If looking at the source of the surge in GDP growth in the US, AFP provides an explanation:
The big GDP gains came in large part from businesses ramping up production to rebuild inventories, which economists say may skew the picture of overall activity but is a normal part of recovery. Inventories accounted for 3.39 percentage points of GDP.
Stripping out inventory adjustment, real final sales -- a reflection of the underlying pace of growth -- was at a 2.2 percent rate, the report showed.
Capital spending on equipment and software surged 13.3 percent, another significant contributor. Ian Shepherdson at High Frequency Economics called this a "key upside surprise" but added that "we can't see where this comes from and think a downward revision is likely."
The data showed exports surged 18.1 percent, making trade a positive contributor to GDP since exports increased more than imports, which were up 10.5 percent.
Consumer spending, which is traditionally the key driver of economic activity, rose at a 2.0 percent pace, down from 2.8 percent in the third quarter, and accounted for 1.44 percentage points of GDP.
In the case of the US, it is noticeable that there is some cynicism about some of the statistics, and that the rebuilding of inventories will presumably diminish as an influence. A real positive is that 'export growth was strong at 18.1% which leaves net exports contributing 0.5pp to overall GDP growth.' However, before the US starts celebrating, it is necessary to add a dose of cold hard reality. The chart that follows shows that the 'growth' in exports starts from a low base:
Then there is the imports of goods and services, which is the other side of the coin:
All this give a balance on goods and services trade as follows:
But here is the real problem. As the economy contracted, so did the current account balance. However, as 'growth' commences, a commensurate deterioration in the current account balance follows. In other words, the 'growth' is seeing the US problem of consuming more than it produces worsening as the economy 'grows'. It gives a horrible sense of deja vu...
Observant readers will note that the chart only goes to mid 2009, and does not therefore include this current spurt in 'growth'. I suspect that, once the figures are out, the line will continue the downwards trend. The preliminary figures from the Bureau of Economic Analysis suggests a growth in the current account deficit for the third quarter of 2009.
What we are seeing is the delayed effect of the government's role as a replacement for the loss of consumer debt driven economic 'growth' (the chart is 'Household sector: Liabilities: Household Credit Market Debt Outstanding') .
I do not think anyone needs to see the following chart which shows the massive increase in the government deficits, but will include it anyway.
As a final chart for the US economy, we have the GDP figures that have caused so much excitement.
It is not difficult to see what is taking place when we see these charts. As consumer debt growth tailed away, the economy fell into deep recession, and with it there was an improvement of the position of the current account balance. The current account balance started to move in the right direction as American consumers moved towards living within their means. However, as this took place, the government replaced the consumer as the driver of debt driven consumption, and we are now seeing the return to 'growth' with a commensurate decline in the state of the current account balance. The early decline in GDP reflects the time lag for the wall of government borrowed money to hit the economy but, as it works its way through the economy, 'growth' appears again.
In the UK this is what national statistics offered as an explanation of the slight GDP growth:
Services output rose 0.1 per cent, compared with a fall of 0.2The same kinds of relationships can be seen in the UK data as can be seen in the US. If we start with the balance of trade, we have this from national statistics:
per cent in the previous quarter. Distribution, hotels and restaurants contributed most to the increase. Distribution, hotels and restaurants rose 0.4 per cent, compared with an increase of 0.7 per cent in the previous quarter. Motor trades and retail contributed most to the increase. Transport, storage and communication showed zero growth, compared with an increase of 0.7 per cent in the third quarter. Business services and finance showed zero growth in the fourth quarter, compared with a decrease of 0.8 per cent in the previous quarter. Government and other services rose 0.2 per cent, compared with a decline of 0.2 per cent in the previous quarter. Health made the largest contribution to the increase.
Total production output rose in the fourth quarter, increasing 0.1 per cent, compared with a fall of 0.9 per cent in the previous quarter. Manufacturing made the largest contribution to the increase rising 0.4 per cent, compared with a fall of 0.2 per cent in the previous quarter. Mining and quarrying output rose 1.0 per cent, compared with a decrease of 5.7 per cent in the previous quarter. Electricity, gas and water supply fell 3.3 per cent, compared with an increase of 0.2 in the previous quarter.
And then there is the current account balance:
The following is a chart of net lending which, whilst not directly comparable with the US chart, shows a similar pattern.
Just as consumer lending goes into reverse, as in the US, the UK government steps in to replace consumer borrowing with government borrowing:
And finally, there is GDP growth figures:
What we are seeing is the same pattern as the US, but at an earlier stage. Just as the US moved towards growth, and the current account balance started moving in the wrong direction, the same is happening with the UK. Just as the US government replaced the consumer as a borrower, the same has taken place in the UK.
Whilst they are not following exactly the same pattern, there is an uncanny similarity in the relationships between the charts for the US and the UK. What we are seeing is not economic 'growth', but growth in debt. It is not the first time I have said this, but it is worth saying it again. This is like measuring a person with a salary of $100,000 and adding borrowing of $20,000 to suggest that he has an income for the year of $120,000. Sure, his purchasing power has increased, but his income has not. Just as the individual can now spend more than he earns, so can the US and UK. This is reflected in the current account and trade deficits.
None of this is economic growth, but is instead a steady process of national impoverishment. It is the feel good of consuming more than you produce, and the hell with the consequences in the future. It is a road to ruination, and I will therefore not join any celebrations for the increase in GDP. It is the height of irresponsibility.