When inflation (or deflation) is so low that measurement errors can be bigger than “The Answer”, and when an economy is in the process of re-adjusting and so “measurement” of GDP itself is also an issue – witness the size of the revisions; and when traditional “markers” of drivers of economic activity are reacting in a “non-traditional way”, it can be hard to figure what’s going to happen next.
Most commentators are saying that a “double-dip” is on the horizon, M3 is tanking, jobs are still being lost (albeit more slowly), consumer confidence is in a hole, house prices look like they could go down some more, and the ECRI-WLI (whatever that is) is showing a record negative (although it was only started in 2007 as far as I can gather).
All in all, the general mood reminds me of “Bye-bye Miss American Pie”.
I’m not so sure. My (minority) take is that a lot of what got called “economic value added” from 2005 to 2007 was in fact an illusion; what’s happening is a re-valuation and re-interpretation of what is “real” and what was a mirage.
That’s normal -- like a hangover.
A set of numbers I like is outbound travel expenditure, for a number of reasons. Not least because it’s “clean” (no one has any reason to “manipulate” those numbers), and also, they typically say something about the “heat” of an economy. You might buy a new car or a discounted shirt (or home) if there are “tax breaks” or special offers, but no one travels abroad if they are not either (a) confident enough to take a holiday or (b) doing business (hopefully profitably).
Here’s the chart -- data is from the BEA and ITA:
The reason I find that chart interesting is that putting aside the fact that 9/11 dramatically changed American’s outbound travel habits, since then there has been a remarkably good correlation between GDP and outbound passenger fare expenditure, just as there was before, except it re-set.
Also, notice how “bubbles” tended to push the line up, from 1999 to 2000 and also in the "last rites” of the housing bubble. And sure, Swine Flu had an effect, but that’s history.
The passenger fare data is only up to April 2010, but eyeballing the direction of that line what I see is a prospect of growth, admittedly in nominal GDP.
But right now, I’d say most people would settle for any sort of growth “real” or not; and it’s only when money starts moving from one set of pockets to another, that the pain will start to subside.
And for me, Americans jumping on planes to travel and bring money home is as important a marker as, say, manufacturing, bankers playing the games they play (anything to avoid making loans to Main Street), or the propensity to spend money in shopping malls buying stuff you don’t really need, however much it’s been discounted.