GDP Reaction and Warning from the US Data
First off the good news – 1.1% quarter on quarter growth is certainly excellent news. The FT money supply blog has some good, detailed analysis. This surprisingly fast growth helps explain the higher than expected tax receipts over the past few months, the stabilisation in the jobs market and the stubbornly high inflation numbers.
The TUC have pointed out that much of the, very large, contribution from construction may well be related to the public sector.
I’d add one major cautionary note, taken from the US experience.
USA GDP grew at an even faster quarterly rate in Q4 2009, 6 months ago (+5.5% annualised), it then slowed to 2.7% (annualised) the following quarter.
Residential investment in the US (construction) grew at an annualised rate of +18.9%(!) in Q3 2009, it fell by an annualised 10.3% in the first quarter of 2010. Construction can be very volatile.
Most importantly, since the end of Q3 2009 (when the US began experiencing even faster growth) the unemployment rate has only fallen from 9.8% to 9.5%. 9 months of strong growth and unemployment has barely budged. And this is a context of continuing stimulus.
So let’s not get carried and start arguing that now is safe time to be cutting or raising interest rates.