If there was ever a time to be worried about whether the Federal Reserve’s bond-buying stimulus is having a positive effect on the economy, the last few months were probably not it. Everyone expected government spending cuts and tax increases to push the economic recovery off the proverbial cliff, while the outlook for overseas economies has very quickly gone from rosy to flashing red. But the American expansion has remained the fastest-moving among industrialized laggards, with second quarter gross domestic product revised up sharply to 2.5 percent.
Richard Leong contributed to this post
John Kenneth Galbraith apparently joked that economic forecasting was invented to make astrology look respectable. You were warned here first that it would be especially so in the case of the first snapshot (advanced reading) of U.S. second quarter gross domestic product from the U.S. Bureau of Economic Analysis.
If there ever was a time to discount estimates of an advance GDP report, now is the time, says Joseph LaVorgna, chief U.S. economist at Deutsche Bank Securities. That’s because the first snapshot of U.S. Q2 GDP growth, due out on July 31, will occur alongside the Bureau of Economic Analysis’ (BEA) comprehensive benchmark revisions.
In his valedictory Quarterly Inflation Report, Bank of England Governor Mervyn King shone a ray of light on the British economy, saying it should grow 0.5 percent in the current quarter.
Fresh from winning a vote of confidence in parliament, new Italian Prime Minister Enrico Letta heads to Berlin to meet Angela Merkel, pledging to shift the euro zone’s focus on austerity in favour of a drive to create jobs. He may be pushing at a partially open door. Even the German economy is struggling at the moment and the top brass in Brussels have declared either that debt-cutting has reached its limits and/or that now is the time to exercise flexibility. Letta will move on from Berlin to Brussels and Paris later in the week.
First quarter UK GDP figures will show whether Britain has succumbed to an unprecedented “triple dip” recession. Economically, the difference between 0.2 percent growth or contraction doesn’t amount to much, and the first GDP reading is nearly always revised at a later date. But politically it’s huge.
Ask top Federal Reserve officials about adopting a target for non-inflation adjusted growth, or nominal GDP, and they will generally wince. Proponents of the awkwardly-named NGDP-targeting approach say it would be a more powerful weapon than the central bank’s current approach in getting the U.S.economy out of a prolonged rut.
RBC economist Tom Porcelli is such a curmudgeon these days. Still, given that he was one of the few economists that accurately predicted the possibility of a negative reading on fourth quarter GDP, maybe it’s not a bad idea to listen to what he has to say.