Friday, July 31, 2009
GDP for 2q2009
In terms of specific factors contributing to the 2009:Q2 growth rate, consumption spending, housing, nonresidential fixed investment, inventory change, and exports each subtracted almost 1%-- had it not been for the positive contribution from falling imports and increasing government spending, the Q2 number would have been -4.3% instead of -1%. Should we be cheering the fact that falling imports were a key factor preventing GDP from declining even more? Falling U.S. imports can create problems for those countries trying to export to us and are a symptom of a very weak U.S. economy. But lower U.S. imports are a necessary element of our longer run adjustment process, and indeed, if the increase in U.S. private saving were just matched by the decrease in U.S. imports, we'd be exactly where we want to be in both the short and the long run.
falling net imports are also gradually denting the capacity of the united states to fund itself with borrowed foreign deposits.
the pace of decline moderated in the second quarter, to be sure. next quarter is likely to see government spending tick up as well, and the decline in residential development flatten out. but i wouldn't put a lot of hope into inventory rebuilding -- without an uptick in end demand, stuffing the channel in third quarter means a deeper contraction in the fourth. and the PCE data in the report gave no indication of a consumer end-demand uptick. as to whether we get a positive print for GDP in 3q2009, i think it's certainly possible and perhaps even probable. but the ongoing debt deleveraging is still slowly gathering momentum -- just one look at the FRED series for total loans and leases tells you so, even distorted as the series is by the reclassification of the assets of washington mutual, as run led to failure and purchase by jpmorgan chase, from the universe of thrifts to that of commercial banks in october 2008, creating the attendant huge spike in the data -- and that will depress consumption perhaps to a degree widely underestimated at this writing.
there's a potentially interesting series to watch here, which is the seasonally-adjusted deposit components of the commercial banking system, released monthly in the h.6. this FRED chart shows the change from the previous period for the h.6 components. perhaps predictably, deposits skyrocketed from september to december 2008. but there's since been what one might think of as a disappointing increase in deposits. deposits are the result of income, which are the result of both the quantity and velocity of money and credit in the system. if the government stimulus is too small to overcome debt deleveraging, it should show up in deposits. and this data is estimated on a weekly basis by the fed.
the change in the total of all five is charted here with an eight-week moving average. there's clearly a massive rush to save in 4q2008 which contributed heavily to the crush in consumption and investment (and perhaps asset prices) in that quarter. but the following two quarters don't show anything like that much saving -- indeed the increase in deposits is frequently less than seen previous to the crash, a period of noted and lamented dissaving. some would-be savings inevitably were fed into the huge surge of securities issuance in the first and second quarters, but this will bear watching in any case. if fiscal stimulus and balance of trade improvements are too small to offset the further contraction of investment and consumption, i would think deposits should show the effect.