GDP

I am usually not that interested in the GDP data. It is quarterly in arrears, hence backward-looking, and in a fast-moving world it often seems to be of little direct relevance to our views.

Still, one should look at it.

Firstly, the quarter on quarter change. It was strong, moderately above expectations.

I would imagine, that like most other governments in the world, cutting back on the public purse would be front of mind. Contractionary monetary and fiscal policy, moving forward.

You can see how significant inventory accumulation, and government expenditure were, in the past quarter.

Productivity is notoriously volatile, and you can relate it to measures like growth in the per worker capital stock, measures of labour slack, and more simply, as in a “high” or “low” state, as per Markov models. Work-from-home gains are plausibly shifting us to the high state.

Which in turn would, I think, be a supportive story for higher rates (rates are procyclical with productivity) alongside the tight labour market data.

Real GDP growth was 3.3% over the past year. Nominal GDP, on the other hand, is enormous, as price increases drive the outcome (real GDP is volume-based, stripping out the effect of price changes across the various categories).

Both real and nominal matter. We want to be producing more stuff (real) and we also pay our fixed nominal debt contracts in dollars (total income, which is nominal GDP).

If nominal GDP is growing at trend, that is normally a good thing. Here we see that after many years of sub-trend growth, we are on the cusp of returning.

That’s probably not too bad. As long as the RBA now tightens appropriately, so NGDP doesn’t overshoot, things should be okay.

Of course, that’s a bit like saying can the Fed engineer a soft landing, and we’ve talked about that particular topic many, many times (and will many more!).

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