Intelligentguess

Situation

Savings as a % of disposable income has risen to a negative - 0.80% in Mar’07 ( was a negative  -1.20% in Feb’07)

Background

• USA - Relationship between Fiscal Deficit and Savings rate ( since 1981 )
• USA - Relationship between GDP and Savings rate ( Quarterly data since 1985 )
• USA - Manner in which the Deficit has been financed since 1995 ( Savings viz external debt)
• USA - Relationship between Fed rate and Savings rate ( data from 1954 )

Conclusion ( click on image for a larger Visual)

The higher interest rates have helped in slowly reducing the savings rate deficit.

In the Fed meeting held on Mar 22nd - the Fed language had some minor changes suggesting a possible change in outlook ( i.e being open to raising rates)

However the large drop in Q1 2007 GDP will now play a part in the direction that the Fed will adopt

It is unlikely  that the Fed will consider raising interest rates in the meeting due on May 9 2007.

However it may again change its language - tilting towards a neutral stance / drop in rates stance )

Related links

• USA - Q1 2007 GDP annual growth slumps to its lowest since 2003 Q3
• USA - Personal Income and Savings in Feb’07 - No improvement in savings rate
• USA - Fed meeting : No change in interest rate ( major changes in outlook)

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Situation

• On a Quarterly basis GDP grew by 0.31%  ( was 0.61% in Q4 2006)
• On an annual basis GDP grew by 2.05% p.a in Q1 2007 ( was 3.128% p.a in Q4 2006)

Background

1. Production has been dropping sharply
2. New orders has been dropping sharply

Conclusion ( click on image for a better visual)

• GDP growth looks like it will range between 2.5% p.a and  1.5% p.a for the next two quarters .
• In order for GDP to grow by 2.5% p.a , the quarterly growth has to be at 1.00% ( since 2006 Q1 quarterly growth has been sub 0.65%)
• With no sign of improvement in the inventory/ shipment levels it is more likely to drop towards the 1.5% p.a area

Related links

• USA - GDP increased at a rate of 3.07% p.a in Q4 2006 (as compared to 2.96% in Q3 2006)
• UK - GDP grew at 2.96 percent per annum in Q4 2006 as compared to 2.90 percent in Q3 2006
• Japan - GDP growth stronger in Q4 2006
• Euro area GDP - Up by 3.28 percent per annum in Q4 2006 ( 2.73 percent per annum in Q3 2006)
• India - GDP growth at 8.64 percent p.a for Q4, October - December 2006

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