“The US economy grew at an annualised pace of just 0.1 per cent in the first quarter (alt) of 2014 as the full damage inflicted by one of the coldest winters on record becomes clear…Consumption grew at a robust annualised pace of 3 per cent — well ahead of market expectations — and contributed 2 percentage points to overall growth. But those positives were offset by a 6.1 per cent annualised fall in investment and a 7.6 per cent fall in exports.” Also, “ADP said the US economy had added 220,000 private sector jobs in April, ahead of forecasts of 210,000. The ADP number will fuel expectations of an acceleration in the official jobs number, due on Friday, which is expected to show total jobs growth of 215,000.” In addition, “U.S. labor costs increased at their slowest pace in more than two years in the first quarter, suggesting that slack in the jobs market continues to keep wage inflation subdued.” Meanwhile, “the US is on the brink of losing its status as the world’s largest economy (alt), and is likely to slip behind China this year, sooner than widely anticipated, according to the world’s leading statistical agencies…After extensive research on the prices of goods and services, the [International Comparison Program hosted by the World Bank] concluded that money goes further in poorer countries than it previously thought, prompting it to increase the relative size of emerging market economies.” Interestingly enough, China’s National Bureau of Statistics rejected the World Bank’s conclusion, expressing reservations “about the study’s methodology and ‘did not agree to publish the headline results for China.’” Here’s the core of the debate: “faster-growing China would pass the United States in purchasing power terms this year, though it still would be about 60 percent the size of the U.S. economy at market exchange rates.” Measuring economies by purchasing power terms has benefits: “PPP is useful as a way to get at hidden advantages developing nations have. For instance, it costs the Chinese government much less to pay its soldiers than it does the U.S. government to pay GIs…PPPs tend to be more stable and thus the $GDPs of countries don’t jump around as much.” Here are the drawbacks: “China can’t buy missiles and ships and iPhones and German cars in PPP currency. They have to pay at prevailing exchange rates.” Furthermore, “ranking the ICP numbers on a per capita basis, China comes in 99th position.”
Grains of Salt In British GDP And European Investment Managers
We may need a grain of salt when looking at UK GDP growth statistics: “The Office for National Statistics has said that a shift from the 2005 version of the European System of Accounts to ESA 2010 in September this year is going to add between 2.5 and 5 percentage points to UK GDP. A handly little boost, all from recalculation.” Furthermore, “ESA 2010 will change the treatment of defined benefit pension schemes so that employers’ promised contributions become part of employees’ saving. The personal savings rate will double. But the shift essentially shifts money within the economy. Corporate savings will be lower.” Meanwhile, despite the fact that wages in the UK have grown significantly faster than wages in the United States over the last 25 years, pessimists say that wages have a long way to fall as Great Britain implements labour market changes already experienced in the United States. Also, a lot of people are pretty concerned about London’s bear problem housing bubble. Meanwhile, the risk appetite for institutional investors in Europe is declining slightly: “during the first quarter of 2014, 42% of institutional investors said that their appetite for investment risk has increased over the past six months…That compares to 19% who said it had fallen. In the fourth quarter of 2013, the corresponding figures were 56% and 11%, respectively…Seventy percent of the institutional investors surveyed said that out of all the major asset classes, over the next three to six months, they see equities as being the most attractive in terms of risk/return. Many investors also fancy emerging markets: 51% believe that the performance of emerging market assets will improve over the next three to six months, against 22% who feel that this is unlikely.” Meanwhile, household expectations of Eurozone inflation have been plummeting since January of this year.
“In the new normal, a world of excessive leverage and slower growth, a ‘neutral’ interest-rate policy will by necessity produce lower rates than in previous business cycles…Lower neutral rates will lower the odds of asset bubbles, but it will also lead to overall returns across asset classes.” Furthermore, Gross points out that most pension funds assume total returns around 7-8%: “That won’t happen with a 2% neutral policy rate.’”
“If you open a faucet in the winter and only a trickle comes out, what do you do? Easy! Open it wider. In fact, open ALL the faucets! Brilliant! Now they are all trickling. But when the pipe blockage comes unstuck or the ice melts, you will have a flood.”