Last Friday we had the release of the final US GDP figures for the last quarter of 2014, and they were a disappointment. A year-on-year figure of 2.6% falls some way short of the 3% that the authorities and other would like. Economist had been managing expectations for a lower outcome, and they were correct. Why GDP should be so relatively low is puzzling, as so many other indicators of national wellbeing in the US are positive: Unemployment is falling at a good rate, consumer confidence is up and the stock market shows no signs of falling back any time soon.
Adding to the feel-good factor Stateside has to be the fall in energy prices, which for many Americans is like getting a tax rebate, according to many commentators.
There are worrying straws in the wind, of course. Inflation remains stubbornly low and wage growth, as opposed to job growth, is sluggish. In the meantime the US dollar, at least up to the last FOMC monetary policy statement, was on a tear. As we have pointed out many times, this is related far more to interest rate expectations than to anything else.
UK GDP upcoming tomorrow
Tomorrow, Tuesday 31st March, sees the final estimate of UK GDP for the last quarter of 2014. In this case the expectations are for a continuation of the upward trend that has been apparent for some time.
The economic profile in the UK is probably as close to that in the US of any other major global economy. There, inflation is low and the job / wages paradigm is also similar – good job growth accompanied by flat wage increases. But the Pound Sterling continues to go from bad to worse in terms of its valuation. The only factor that can be bearing on this is the upcoming General Election, after which there will possibly be a referendum on EU membership – two things that are not calculated to instil confidence in the Pound. Now, if the Bank of England were to start talking about core interest rate increases in the near future…