"Kee" Points with Jim Kee, Ph.D.


US Outlook: promising. Last week the preliminary estimate for US fourth quarter GDP growth came in at a 2.6% annualized rate. Given the likely upward revisions in coming months, this is pretty much in line with what I see were the 2.5% - 3% consensus expectations. And anyone familiar with quarterly GDP data would not be surprised by the large decline from the somewhat anomalous 5% third quarter GDP growth number.  Other data showed that consumption spending was up for the fourth quarter, with a decline in December (less spending on gasoline and utility bills) offset by increases in October and November. And stronger wage growth and lower energy prices overall are expected to boost consumption growth in 2015 (Capital Economics). Some analysts are actually forecasting the US to grow at a more rapid pace than the emerging markets (Cornerstone Macro). I wouldn’t go that far, but when combined with today’s Purchasing Managers Index (53.5 = expansion) the data do point to the US economy easily being the strongest among the world’s developed economies.


Rest-of-world Outlook: challenging.  In Europe, weekend anti-austerity rallies in Spain mirror the sentiment in Greece, which is a challenge for fiscal integration/reform efforts in Europe. On the positive side, Europe should gain from cheaper oil and a cheaper euro. In China, all data point to a sustained period of slowing growth. Government spending has slowed, rail freight activity has plunged, PMIs (Purchasing Managers Indices) are weaker than expected, and consumer confidence is depressed. In Latin America, low oil and commodity prices mean lower revenues to fund social programs in many LATM countries. Historically that has meant printing money to make up the difference and hence high inflation, so there seems to be some backsliding in that region. The bottom line is that things look pretty challenging for Latin America near-term. Finally, Japan really needs the fiscal and corporate governance reform of Prime Minister Abe’s “third arrow,” which is slow in coming. That’s a good description of the world’s economies in general, namely (I know this is a repeat of prior Kee Points) “reliance on monetary policy with fiscal policy paralysis.” Also worth repeating is that “the problem has been short-term actions to support the long-run, when the solution is long-run actions to support the short-run.” That line is from Columbia University economist Glenn Hubbard (former Council of Economic Advisors Chairman) and I think there is some wisdom to it.