Apologize to John Donne.
Jim provided some key points on his Thursday postal About 21Q2 advance payment data. The following are my additional gains: (1) The government’s lock-in forecast in February looks very prescient; (2) Final sales are higher than GDP, (3) Exports did not support growth, partly due to slow growth in other parts of the world , (4) The share of price growth in nominal GDP growth continues to increase.
Growth disappointment (relative to June…)
First, the GDP is released in the context of forecasting.
figure 1: Reported gross domestic product 7/29 2021Q2 early releasee (black), government fiscal year 22 forecast (blue triangle), CBO June forecast (red line), FT-IGM (light green triangle), IMF July WEO (green x), CBO estimated in July 2021 Potential GDP (dark black) gray line). The date displayed indicates when the forecast is “locked”.Source: BEA 2021Q2 early release, OMB FY’22 budget, Wall Street Journal July survey, and FT-IGM survey (June), CBO (February, July), International Monetary Fund “World Economic Outlook” (July), And the author’s calculations.
The annual revision pushed down the reported GDP. However, the displayed forecasted GDP level (estimated assuming the latest GDP level available at the time of the forecast—the forecast is reported as a growth rate) reflects earlier optimism. The government’s fiscal year 2022 budget forecast is prescient in this regard.
It should not be forgotten that compared to last year, The result was better than expected (W. Edelberg).
Aggregate demand and GDP
Second, final sales—that is, GDP minus inventory accumulation—are significantly different from the highlighted GDP figures. The final sales are higher, reflecting that total demand exceeds production.
figure 2: GDP (blue) and final sales (red) are both in billions Ch.2012$ SAAR. The decline date defined by NBER is shaded in gray. Source: BEA, released in advance of 2021Q2.
This is reflected in the final sales growth exceeding GDP growth in the first half of 2021.
image 3: The quarter-on-quarter growth rate of GDP (blue) and final sales (red), in billions of Ch.2012$ SAAR. The decline date defined by NBER is shaded in gray. Source: BEA, released in advance of 2021Q2.
Under normal circumstances, we will think of a balancing mechanism in which (supply is passively adjusted according to demand) rebuilds inventory. Given these times, rebuilding (reaching the best inventory sales level we don’t know) will take an unknown amount of time. Partly depends on our ability to source from overseas.
International dimension
Imports have not recovered to the extent that one might expect in a normal recession. In addition to the obstacles left by the Trump administration, there are also transportation and supply restrictions.
Figure 4: US imported goods (blue, left logarithmic scale) and US final sales (red, right logarithmic scale), both are in bn.Ch.2012$, SAAR. The decline date defined by NBER is shaded in gray. Source: BEA, released in advance of 2021Q2, NBER.
Although capital goods are recovering at a faster rate and now account for a higher share of final sales than before the pandemic, it is unclear whether this is “enough” given the redistribution of demand components.
Highlighted point Jim’s Growth Accounting It is exports that account for a small portion of US GDP growth. This result is shown in different ways in Figure 5.
Figure 5: US exports of goods and services, in bn.Ch. 2012 dollars, SAAR (blue, left logarithmic scale) and trade-weighted GDP of the rest of the world, 2005=100 (red, right logarithmic scale), and inferred RoW GDP (red Square, right logarithmic scale). Observations for the fourth quarter of 2021, extrapolated using the July update of the IMF WEO, show that the world fourth quarter/fourth quarter growth rate of world GDP is applicable to the fourth quarter of 2020. The decline date defined by NBER is shaded in gray. Source: BEA, released in advance of 2021Q2, Dallas Federal Reserve DGEI, NBER and author’s calculations.
The stagnation of export growth in 2021H1 is obviously related to the slowdown in world growth in the first quarter. We do not have data on RoW growth in the second quarter, but I used the IMF’s July World Economic Outlook forecast to estimate the level at the end of 2021; although the International Monetary Fund has cut prices especially for emerging market economies, it is expected The output of countries in the world will be higher. This may provide additional support for future aggregate demand-although actual results will depend on the solution of supply constraints.
The point I want to emphasize comes from the IMF WEO update, in which the growth of emerging markets has been reduced (in large part due to the delta variable spread and the resulting damage to economic activity). This means that American policymakers can ignore developments in other parts of the world. Our fate is closely related to the fate of emerging market economies (probably as many as those who continue to refuse vaccination and social distancing measures without specific medical reasons).
Decomposition of nominal GDP
Figure 6 shows the extent of the impact of supply constraints on the second quarter of 2021.
Image 6: The quarter-on-quarter growth rates of nominal GDP (black line), real GDP (blue area), and price deflator (brown area) are all SAARs. The growth rate calculated using the log difference. The decline date defined by NBER is shaded in gray. Source: BEA, 2021Q2 advance release, NBER and author’s calculations.
Whether these price pressures continue depends on the degree of supply bottlenecks, the degree of aggregate demand rise, and inflation expectations (they affect pricing decisions and wage pressures).yesterday Personal income and expenditure release It is recommended that the PCE deflator is lower than expected and upward pressure, while (Decline) Employment salary growth is lower than consensus Shows that higher inflation has not yet led to a significant acceleration in wage growth (see Jason Furman More). For me, I think the share of price level growth and nominal GDP growth in the second quarter is a short-term high.
After the release of GDP, personal income and expenditure, and employment costs, I included the latest available markets and survey-based indicators.
Figure 7: The five-year inflation breakeven is calculated as the five-year treasury bond yield minus the five-year TIPS yield (blue, left scale), the five-year breakeven point adjusted according to the inflation risk premium and the liquidity premium per DKW (Red, left scale), 5-year TIPS yield (blue-green, right picture) ratio), all expressed in %. source: Feed through FRED, Ministry of Finance, Kunshan After D’amico, Kim and Wei (DKW) visited 7/7, the author’s calculations.
The five-year breakeven point hardly affected these releases and remained at 2.56%. If the estimated inflation and liquidity risk premium gap has remained unchanged since June 30, the expected average inflation for the next 5 years is still in the range of 1.8%.
