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.