Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

U.S. Real GDP vs. Potential GDP – Time to Assess this Yardstick

Economics / US Economy Jan 07, 2011 - 02:36 AM GMT

By: Asha_Bangalore

Economics

Best Financial Markets Analysis ArticleThe U.S economy has registered six quarters of economic growth, inclusive of the projected increase in real GDP during the fourth quarter of 2010 (see Chart 1). 


However, real GDP in the third quarter of 2010 was 6.0% below potential GDP.  The Congressional Budget Office's estimates of potential GDP are used in Chart 2.  Our forecast for the fourth quarter implies that 2010 ended with real GDP 5.4% below potential GDP.  The apparent conclusion from these numbers is that there is enormous room for growth before inflation becomes a concern. 

The next question is if real GDP has crossed the peak registered prior to the onset of the recession in December 2007.  The last data point of real GDP in Chart 3 is the third quarter of 2010, with the level of real GDP at $13.278.5 trillion.  The peak of real GDP in the prior business cycle was in the fourth quarter of 2007 ($13.363 trillion).  Real GDP would exceed this peak in the fourth quarter, if our forecast is accurate.  In other words, the recovery phase ends in 2010 and expansionary phase of the current business cycle should commence in 2011.  Cognizant of this information, markets will evaluate the performance of the economy in a different light going forward. 


 
Recent movements of inflation expectations, as measured by the difference between nominal yields and real yields of corresponding Treasury securities, are indicative of the change in market evaluation of the economy (see Chart 4).  There has been an increase of nearly 30bps in inflation expectations since the lows seen on December 10.  These readings are close to levels seen prior to the onset of the financial crisis in August 2007 (see Chart 4). 

There are two major market moving events scheduled for tomorrow.  In addition to the publication of the December employment report, Chairman Bernanke will testify at the Senate Budget Committee.  The topic of the testimony is:  "The U.S Economic Outlook:  Challenges for Monetary and Fiscal Policy."  Stay tuned for an analysis of these events.

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2010 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in