US fourth quarter: Behind the famous 0.7% GDP growth


US fourth quarter: What is behind the famous 0.7% GDP growth?

As policy analyst I would like to start by this equation of the global demand:
Y=C+G+In+X-M where C= Consumption, G=Public expenditure, In= Fixed investment, X=Exports and M=Imports
According to the report,  inventories(part of the investments) and trade(Export-Import)are the components that brought growth down.

 

International oil price is no more an exogenous but endogenous variable

A detailed investigation revealed that inventories of oil companies went down because of low oil prices.Spending on mining exploration, wells and shafts dropped at a 38.7 percent rate after plunging at a 47.0 percent pace in the third quarter. This is the new “done” in the american economy. the  economy is no more dependent of international oil import. Since the day the nation got heavily involved in the oil business (North Dakota exploration field) any kind of price disturbance is proned to affect the whole investment component.

Are we in a dynamic of a new business cycle?

The sharp decline of business spending on equipment(from a 9.9% increase in the 3rd quarter to a contraction of 2.5%) is worrisome for me.Would this mean a weak demand is taking place? I am not so sure but, I am eager to see the value of this index for the first quarter of 2016.

Strong dollar is getting painful for the trade balance

according to the report, the dollar which gained 11% against the main currencies since last January is hurting the US export. The strong dollar created a trade deficit(X-M) of 0.47%. This is one reason for me that could bring the Fed to think twice before hiking his rate. Any future hike in the rate could translate to a high dollar. Things could even get worse if the weak  global demand persists.

Francis Konan

Mounou Konan Global Economics Consulting

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