Thursday, August 25, 2022

Economic Growth To Resume

 Popular Economics Weekly

BEA.gov

It looks like the slowdown in US economic growth may end as quickly as it began. Second quarter economic growth was less negative in the BEA’s second estimate of GDP growth, because key drivers of growth have been increasing in the latest months.

The Bureau of Economic Analysis press release said, “Real GDP decreased less in the second quarter than in the first quarter, decreasing 0.6 percent after decreasing 1.6 percent. The smaller decrease reflected an upturn in exports and a smaller decrease in federal government spending that were partly offset by a larger decline in private inventory investment, a slowdown in consumer spending, and downturns in nonresidential fixed investment and residential fixed investment. Imports decelerated.”

What this means is that the red-hot job market (528,000 new nonfarm payroll jobs in July), and 1.5 percent increase in consumer spending in Q2 (that makes up some 70 percent of economic activity) have kept our economy from falling into a deeper slowdown, or recession—whatever economists want to call it.

The point is the ‘slowdown’ was so mild and corporate profits high enough that corporations continued to hire rather than fire, and consumers chose to spend rather save during the inflationary surge.

“The number of people who applied for unemployment benefits last week fell to a one-month low of 243,000, indicating layoffs remain near record lows and that a tight labor market is keeping the U.S. economy moving forward,” said MarketWatch’s Jeffrey Bartash.

The Atlanta Federal Reserve’s third quarter estimate, GDP Now estimate ranges from 1.3 to 2.5 percent growth. I will take either of those numbers, as it signals good months of growth ahead, no matter what the Fed Governors do to bring down inflation.

Continued growth depends in part on how consumers flush with savings continue to react to inflation. Most surveys of their expectations say that they don’t see a prolonged inflation, in part because it’s easy to see that the Ukraine war will eventually end that is pushing up food and energy prices, and supply-chain constrictions will ease as other countries recover from the COVID pandemic.

UnivMichigan

China is having especial difficulties in recovering from the pandemic, in part because it is run by an extremely dictatorial communist party that believes it can only hold onto power by suppressing any signs of COVID symptoms with draconian lockdowns, just as it suppresses its populace in other ways to prevent it from looking weak in the public eye.

In fact, inflation is already declining, mainly because world oil prices have plunged, and food prices may also soften with the good news that grain shipments from the Ukraine have finally begun.

That’s in part because U.S. consumers' expectations for where inflation will be in a year and three years dropped sharply in July, a New York Federal Reserve survey showed on Monday, as reported by Reuters, indicating U.S. central bankers might be winning the fight to keep the outlook for price growth as they battle to tame high inflation

So, the latest data seem to show economic growth will finally have a tailwind to propel it, rather than the headwind it’s been experiencing since January.

Harlan Green © 2022

Follow Harlan Green on Twitter: https://twitter.com/HarlanGreen

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