The GDP report misleads

The latest GDP estimates included a sharp rise in previous numbers that seemed to have made the economy richer. The “shape” of the economy and so its growth rate, however, provide the same economic picture as before.

As most people expected, quarterly growth in Q2 was boosted by a single item (the so called ‘soybean effect’). Coming in at 4.1%, this was the best number since Q3 2014 (4.9%).

Being boosted by an uncharacteristic contribution from the export sector. After hearing about trade wars and restrictions for most of the year, exporters “jumped the gun” to get ahead.

There is a “boom narrative” in the air, and one of the consequences is that the Fed is likely to keep on the rate rising track, despite the risk of inverting the yield curve.

There is, however, a problem with the “boom narrative”, and that comes from the business side. Looking at things from a smoother year-over-year perspective, we observe that 2014 was a boom period. It soon fizzled, but it was, at the time, believed. Why? Because there was a surge in business inventories. That´s absent today.

In short, the economy can look good in specific quarters but underneath there is nothing to suggest a meaningful pickup or acceleration, notwithstanding Trumps celebratory antics.


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