Hamish McRae: US GDP shrinks - so how do we cope with a fall in American growth?

Economic View

The US economy has a quarter of negative growth and the reaction is a bit of a yawn. The UK has one and we are plunged into deepest gloom – or rather our economic fraternity is, for the markets ignored the data. It is true that the US minus was smaller than ours but both negatives were the result of one-off factors, and both numbers may well be revised upwards in the months ahead. The main message of all this should be that GDP figures attract far too much attention, and other data give a much better forward-looking feeling for what is really happening.

As far as the US is concerned, the most encouraging new figures are coming from the housing market, which overall is up 6 per cent year on year. This is especially important because rising prices help correct people’s personal balance sheets – their assets vis-à-vis their liabilities – and improve the position of the banking system.

But other numbers are good too: car sales were up 13 per cent; computer sales have been strong, thanks to the new stuff coming along; durable goods in December were up four months on the trot; and the US economy is creating jobs at a rate of between 150,000 and 200,000 a month.

All this is consistent with an economy growing at an underlying rate of about 2 per cent a year, with the probability that the growth will pick up as we move through the year. At any rate, to judge by their insouciant reaction yesterday, that is what the share markets think. That in itself is helpful. We tend for forget that while markets mostly reflect what is happening in the real world (albeit often in a confused way) they also affect the real economy.

At a time when an economy is struggling to dig its way out from an excessive burden of debt, any rise in equities is particularly helpful, for it reduces net debt, bringing forward the moment when that level of debt starts to feel comfortable again.

The US is not there yet, and it has in any case to make a start on cutting public debt. But if the markets stay robust, the economy may be better able to cope with the inevitable tightening of fiscal policy to come.

Suggested Topics
Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Trainee Consultant - Surrey/ South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Ashdown Group: Trainee Consultant - Surrey / South West London

£22000 per annum + pension,bonus,career progression: Ashdown Group: An establi...

Recruitment Genius: Claims Administrator

£16000 - £18500 per annum: Recruitment Genius: This is an excellent opportunit...

Recruitment Genius: Senior SEO Executive

£24000 - £28000 per annum: Recruitment Genius: A Senior SEO Executive is requi...

Day In a Page

Fishing for votes with Nigel Farage: The Ukip leader shows how he can work an audience as he casts his line to the disaffected of Grimsby

Fishing is on Nigel Farage's mind

Ukip leader casts a line to the disaffected
Who is bombing whom in the Middle East? It's amazing they don't all hit each other

Who is bombing whom in the Middle East?

Robert Fisk untangles the countries and factions
China's influence on fashion: At the top of the game both creatively and commercially

China's influence on fashion

At the top of the game both creatively and commercially
Lord O’Donnell: Former cabinet secretary on the election and life away from the levers of power

The man known as GOD has a reputation for getting the job done

Lord O'Donnell's three principles of rule
Rainbow shades: It's all bright on the night

Rainbow shades

It's all bright on the night
'It was first time I had ever tasted chocolate. I kept a piece, and when Amsterdam was liberated, I gave it to the first Allied soldier I saw'

Bread from heaven

Dutch survivors thank RAF for World War II drop that saved millions
Britain will be 'run for the wealthy and powerful' if Tories retain power - Labour

How 'the Axe' helped Labour

UK will be 'run for the wealthy and powerful' if Tories retain power
Rare and exclusive video shows the horrific price paid by activists for challenging the rule of jihadist extremists in Syria

The price to be paid for challenging the rule of extremists

A revolution now 'consuming its own children'
Welcome to the world of Megagames

Welcome to the world of Megagames

300 players take part in Watch the Skies! board game in London
'Nymphomaniac' actress reveals what it was really like to star in one of the most explicit films ever

Charlotte Gainsbourg on 'Nymphomaniac'

Starring in one of the most explicit films ever
Robert Fisk in Abu Dhabi: The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers

Robert Fisk in Abu Dhabi

The Emirates' out-of-sight migrant workers helping to build the dream projects of its rulers
Vince Cable interview: Charging fees for employment tribunals was 'a very bad move'

Vince Cable exclusive interview

Charging fees for employment tribunals was 'a very bad move'
Iwan Rheon interview: Game of Thrones star returns to his Welsh roots to record debut album

Iwan Rheon is returning to his Welsh roots

Rheon is best known for his role as the Bastard of Bolton. It's gruelling playing a sadistic torturer, he tells Craig McLean, but it hasn't stopped him recording an album of Welsh psychedelia
Morne Hardenberg interview: Cameraman for BBC's upcoming show Shark on filming the ocean's most dangerous predator

It's time for my close-up

Meet the man who films great whites for a living
Increasing numbers of homeless people in America keep their mobile phones on the streets

Homeless people keep mobile phones

A homeless person with a smartphone is a common sight in the US. And that's creating a network where the 'hobo' community can share information - and fight stigma - like never before