September 1, 2015

The Economic Situation, September 2015

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June’s Economic Situation began with Dorothy, Tin Man, Scarecrow, and Lion searching for the Yellow Brick Road and wondering if it had disappeared. Since then, there’s been a whole lot of shaking going on. In this report, I first take a look back to June and come forward. Then, in the section to follow, I will deal with China, devaluation, and financial market reactions. After that, I cover some specialized topics. Let’s hit the road!

The Yellow Brick Road we hoped for in June, and now, generates at least 3.0 percent GDP growth—far more than the weak 0.6 percent growth recorded for the first quarter of 2015. When I stared at that first quarter number, optimism got the best of me. I realized that continued close-to-zero growth just wasn’t in the cards. In spite of the unusually strong dollar taking the edge off export sales, the cold winter, and the Los Angeles longshoreman’s strike, I was convinced the US economy was going to find its feet again and, yes, stumble toward that elusive yellow road that might take us to Kansas, 3.0 percent GDP growth, or an even better place. (At the time I was staring at the data, the big August financial market decline had not occurred. More on those dark moments a bit later.)

While optimism was reigning supreme, lo and behold, along came the Wicked Witch of the West. The Department of Commerce revised GDP growth in a negative direction for the most recent few years. Yes, things got worse; the path turned out to be weaker than I had thought. 

But things changed again. (If this data isn’t cyclical—or should I say cynical?—I don’t know the meaning of the word.) Suddenly, a silver lining showed up in the clouds. The GDP gods provided a stronger estimate for the second quarter of 2015. Right on the heels of that 0.6 percent first quarter growth, the first second-quarter estimate to arrive showed 2.3 percent growth. This was revised up on August 27 to a wonderfully strong positive 3.7 percent. 

The results of all this are seen in the accompanying GDP growth chart. The chart shows the most recent 2Q 2015 estimate of 3.7 percent, the 3.14 percent long-term average growth rate, representing the much-longed-for yellow brick road, and a white four-quarter running average. The backward looking four-quarter average is now registering 2.7 percent. However, the Atlanta Federal Reserve Bank’s August 24 estimate for 3Q 2015 GDP is hitting a lowly 1.4 percent. Yes, it’s a bumpy road. We will be lucky to see 2.3 percent GDP growth when 2015 is tallied.

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