Economy to Grow 3% in second half of this year? (population growth adjusted basis)

[mshan]

video -> http://www.morningstar.com/cover/videocenter.aspx?id=566277

"Stipp: The number was revised up from 1.5% to 1.7%. It was an upgrade. What was responsible for that little bump that we saw when they did the second read of second-quarter GDP?

Johnson: I think the single biggest number in there was the consumer services business, which they originally thought grew at 1.9%; it actually ended up growing at 2.4%. That's the best reading on consumer services since 2006. In other words, we were still in the upswing of the economy [in 2006]. We hadn't even gone into the recession. That was the last time that we saw a services growth number that looked that good."



(70% of our economy is supposed to be consumption, and 70% of that is services, not goods). Back to School sales might be coming in surprisingly robust right now, too.

"Stipp: So, let's take this 2% number that may get some of that noise out of [the reading]. That still feels kind of slow historically speaking. And I think there's a perception that this recovery has been slower or weaker. When you look over longer time periods, what does that 2% number stack up to what we might see in other time periods for a more normalized economic growth rate?

Johnson: I went through and looked at every decade since the 1950s to see what GDP growth has been, and it has ranged from about 3% to, in the 1960s, we had probably 4.5%. But if you look at them, most of them are very central on about 3%. And as I said, we're kind of at 2.3% right now year-over-year. So, we're below the 3% that I'd say, looking at past decades, looks normal. We're doing better than the decade of the 0.9% growth, but certainly nothing like the '60s. But the '60s was an exceptional period.

Then if you adjust for population--in some of those periods, we were growing 1.4% to 1.5% in terms of population and now we're only growing 0.7%--you start to see [how] a number [like] 2.3% [when] population growth was half a percent, six tenths of a percentage point less, gets a little bit closer to the 3% [norm].

I think we're not in quite as dire straits, but what does make it look dire, is that we had a severe recession and we haven't come back, and we've got a lot of people unemployed yet, and that's why this feels so terribly uncomfortable.

Unfortunately, I think the data I look at says we're going to have more growth in kind of this 2% to 2.5% range, so it's still going to take us a while to adjust and absorb all those people."

"Stipp: The last piece I want to talk to you about for the second half is the consumer, and consumer spending power. Inflation has been tame, has been giving a bit of a tailwind recently, especially compared to a year ago. But we also had the drought. There are worries about inflation going up. Is inflation going to help or hurt us in the second half?

Johnson: Well, I don't think it's going to be quite as helpful as it was in the last quarter... Really we had four quarters in a row with essentially no inflation at all. I think we will see some more price increases in the second half, relative to food. Oil is going to be a bit of a wildcard; we don't know. I think a lot of it [will depend on] whether we have a hurricane or not and whether we have a political situation or not ... Oil seems a lot higher than it should be given the strength of the world economy right now; it really does to me. But if it does stay high, it will impact prices in the second half; there is no doubt about that.

But remember, last year we were looking at 4% inflation*, and we had used car prices, new car prices, oil, gasoline, food, all moving up dramatically, all at the same time. This time we seem to have a couple of really good weeks for oil and then it goes back up, and then the fresh fruits and vegetables go down and help the food number, and we've seen lower cattle prices, which have helped the numbers a little bit. Probably next year, the cattle prices will be way up, but maybe the grains will be down. So, things have been offsetting this time around, so that we're not getting this general everything-is-up-at-once type of [inflation].




Stipp/U]: All right, Bob. It sounds like the [GDP] trend has been down over the last couple of quarters, but we have some hopes that that trend will turn around a little bit. When you take a step back and look at it, we're kind of lower historically than we've been on GDP, looking at a year-over-year basis, but some population changes might explain some of that. So, we could be better, but we could be a lot worse than we are right now.

Johnson: Absolutely. And I am optimistic about the second half."




* Consumer Income: http://finance.yahoo.com/news/growing-paychecks-boost-americans-purchasing-142407952.html

-- > Coincident and Leading Indicators: http://www.morningstar.com/cover/videocenter.aspx?id=565616

 

[Fern]

Economy to accelerate in second half of this year?
[/I]

I haven't seen anything that indicates any sort of consensus for that. To the contrary, I've seen concern about Europe and liquidity problems in general. I have seen some reports that indicate we'll see some private sector hiring, but then again yesterday's job data wasn't positive.

Fern

 

[mshan]

IIRC, initial claims and continuing claims have been stable at around same level for a while now (I think we are supposed to look at those numbers as 3 month movinng average, and on year over year basis (?)

Layoffs have also been tepid so far.

And "rise" in unemployment rate last month from 8.2% to 8.3% was essentially a rounding error then and now (rounded down to 8.2% in previous months, rounded up to 8.3% last month). Obviously not good, but not necessarily indicating a new trend right now.

Someone without a job or only a part time job wanting a full time job doesn't care about 3% real gdp growth, on a population growth adjusted basis, and doesn't seem like you can condense the concept into a soundbyte that will resonate politically, but it does provide some historical perspective that this recovery isn't quite as bad as it is made out to seem (Morningstar economist in video linked above has also said that recovery from recession is usually driven by 1) housing, and 2) government spending).






I do agree that U. S. is not immune to a (deflationary) shock from Europe or sudden collapse of Chinese shadow banking system (global recession guaranteed?). But main U. S. exports to Europe are 1) Boeing aircraft (I think I remember hearing on tv that even if they get cancellations, they have something like a 9 year backlog of work to fill anyways) and 2) agricultural products. Main U. S. export to China is soybeans. Big U. S. multi-nationals obviously do a lot of business in Europe, but the products they sell there I believe are already manufactured in Asia.

So, barring Romney's billionaire donors trying to crash our stock market to pull down economy temporarily to get Romney elected, economy could be starting to help Main Street, even if stock market and corporate profits stagnate or even decline somewhat for a while.