Economic Commentaries

Entries for April 2015


With the exception of labor market indicators every economic activity measure has been weak over the past three months. This record changed with the March labor report which fell short of expectations along with downward revisions for prior months. Economic growth may only approximate 1% annually in the January – March quarter while inflation is at about the same rate. Thus, in the last six months nominal GDP growth would only be about 2% annually which is a step down from the already sluggish 4% growth track of the past several years.

While analysts tend to focus on real GDP growth, nominal GDP is a more telling indicator in a noninflationary environment because it is crucial to affecting business investment. Absent a price expectation combined with sluggish output growth, business has difficulty generating revenue growth. And without revenue growth there is a tendency to refurbish existing fixed assets rather than to invest in new facilities and more modern equipment.

Thus business capital goods orders have declined in each of the last five months with little indication of recovery. Indeed, given the downturn in the energy complex it may even worsen. Since November the active oil drill rig count has been halved to around 800 rigs and industry capital spending plans have taken about a 30% haircut. The rig count cold fall by another 200 units. And it is estimated that about 100 to 150 workers are affected by every rig that is put in mothballs.

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