US fourth-quarter GDP increased at an annualised rate of 3% in Q4, but GDI (gross domestic income — the same concept but calculated in a different way) increased at a rate of 4.4%. It was also stronger than GDP in Q3, according to the latest revisions. In the financial crisis, initial readings of GDP growth tended to be overstated, with GDP revised downwards some time after the event. GDI painted a bleaker picture during the crisis, and GDP has tended to be revised towards GDI in recent times, rather than vice versa. All of this suggests that the US economy may be stronger than the GDP numbers are suggesting. That would account for the surprising strength of the unemployment data (given the normal relationship between GDP and unemployment).

The FT’s Money Supply blog points out that the weakness of GDP/GDI was part of Ben Bernanke’s argument that the recent strength of the labour market might be due to a reversal of its unusual weakness during the financial crisis, and that it therefore could not be assumed that its strength would continue. If the strength of the labour market is in fact due to faster-than-reported GDP growth then that weakens the case for QE3.

Personal Income and Outlays Report

Continuing with the theme of US data flow, the Personal Income and Outlays report for February showed a strong number for personal spending (0.8% MOM) and another weak one for personal income (0.2%). In consequence, the personal saving rate fell to 3.7%. Various commentators argue that this is unsustainable, but I am not so sure. Strong personal spending and an improving employment situation may well feed into stronger personal income growth — there is no reason to take personal income as somehow being the fundamental variable. Personal spending on durable goods, one of the few decent stand-alone leading indicators for the economy, continued its strong run, increasing 1.6% MOM. This number is being driven by the continued strength of auto demand, which did not drop when a tax incentive expired at the end of December, but rather continued its strong growth trend.


  • Personal spending 0.8% b.e. Feb.
  • Personal income 0.2% d.e. Feb.
  • Personal saving rate 3.7% b.e. Feb.
  • Personal spending on durable goods 1.6% b.e. Feb.
  • Chicago PMI 62.2 d.e.
  • Revised Michigan sentiment 76.2 b.e.
  • China PMI 53.1 b.e. and rose.
  • HSBC China PMI 48.3 — in line with flash estimate.
  • Australia AIG manufacturing index fell to 49.5.
  • Japan Tankan -4 d.e.
  • Japan Tankan non-manufacturing 5 a.e.
  • Australia building approvals -7.8% d.e. Feb.
  • Swiss retail sales 0.8% YOY d.e. Feb.
  • SVME Swiss PMI 51.1 b.e. and rose.
  • Eurozone final PMI 47.7 — in line with flash estimate.
  • UK PMI 52.1 b.e. and rose.
  • Eurozone unemployment rose to 10.8% a.e. Feb. Keep up the austerity! The beatings will continue until morale improves!
  • ISM PMI 53.4 a.e.
  • Construction spending -1.1% d.e. Feb.

This Week

  • FOMC minutes (Tue)
  • Global services PMI’s (Wed)
  • ECB meeting (Wed)
  • BoE meeting (Thu)
  • Non-farm payrolls (Fri)