MacroScope

GDP: Lagging indicator of itself

Excluding the monthly employment report, gross domestic product is the Big Kahuna of economic indicators. For better or worse — and to the chagrin of its creator Simon Kuznets — GDP has become  the scorecard of a country’s economic performance.

Yet for financial markets seeking to anticipate the future, GDP always comes a little too late. Case in point: we only get the first estimate of second quarter GDP next week, almost a full month into the third quarter.

The number still has a big psychological impact. It sets the tone for forecast revisions, and the report’s composition, particularly the mix of consumer spending and business investment, offers clues about upcoming trends. GDP is projected to have risen just 1.8 percent in the second quarter, even more paltry than the first quarter’s 1.9 percent clip. The range of forecasts is pretty wide: from 0.9 percent at the low end all the way to 2.9 percent at the top.

But as the week draws to a close, the Q2 GDP reading will likely be eclipsed by more forward looking indicators that offer hints of whether the third quarter will bring a much hoped-for rebound.

A purchasing managers’ survey of Midwest manufacturing, for instance, will give clues into the strength of the factory sector, which has petered out in recent months. The index is expected to decline slightly to a still-robust 60.0.

Of beige shoots and broken branches

Ben Bernanke has taken some flack for his argument that “green shoots” of economic activity might lurk around the corner. In one such swipe, Justin Fox of Time Magazine argued that the metaphor is flawed because what we’re really talking about is a moderation of contraction, not growth.

Today’s Beige Book, a collection of anecdotal economic evidence compiled by the Fed, showed only a few very faint positive signs. On housing, the report said the “number of potential buyers” was rising — not exactly a sure sign of a bottom.

But at least the New York Fed’s regional factory data suggested that the Fed chief’s green shoots might just see the light of day. Again, it was mostly a story about lesser deterioration, but an improvement nonetheless. Apart from a much better than expected reading on the overall index (which is still, it must be noted, at -14.65), there was a huge rise in the new orders index (Also still negative, but now at -3.88, from -44.76).

Germany, Japan hit by global consumer thrift

The world’s second largest economy, Japan, and Europe’s largest, Germany, all of a sudden have a lot in common. 

 

Their most striking resemblance in recent weeks is the breathtaking speed of economic decline, with output ransacked by a collapse in world demand for high-quality manufactured goods and an overvalued currency.

 

The fundamental problem is simple and doesn’t take an economist’s model to explain. At this stage of the financial crisis, who wants to replace a fully-functional Audi they bought a few years ago? What’s wrong with the 2007-vintage Sony PlayStation connected to the two-year-old Bravia or Grundig flat-screen TV? And who in their right mind would want to import the stuff in bulk when the euro and the yen are so expensive?