Intelligentguess

Situation 

Quarterly GDP at constant (1999-2000) prices for Q4 of 2006 is  estimated at Rs. 7,56,296 crore ( $ 170 bn ), as against  Rs. 6,96,146 crore ( $ 156 bn) in Q4 of 2005, showing a growth rate of  8.64% over the corresponding quarter of previous year.

The sectoral break up of growth is given below :

Conclusion

The Quarter ending March’07 could still throw up a possible 9 plus % growth.

With the recent hardening in interest rates - across all sectors - GDP slowdown towards 6% can be expected towards the end of 2007.

( double click on thumbnail to get the bigger picture)

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Situation 

Personal income increased $108.1 billion, or 1.0%, and disposable personal income (DPI) increased $73.0 billion, or 0.8%, in January 2007 ( compared to December 2006 )

Personal consumption expenditures (PCE) increased $51.9 billion, or 0.5 percent.

In December 2006,personal income increased $55.7 billion, or 0.5%, DPI increased $46.0 billion, or 0.5%,and PCE increased $69.4 billion, or 0.7%.

Personal saving - was a negative $116.4 billion in January 2007,compared with a negative $134.2 billion in December 2006 .

Personal saving as a percentage of disposable personal income was (-1.2%) in January 2007, compared with a  (- 1.4%) in December 2006.

Conclusion

This situation of a negative savings rate - cannot be blamed on Mr Bush !!

The drop in savings rate began in 1992  (where it was at 9.37%) and  by the time Bush took over it was 1.46%. ( his bad luck being it went into a negative during his tenure)

The negative savings rate has stopped expanding in recent times . However  its still in the “red” . (click on chart to get the big picture)

The issue of a negative savings rate has a major impact on what finances the US deficit - and longer term impacts on how secure Social Security will be. ( which had problems coming up - even when the savings rate was positive)

The US cannot afford a negative savings rate - and will be doing all it can to get this out of the red. ( this issue could take precedence over inflation - in monetary policy decisions)

Note

The issue on what influences the savings rate / what has caused this decline / will be presented in a  separate report

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Situation 

GDP increased at a rate of 3.07% p.a in Q4 2006 ( as compared to 2.96% in Q3 2006 ).

The annualised rate of growth of Q4 as compared to Q3 was 2.2% ( as compared to 2.0% in Q3 as compared to Q2)
The initial estimates released in january 2007 was 3.5% for Q4 ( compared to Q3).

Conclusion 

The effects of the Fed rate hikes have been slowly setting in and as can be seen in the pic - GDP growth does look like it has peaked.

While there could be some maintainence of growth rate ( between 4.5% p.a and 3.00% p.a) in the coming quarters- it does seem that the GDP growth rate could start dropping below the 2.00% growth rate from Q4 2007 onwards.

Its pretty clear that the Fed rate follows the GDP (see pic).   While the Fed may not bring down interest rates in the immediate future ( clear drops in GDP rate need to be demonstrated ) - drops in interest rates seem obvious at least from Q1 2008 onwards.

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