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posted on 27 May 2017

Is The Economic Outlook Terrible?

Written by

This week we were subjected to terrible 1Q2017 GDP numbers that even President Trump was silent as no amount of spin could make them look good.


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Most know that I think GDP is a relic from the early days of the industrial revolution - and, as configured and analyzed, measures little of what is important to Main Street [unless one is a believer in trickle up or trickle down economics]. I do not buy that the majority are helped economically in the USA by many elements included in GDP.

I do not understand the headline compounded analysis relative to the previous quarter. This approach magnifies the change in the rate of growth [including seasonal adjust error] as the single quarter's growth is projected as annual growth. This creates a rollercoaster (blue line in graph below).

The red line in the above graph is year-over-year growth that gives a more reasonable view of economic growth.

Even if I am wrong on all counts about the poor usefullness of GDP to the average Joe - the methodology used in GDP gives no vision of trends. To understand economic growth, there is no reason to subtract imports from GDP (even spending on imports is a positive economic activity) - or even adjust for inventory levels (growth in inventory is positive to GDP but is a negative for economic dynamics). The red line in the graph below removes import deduction and inventory change.

Based on this approach, the USA economy has been gently improving since mid 2016 - which corresponds to Econintersect's view of Main Street economic growth - built using no GDP component..

Our view is that there is a clear improving economic trend line in play.

Other Economic News this Week:

The Econintersect Economic Index for May 2017 improvement trend continues - and the index is now forecasting normal growth for the first time since early 2015. Six-month employment growth forecast indicates modest improvement in the rate of growth.

Bankruptcies this Week from bankruptcydata.com: 21st Century Oncology Holdings

Weekly Economic Release Scorecard:

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