US GDP Growth for Q4 Revised Down to 2.4 Percent as Key Inflation Measures Continue Below Target

Revised data released today by the Bureau of Labor Statistics showed that U.S. real GDP grew at an annual rate of 2.4 percent in the fourth quarter of 2014, somewhat slower than the 3.2 percent previously reported. Allowing for population growth of about 0.7 percent, the annualized growth rate of real GDP per capita was 1.7 percent. The report also showed that key inflation measures derived from the national income accounts slowed in the quarter.

As the following table shows, the downward revisions affected nearly all sectors of the economy. The one bright spot was the contribution to GDP growth from private investment, which increased from a previously estimated .58 percentage points to .72 percentage points. Furthermore, more of the growth came from fixed investment and less from inventory buildup than previously reported. The contributions from consumption and net exports were both less than previously reported.>>>Read more

Ukraine's Economy "Spinning out of Control." Could it Drag Russia's Down With It?

Political events in Ukraine and diplomatic tensions with Russia are filling the headlines this week, but behind these recent developments is a story of persistent economic weakness. Although a change of government in Kiev may eventually bring needed reforms, in the short run it can only worsen the economic situation. Bloomberg reports that Ukraine's interim president, Oleksandr Turchynov, has said that the country's economy is "spinning out of control" and has entered a "pre-default situation." All this raises the question of whether economic collapse in the Ukraine will drag the already faltering Russian economy down with it.

Let’s look at some data. The first chart below shows annual growth rates of real GDP for the two countries, including IMF preliminary data for 2013 and forecasts, made before the latest crisis, for 2014. As we see, both countries prospered in the early and mid-2000s but suffered sharp recessions during the global financial crisis. Neither has managed to return to its previous growth rate. In the past two years, growth has slowed further. The IMF thinks final data for both countries will show slight positive growth for 2013, but some other sources suggest that both are in or close to actual recession. Before the latest events, the IMF was moderately optimistic about recovery in 2014, but that hope seems less likely now.

Energy is a big part of the nexus between Russia and Ukraine. Russia is the world’s largest exporter of oil and natural gas. Ukraine is one of the world’s most energy-dependent economies, and one of the least energy efficient. Data from the World Resources Institute show that Ukraine uses 3.5 times more energy per dollar of GDP than Germany, 2.5 times more than the United States, and about 10 percent more than its also inefficient neighbor to the north. >>>Read more

US CPI Inflation Continues to Run Well Below Target as Revisions Reduce Monthly Volatility

Data released this week by the Bureau of Labor Statistics show that consumer price inflation continues to run well below target. The all-items CPI for urban consumers rose at a seasonally adjusted annual rate of 1.75 percent in January, compared with the Fed’s inflation target of 2 percent. The seasonally adjusted core inflation rate for the month, which removes the effect of food and energy prices, was 1.54 percent.

The BLS makes seasonal adjustments to the CPI in an attempt to remove the effects of price changes that happen at predictable times each year, such as more expensive gasoline when the summer driving season starts and lower food prices in the harvest season. Although the adjustments are supposed to give a more accurate picture of underlying trends,  as the structure of the economy changes the adjustment factors become outdated. Accordingly, the BLS revises its seasonal adjustment factors early in each year. The following chart shows that the revisions remove much of the previously reported month-to-month volatility in the CPI while leaving the average inflation rate essentially unchanged. >>>Read more

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Total US GDP Grows 3.2 Percent in Q4. That’s Nice, but Why do We Pay So Little Attention to Per Capita Measures?

According to today’s advance estimate from the Bureau of Economic Analysis, U.S. real GDP expanded at an annual rate of 3.2 percent in the fourth quarter of 2013. That brought GDP growth for the entire year to 2.74 percent, nearly equaling the 2.77 percent of 2010, which was the strongest since the recovery began. As the following chart shows, most of the growth came in the second half of the year.

The biggest driver of the expansion was personal consumption expenditure. Consumption contributed 2.26 percentage points to GDP growth, the most in three years. Export growth was also exceptionally strong, contributing 1.48 percentage points, while imports barely changed. The contribution of investment to GDP growth was down sharply from the preceding quarter. The negative contribution of the government sector, which has been shrinking steadily under the impact of federal austerity measures, took an unusually large bite out of GDP in Q4. >>>Read more

Follow this link to view or download a classroom-ready slideshow with charts of the latest data from the national income accounts

Italy's Slow Growth will Challege New Prime Minister Renzi

Matteo Renzi is poised to take over as Italy’s youngest-ever prime minister. He has a clear mandate to get the Italian economy back on track, but everyone, including Renzi himself, knows that he faces a daunting task. Here are two charts that show just how far Italy’s growth and living standards have slipped and how hard it will be to reverse the trends.
In terms of growth of real GDP, Italy has been at the bottom among the advanced economies of the OECD for a decade. In the following chart, Italy stands out not for having the slowest-growth in each given year, but rather, for the consistency of its slow growth. Before the global crisis, there were years when Japan or Germany grew more slowly than Italy, but both of those have recovered more strongly. After the crisis, Greece has grown even more slowly, and Spain almost as slowly, but both of those were coming off strong-pre-recession booms. Among OECD countries, only Portugal (not included in the chart) equaled Italy’s average growth rate since 2000 of just 0.3 percent.

But, you might say, isn’t Italy wealthy enough to coast for a while and still maintain a high standard of living? That is true, to a degree.>>>Read more

Despite Weak Growth of Payroll Jobs, the January Employment Report is Fundamentally Positive

Although the news that the U.S. economy generated just 113,000 new payroll jobs in January 2014 disappointed many observers, the latest report from the BLS on the employment situation was fundamentally positive. That was evident not only from the 6.6 percent unemployment rate, down nearly half a percentage point over the last two months, but also from many underlying measures of employment stress—part-time work, long-term joblessness, and others.

Let’s start with the bad news and get it out of the way. January’s 113,000 new payroll jobs marked the second month in a row of low job growth. December’s even lower figure was revised up by just 1,000 jobs to 75,000. Even here, though, the news was not all bad. The relatively robust November job gain was revised up from a first-reported 203,000 to 274,000. In addition, the BLS rebenchmarked its data, as it does each year, to reflect a more comprehensive count of payrolls. The rebenchmarking increased job growth for the year by 136,000, bringing the total gain to 2,322,000. The following chart shows the rebenchmarked data.

Data from the household survey were considerably more upbeat than those from the establishment survey on which the data for payroll jobs are based. The two surveys differ in several ways. Among other things, the household survey includes self-employed and farm workers. It also counts workers, not jobs; one worker with two jobs gets double-counted in the establishment survey.

The household survey showed strong improvement in the labor market—630,000 more employed workers and 115,000 unemployed than in December. The unemployment rate fell to 6.6 percent, the lowest in more than five years.  In contrast to December, when a decrease in the unemployment rate was largely attributed to a decrease in the labor force, the number of people working or looking for work rose by 523,000. Both the labor force participation rate and the employment-population ratio increased.
 >>>Read more

Follow this link to view or download a classroom-ready slideshow with charts of the latest employment data