Those stalwart number crunching research economists at Goldman Sachs (i.e., not the traders) have a really interesting graph out this AM that packs in a ton of info on current growth pluses and negatives.
The figure uses the Federal Reserve’s macro model (which is actually publically available now…and, yes, I will fire it up myself once I have the time to figure out its bells/whistles) to decompose a set of factors nudging real GDP growth this way and that, including slower global growth, the stronger dollar—they’re the larger negatives—and lower oil prices and interest rates (pro-growth).
The GS analysts offer two flavors of growth impacts, one if equity and fixed income markets remain weak and one if they strengthen (ftr, GS seems to make money either way, but that’s a different post).
A few observations:
–Even under the weak market scenario, the drag on growth is predicted to be a few tenths of GDP at most. This is partly due to our relative low export share—13% of GDP, half that of the Eurozone–as well as the offsetting impact of cheaper oil.
–If you follow this stuff, I suspect you’re well aware of the global slowdown and the cheaper oil parts of the story. But the stronger dollar has been a bit of sleeper, and it’s something I worry about a lot. Right now, it’s less a function of currency management by our trading partners and more the result of weakness in other economy’s currencies. But the figure provides an important reminder that a strengthening dollar is a drag on growth through the export channel.
–On the other hand, both the dollar and the oil dynamics will put downward pressure on prices (though oil is not in the core price index most closely watched by the Fed) and this could lead a data-driven Fed to postpone the liftoff of the Fed funds rate.
–From what I can glean, the oil price decline is a function of both stronger supply and weaker demand, with the former dominating. In this regard, it’s worth remembering that the price of energy fails to account for environmental degradation, i.e., considering polluting externalities, it is under-priced. That is the motivation for a carbon tax and that, in turn, is a reminder about our existentially lousy politics.