Posted by WARREN MOSLER on January 27th, 2012
Additional notations below:
U.S. GDP growth in Q4 a bit weaker than expected at 2.8%
Perhaps the FOMC had word of this, explaining the unexpected dovishness?
1.9% of that growth accounted for by inventories. Other contributions: (consumer spending 2%, fixed investment 0.4%, government spending -0.9%, net exports -0.1%).
Rebuilding post earthquake supply lines probably now complete.
Govt spending continues weak, as revenues increase some and the federal deficit falls some.
Imports rise quickly with any increase in consumer spending.
In growth terms: (consumer spending 2%, fixed investment 3.3%, government spending -4.6%, exports 4.7% and imports 4.4%).
So stripping away inventories, growth was below trend. Plus savings rate fell back to 3.7% from 3.9%.
Domestic savings down with spending up indicates increasing consumer debt.
The question is whether this is ‘wanted’ as per increased desires to buy on credit,
or because the decline in govt deficit spending ‘forced’ more consumer debt for ‘essentials’
And, core PCE slowed from 2.1% to 1.1%.
Also explains FOMC dovishness as they see risk as asymmetrical, fearing deflation more than inflation.
In sum, will keep QE3 talk very much alive
And somewhat moot, even as Q1 GDP forecasts are being revised down some, as most don’t think QE matters much for the real economy.
What’s becoming understood is that while there is ‘more the Fed can do’
for all practical purposes there is nothing they can do to further support the real economy.
Euro money and lending data shockingly weak in December.
Might partially explain how some banks apparently got the balance sheet room to buy more national govt debt?
In particular, record single month decline in lending to the non-bank private sector (74bn). Of that, 37bn decline in lending to non-financial corporates and 8bn drop in lending to households.
This should be very supportive of additional ECB rate cuts over the next few months.