One of the risks with short term data points is being fooled by their randomness. I believe the US economic engine is slowing down and that weight of the past remains a significant head wind!
A number superlatives are cropping up re final Q3 GDP numbers:”fastest pace since Q3 2003” and others…
But what of the frame? If we look at the average increase in real GDP over the last 4 quarters (average change in GDP over 4Qs/average GDP in prior 4 quarters) we see that real GDP growth is relatively low in an historical context and it is unclear whether the current trend is either a bounce back from earlier weakness or a position of growing strength.
Importantly private consumption expenditure is still outsized with respect to economic growth and other important items such as machinery and equipment expenditure. That is much of the growth in GDP to date has been due to growth in personal consumption expenditures:
The US economy lies somewhere between boom and bust as shown by the following graphical representation of real GDP growth. Nevertheless, there are aspects of US economic growth that have boom type characteristics/risks; these are found primarily in the significant increases in auto focussed consumer credit and automotive production/capacity
Short term data has varied wildly of late; such can often obscure the underlying trend: what if we adjust for inventories and changes in consumer credit? Well we see less noise for one, but we also see a slower underlying growth profile – yes, credit creation is part and parcel of growing expenditure but I still feel we are in a high debt/deleveraging and weak income growth dynamic that needs to be especially sensitive to growth in credit/debt.
Strong revisions to February data and a rise in March appear to show a resurgence in industrial production post winter blues.
Clearly the revised February bounce has been a strong one, and the short term data is also strong relative to historical benchmarks – note the two averages of monthly changes in non seasonal industrial production (one with recessions excluded).