Feeling bearish?

money.jpgIt sure could look as if the US is finally beginning to lose momentum as the GDP figures for the second quarter were published later today. So should we hail a coming time of the bear? The FT reports ...

'The US economy grew by much less than expected in the second quarter of the year as consumers became more cautious and business cut back on investment, reducing the chances of an imminent rise in the cost of borrowing.

However, there was further evidence of building inflationary pressures, with a keenly watched prices gauge rising at a much faster pace than forecast.'


One of the main drags on growth was consumer spending, which slowed from the previous quarter’s 4.8 per cent to 2.5 per cent as households cut back on buying durable goods such as cars.'

Putting pressure on Bernanke;

'Investors kept a wary eye on the core personal consumption deflator – a price gauge that excludes volatile food and energy items. This favoured measure of the Federal Reserve rose by 2.9 per cent, sharply higher than the first quarter’s 2.1 per cent.

Wall Street will now turn its attention to next Friday’s non-farm payroll numbers, with analysts predicting that a weak number would ensure the Fed stays its hand in August.'

As we search the US economics blogs we also find considerable and thorough coverage of this. Let us begin with Nouriel Roubini who surely must feel vindicated in the light of his recent bearish scaremongerings; see my previous post and Mark Thoma as well. Nouriel sums up on his own blog today:

'The U.S. Q2 GDP growth figure was an awful and dismal 2.5%, well below the 5.6% of Q1. In June I predicted a Q2 growth rate of 2.5% when the delusional market expectation was still at 3.2% (I admit some luck in getting the point estimate right, even if my out-of-consensus argument was that the economy was doing much more poorly than Panglossian optimists wished and predicted). And even this morning - after all the bad news of the last few weeks - before the report came out - the market consensus (based on 74 economists polled by Bloomberg) was for a 3.0% Q2 growth rate.

And the details of the report are just simply even more awful than the headline number: they are suggesting a coming U.S. recession of the sort that I have been predicting:'

Moving on, Mark Thoma and Econbrowser also provides us with general posts about today's data release. Lastly, The Economist (walled for non-subscribers) inflates the perspective to cover China and the global economy.

'America has long been dubbed the engine of the world economy. Voracious American consumer demand, buoyed by a strong property market, has become the mainstay of export-driven growth in many corners of the globe. And if America is the engine, China is the world’s boiler: the entry of its 1.3 billion people into the labour market has provided the energy for years of rapid growth combined with low inflation in America and elsewhere.

This global dependence naturally makes economists worry about potential train wrecks. So far the dynamic duo has hauled its load uphill, helping to keep world growth at a lively 5.3%, despite increasingly difficult circumstances. But there are signs of creakiness. On Friday July 28th, the American government’s Bureau of Economic Analysis released early estimates for second quarter GDP. After sizzling first quarter growth of 5.6% (annualised), economists had expected to see the economy grow by at least 3% in the second. The actual figure, however, was only 2.5%, though growth over the 12 months to the second quarter was a more respectable 3.5% (see chart).'

I have made a synopsis on the same theme a couple of months back ...

'With the dollar falling and the Fed raising rates to fight off looming inflation we are bound to ask what this will do for US growth which in this case also means global growth. The case in a nutshell is that the large US current account deficit has been able to grow on the back of others' savings; here we are talking most notably China where the deficit is structural but also oil exporters accumulated dollar savings are important here. See also these two posts here and here for more on the global imbalances ... '