Madrid. Amid the markets' enthusiasm for the US economy's strong growth performance, it is worth making some qualifications. “All statistics are answers to very specific and limited questions,” as historian E. J. Hobsbawn liked to point out.. If they are used to answer other questions, “they should be handled with extreme caution.”
Take, for example, the US economy's strong growth performance, amid widespread recession fears throughout 2023, which culminated in the recent fourth-quarter numbers. Amid the excitement in the markets, some nuances seem to be in order.
Throughout 2023, nominal U.S. economic growth averaged 5.8%, according to the latest data, driven in part by rising inventories. To put this in context, the week's chart shows the nominal seasonally adjusted change in GDP year over year compared to the US government's cycle-adjusted primary balance as a percentage of potential GDP.
It is true that the first GDP data for each quarter tends to be revised frequently, and that many basic estimates and adjustments are more art than science at best. However, it is interesting to note that at 3.9% of GDP, the US government ran a deficit that was almost 2.5% higher than it was in 2022.Even after correcting the economic cycle. Assuming a fairly efficient fiscal multiplier (say somewhere between 0.5 and 0.75%), this suggests that much of last year's growth surprise was due to Uncle Sam running such a large deficit.
The reality is perhaps a bit more complex. Fiscal motives should not be confused with fiscal policy complications. In this particular case, the reason for the higher deficit appears to be largely due to lower tax revenues, rather than increased public spending. Some of these effects are expected to reverse, in particular as the reduction in capital gains taxes reflects the weak performance of capital markets in the first ten months of 2023.
In other areas, there are also time intervals; For example, many annual inflation adjustments to allotments appear to temporarily lower income taxes for those whose incomes have not yet caught up with inflation.
The bottom line is that it's too early to know how much momentum we should attribute these latest numbers to GDP growth.. It is not surprising that, for the foreseeable future, the Fed will continue to emphasize that its monetary policy decisions will continue to be data-driven.
Christian Sherman is a US economist at DWS
“Award-winning zombie scholar. Music practitioner. Food expert. Troublemaker.”