index is found at 16442.30 and previous 16414.00. Nominal GDP is the total value of Goods and Services produced in current dollars while real GDP is the total market value of produced goods and services measured in constant dollars. Divide Nominal by Real to get an idea where the economy stands. I measured 0.7 / 2.0 to get 0.35 or 3.5 %. Divide Nominal 0.7 by 1.0 to see 0.7. Again, the US is doing okay in Real GDP terms but the current economy is muddling along.
In percentages terms, the 1 and 2 year averages are most oversold with means at 1.93 and 1.78. Remaining averages from 2 – 10 years and dates to 1990 are not oversold. GDP 1.23 must break to go higher then GDP ranges between 1.23 – 1.78 then 1.79. Targets are found from 0.24 to 1.30 yet the 3 year average targets minus 0.36, a concerning average. Longer 7 and 10 year averages are found at 2.43 and 2.44. The averages in total are not only converging but falling lower as time progresses.
The next GDP release is going higher, it may not skyrocket but its going higher. Until Yellen rescinds desires to buy and hold bond proceeds, GDP continues to muddle through and Fed Funds raises become questionable.
Brian Twomey, Inside the Currency Market, btwomey.com