Squint, and the picture will look better

Back in Jackson Hole:

HILSENRATH: Dennis Lockhart, president of the Federal Reserve Bank of Atlanta. We’re here in Jackson Hole, talking about the economy. So give us your read: How is the U.S. economy doing right now?

LOCKHART:I think the U.S. economy is expanding at a modest pace. The second quarter (gross domestic product) number—which was 1.1 (percent annual rate of growth), just revised slightly yesterday—I think overstates the slowdown or a slowdown. We have been looking through that number to an account in the GDP accounts called real final sales, which is GDP less inventory.

And what we see there is a better picture and a more consistent picture over the last few quarters. So I think the economy is chugging along, and I’m not one who is interpreting the headline GDP number as somehow suggesting that we have slowed from what was already a slow expansion.

The picture over the past two years strongly contradicts Lockhart: The economy has been slowing for the past two years.

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That´s not surprising because all those measures of aggregate nominal activity give out the same information over long periods.

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PS I remember that a couple of years ago, some were favoring GDI. At the time GDI was higher than the other measures…But then again:

ABSTRACT  The two official measures of U.S. economic output, gross domestic product (GDP) and gross domestic income (GDI), have shown markedly different business cycle fluctuations over the past 25 years, with GDI showing a more pronounced cycle than GDP. This paper reports a broad range of results that indicate that GDI better reflects the business cycle fluctuations in true output growth. Results on revisions to the estimates, and correlations with numerous other cyclically sensitive variables, are particularly favorable to GDI. The most recent GDI data show the 2007–09 downturn to have been considerably worse than is reflected in GDP.

The Fed is failing: US NGDP growth crash

A James Alexander/Marcus Nunes post

US RGDP surprisingly disappointed today with just 1.2% QoQ annualised growth and, coincidentally, 1.2% YoY growth too. A lot of the weakness in real growth was due to perhaps noisy factors like inventories. However, even final sales are weakening. Household spending (PCE-Personal Consumption Expenditure) was also nothing exciting on a YoY basis at just 3.7%. Investment growth is now in negative territory.

The main story of today’s release is the horrible NGDP growth print for 2Q. The trend is even worse than we have been worrying about. The second quarter YoY growth rate was a mere 2.4%. This is well below the near 3% being seen in the supposedly sick Euro Area.

The charts indicate very clearly that since mid-2014, when the Fed began the on-off rate hike talk, nominal trends have been down. RGDP growth simply cannot blossom in such an environment.

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US slower real growth than France

Many were laughing about the 2Q RGDP figure for France today, but at 1.4% YoY it has grown faster than the US for the last 12 months. The Euro Area as a whole did better than France, growing 1.6% YoY in the second quarter.

This isn’t a complete surprise to us who have been pointing out the better news from the  Euro Area for some time. The reason is that monetary policy is so much easier in the Euro Area than the US. The ECB is on the front foot with Base Money growing at 40%+ a year versus negative 5% per year in the US.