The BEA published its recent update on the U.S. GDP (third estimate), in which the growth rate reached 3.9% in Q2 – market expected no change from the previous estimate of 3.7%. This news along with FOMC Chair Yellen’s hawkish speech was enough to drive up the USD and revive the possibility of a Fed rate hike this year. But is this number – 3.9% growth rate – make sense to you? Has the economy done so well in the past quarter?
Some analysts already suggest we should consider GDP figures with a grain of salt – a fair point – but then also go on to dismiss these figures all together because of the problems involved in measuring an economy. I do agree any figure shouldn’t be taken at face value and yes the GDP isn’t an accurate measure that varies over time; it shouldn’t be taken too seriously because of the measurement problems it has, and because it doesn’t encompass all (e.g. inequality, pollution etc.), but it’s still an important figure for three reasons:
- It still gives us a rough estimate of where the economy is heading. This measure also with other reports such as NFP, CPI and other provide us with some information of what’s going on. We should also consider other data such as earnings of companies, alterative measurements provided by other agencies and researchers.
- The GDP has an impact on market perception. Even if we aren’t hooked to the whole GDP figures, it doesn’t mean the rest of the world doesn’t pay attention to this measure and use it to revise the expectations;
- This measure also influence policymakers such as FOMC members. Even though the FOMC has a mandate on labor and inflation its members still consider the progress of the U.S. economy by where the GDP growth rate is heading. And a stronger GDP could influence members to turn more hawkish, which has a direct real effect on the economy.
But was this report so good this time?
The main change from the previous estimate was in personal consumer spending from 2.1% to 2.4%. Exports, investments and government spending growth rate remains nearly unchanged from the second estimate. Investments didn’t change from the previous estimate by much – with a growth rate of 0.85%.
It should be noted that although GDP grew by 3.9% in Q2, in Q1 the GDP didn’t move much with only 0.6% gain. So we aren’t likely to see a sharp rise in GDP in the second half of 2015. Also, the rise in the USD, which already increased imports, will also likely to adversely affect exports. The upside is the transitory effect of oil prices – as they should keep impacting consumer spending in the U.S.
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