Early Returns on Third-Quarter Growth Paint the United States in a Trailing Position
November 15, 2010
Preliminary estimates for GDP growth last quarter have now been released in the United States, Japan, the euro area, Britain and China. The results explain why the Federal Reserve has already decided to do at least another $600 billion of quantitative easing in contrast to the lack of such a decision by the ECB or Bank of England in Europe. The comparatively small amount of quantitative easing that the Bank of Japan plans also makes sense in light of these data.
It’s widely understood that the U.S. recovery struggled during the central portion of 2010. Less widely appreciated is that economic growth in the second and third quarters of the year combined was much stronger in other advanced economies than in the United States. To wit, U.S. real GDP went up 1.9% annualized between 1Q10 and 3Q10, which was considerably slower than growth over that two-quarter period of 2.7% in the euro area (including 6.1% in Germany), 3.9% in Britain, and 2.8% in Japan. An examination of only the third quarter also shows annualized growth in the United States of 2.0% trailing growth of 3.9% in Japan, 3.2% in Great Britain, and 2.8% in Germany. The euro area as a whole did a shade worse than the States because Greek GDP contracted more than 4%, Dutch GDP in a big surprise was slightly negative, Spanish GDP was flat, and Italian GDP was weaker than 1.0%.
The U.S. economy performed relatively better in comparisons of growth over the past four quarters, that is between 3Q09 and 3Q10. Over that span, GDP rose 3.1% in the United States, better than Euroland’s 1.9% but less than growth of 2.8% in Britain, 3.9% in Germany and 4.4% in Japan. All of those other economies had contracted more sharply than the United States did between the third quarter of 2008 and the third quarter of 2009. The same can not be said of China, where GDP expanded 9.6% over the four quarters to 3Q10 after a gain of 9.1% between 3Q08 and 3Q09.
A drawback of examinations of policy consistency with reported GDP growth is that the former should be based upon future projections and the latter gives only a snap-shot of the past. U.S. data since the FOMC meeting have in fact been better than assumed more often than such were worse than expected. Japan’s GDP figures are always suspect, given a history of very large revisions and the existence of deflation. Prime Minister Kan’s government and Bank of Japan recently downgraded assessments of the economy. Europe will be slammed by three negative factors next year: fiscal cutbacks, the lagged impact of euro appreciation, and the painfully high sovereign bond yields in the peripheral economies.
Copyright Larry Greenberg 2010. All rights reserved. No secondary distribution without express permission.
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