U.S., Japanese, Ezone, and British GDP Growth in 4Q09

March 11, 2010

With revised Japanese figures out today, a reasonably representative comparison of growth in the four main advanced economies last quarter can be made and are summarized below, where C is personal consumption, I is business investment, G is government expenditures, and X represents exports.  The percentage changes conform to the U.S. custom of annualization, that is simulated to show would happen if quarterly rates were sustained our a four-quarter span.

U.S. +5.9% +1.7% +6.5% -1.2% +22.4%
Japan +3.8% +2.8% +3.8% +2.5% +21.7%
Euroland +0.5% -0.1% -3.3% -0.5% +7.0%
Britain +1.1% +1.5% -11.7% +4.9% +15.9%


Relative to the the United States and Japan, activity in Europe floundered seriously, and that contrast is now been reflected in the appreciating trends of the dollar and yen.  Here are some further interesting inferences.

A common currency in Europe represents a further step in the policy-fueled integration of the region’s economies that began when six nations formed the Common Market in the latter 1950’s.  The goal was as much political as economic, that is to weave together commerce among different nations in the region so tightly that war between them would be in nobody’s self-interest and therefore unthinkable.  On economic grounds, the reduction of risks associated with the exchange of goods, services, labor and capital was intended to promote activity and two-way commerce.  Nonetheless, export growth in the euro area substantially lagged behind other major economies, suggesting that the union of national currencies without fiscal integration provided little incremental benefit.

Japan had better-balanced growth than the other economies, including the United States.  The strength of Japanese personal consumption is particularly noteworthy, since that component of demand had been very distressed early in 2009 and is vulnerable to the persistence of deflation.

Japan also benefited from fiscal support.  The gain in government consumption of 2.5% was solid but not excessive.  Government spending actually retrenched in the United States and Euroland, whereas Britain’s 4.9% jump shows an unhealthy continuing dependency on policy stimulus in an economy whose budget deficit could reach 14% of GDP this year.

Considering the pound’s extensive declines, it’s somewhat surprising that British exports failed to perform as well as U.S. and Japanese exports.  Net foreign demand, which counterbalances the boost of exports with the drag of imports, accounted for only three-tenths of a percentage point of the rise in U.S. GDP last quarter, well below the 2.2 percentage point boost seen in Japan.

Inventories were responsible for two-thirds of U.S. GDP growth last quarter, for more than its role in any of the other three economies.  It’s not in the nature of inventory shifts to sustain that kind of lift, so weaker U.S. growth and some convergence of such with growth in the other three regions is to be expected in coming quarters.  If a clearly more restrictive Fed policy fails to remain in investor expectations, this convergence could temper some of the present enthusiasm for the dollar.  Recently, several pundits have jumped on a bandwagon of believers that the dollar is embarked on a substantial incline.

The U.S. weekly jobless insurance claims data point a notable constraint against a sooner-than-later Fed interest rate increase.  To stabilize the jobless rate, which is a major preoccupation of Fed officials, new claims are going to need to run no higher than 420K.  A drop below 400K would be even more reassuring.  Claims instead averaged 476K per week over the past four reported weeks, which compares with 469K in the prior four-week period to February 6, 441K in the four weeks to January 9, and 468K in the four weeks to December 12.  Similar to this frozen picture, continuing jobless claims have hovered around 4.5-4.6 million since January after declining almost 2.5 million during 2H09.

Copyright Larry Greenberg 2010.  All rights reserved.  No secondary distribution without express permission.

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