US GDP: US GDP growth is less attractive than it seems. Half the annualized 3.2 per cent first-quarter increase comes from a swing from modest inventory de-stocking to restocking. That means real final sales grew only 1.6 per cent, a little more slowly than in the previous quarter. More important, consumption rose more rapidly than personal disposable income, reducing the savings rate, while imports swelled more rapidly than exports, pushing up the payments deficit. The US economy seems to be tilting toward the structural imbalances of 2002-07; it's all suggestive of the stubborn French Bourbon kings, who Tallyrand said had “learnt nothing and forgotten nothing”.
With inventories on the rise, they're unlikely to contribute as much to growth in the coming quarters. If they do, it risks sending a sign that companies have grown overly optimistic, and could wind up with stockpiles again. That's why the 1.6 per cent figure represents a more accurate measure of the recovery's pace. With the US population increasing by 1 percent annually, it's hardly an inspiring rate. Moreover, if first-quarter productivity data due May 6 reveals a high rate of increase, as in previous quarters, the implications for legions of unemployed workers would be ominous.
During the 2002-07 upturn, the US economy developed two connected pathologies. First, imports rose more rapidly than exports, increasing the US balance of payments deficit and making its global financial position increasingly dependent on the goodwill of foreign investors. Second, consumer savings declined to very low levels, far below what was needed for consumers' long-term financial health, and inadequate to provide capital for US investment.
These problems have reappeared in the latest figures, and are joined by a third - the immense federal budget deficit, which is far above historical norms. The US economy is thus de-capitalizing itself, making US living standards increasingly vulnerable to erosion from capable and better-capitalized competitors. That is, of course, assuming its trading partners have managed to learn something and forget something.
