MacroScope

U.S. growth back in bloom: most accurate Q1 GDP forecasters

PMost are convinced, including Federal Reserve Chair Janet Yellen, that the U.S. economy has already warmed up significantly from a growth deep freeze at the start of the year.

Business inventories were run down to nearly nothing in the first quarter, and were set for a rebound. There also is no sign that consumer spending is about to veer off its recovery path, especially with the job market gradually improving. All of that is likely to underpin better economic growth.

The question is by how much. Growth in the current quarter is forecast to be anywhere from 1.4 percent to 6 percent, according to a Reuters survey of 75 economists taken last week. That is the widest forecast range for U.S. economic growth in all Reuters polls in four years, except for one survey last April.

Typical gauges of uncertainty in financial markets tell a different story. The CBOE Volatility Index touched its lowest in over a year last week. All the while the S&P 500 has been hitting record highs almost daily, which at face value doesn’t give the impression of a lot of doubt about the recovery.

Digging a bit deeper into the numbers, the range of forecasts for Q2 growth is significantly narrower among those who came the closest to getting it right for Q1. That goes from 2.7 percent to 4.2 percent, with the Reuters consensus nearly bang in the middle at 3.5 percent.

Drop in German investor morale may have called the peak in growth

A BMW employee assembles a BMW motorcycle at the company's factory in BerlinEurope’s growth engine may be on the verge of gearing down, according to an indicator of German investor morale that recorded its biggest drop in one and a half years on Tuesday.

For a euro zone economy that is broadening, but still relying heavily on Germany for growth, as well as inflation that is dangerously low and well below target, that may add another line to the European Central Bank’s worry sheet.

The ZEW institute’s index of analyst and investor sentiment fell for the fifth month in a row to 33.1 in May from 43.2, coming in well below the most pessimistic forecast of 37.1 in a Reuters poll.

from Lawrence Summers:

Britain and the limits of austerity

The Bank of England is seen in the City of London

The British economy has experienced the most rapid growth in the G7 over the last few months. It increased at an annual rate of more than 3 percent in the last quarter -- even as the U.S. economy barely grew, continental Europe remained in the doldrums and Japan struggled to maintain momentum in the face of a major new valued added tax increase.

Many have seized on Britain’s strong performance as vindication of the austerity policy that Britain has followed since 2010, and evidence against the secular stagnation idea that lack of demand is a medium-term constraint on growth in the industrial world.

Interpreting the British strategy correctly is crucial because of the political stakes in Britain, the question of future British economic policy and, most important, because the British experience influences economic policy debates around the globe. Unfortunately, when properly interpreted, the British experience refutes the austerity advocates and confirms John Maynard Keynes’s warning about the dangers of indiscriminate budget cutting during an economic downturn.

Most accurate U.S. growth forecasters say to brace for stronger data this week

Arrows shot by Olympic hopeful and member of the U.S. archery team Gibilaro are seen in the target in BranfordThe two forecasting teams that came closest to predicting the U.S. economy would nearly stall in the first quarter expect other key economic data due this week to be strong.

This gives some support to the view — which some say is more hope than a forecast — that a snap-back is already taking place as the Federal Reserve and most other analysts expect.

UBS and First Trust Advisors both forecast the world’s largest economy grew by a meager 0.5 percent on an annualized basis during the first three months of the year.

Oh là là, quelle surprise for the French economy

French economic growth unexpectedly picked up to 0.3 percent in the final three months of last year, welcome news and a rare positive shock for some particularly gloomy forecasters who were looking for shrinkage or no growth at all.

But the unexpected bounce may be partly for the wrong reason: government spending.

The Markit PMIs, which are generally accepted as a good gauge of the private sector economy, suggested economic deterioration throughout the quarter, leading Markit’s chief economist Chris Williamson to predict a 0.1 percent contraction.

Why are US corporate profits so high? Because wages are so low

U.S. businesses have never had it so good.

Corporate cash piles have never been bigger, either in dollar terms or as a share of the economy.

The labor market, meanwhile, is still millions of jobs short of where it was before the global financial crisis first erupted over six years ago.

Coincidence?

Not in the slightest, according to Jan Hatzius, chief U.S. economist at Goldman Sachs:

The Bank of Canada is probably not ready to seriously consider cutting rates — yet

With all signs showing the Canadian economic miracle is fading, the Bank of Canada is understandably starting to sound more dovish. The Canadian dollar has got a whiff of that, down about 10 percent from where it was this time last year.

But that doesn’t mean Governor Stephen Poloz is ready to signal on Wednesday that his rate shears are about to get hauled out of the shed.

Yes, economic growth is expected to be restrained over the next couple of quarters, the long-awaited pick up in exports and business investment still seems elusive and inflation continues to remain undesirably weak.

Small rays of hope brightened Canada’s economic outlook last week

 All data released last week point to a far better first quarter growth in Canada than previously expected, prompting economists to revise up their predictions.

In a Reuters poll conducted early last month, forecasters predicted that Canada’s economy expanded by just 1.6 percent on an annualised basis in the first three months of this year.

But that consensus could prove to be too low, with many now expecting growth to be close to 2 percent or even higher, likely a welcome sign for Stephen Poloz who was named Bank of Canada’s new governor last Thursday and will replace Mark Carney on June 3.

Resurging inflation to put a dampener on India’s festive spend

A perfect storm may be gathering over India’s economy, brought on by a peak in inflation just as the country’s festive season, which is critical to consumer demand, gets under way.

Purse strings are loosened most in India during this season, which began with Navratri on Oct. 15 and will linger on with the festival of lights, Diwali, in a couple of weeks and culminate with Christmas.

Navratri, which roughly translates to “nine nights,” and Diwali shopping in India is as important to the country’s retailers and manufacturers as Thanksgiving and New Year holiday shopping is to those in the U.S.

India inflation consistently tough to pin down

High inflation is a drag on economic growth in the world’s second most populous country and matters immensely to over 400 million people, or over a third of India’s total population, who struggle to earn enough to feed their families three meals a day.

The particularly volatile nature of inflation in India has confounded policymakers and small business owners and has left economists, who are often running complex statistical models based on a dearth of reliable data, with a poor forecasting record.

To be fair, predicting economic data can be pretty tough in a country where collecting and reporting national statistics is still in its infancy stage. Provisional numbers are often completely revised away.