In the Age of Trump, the Dollar No Longer Seems a Sure Thing

By PETER S. GOODMAN

Employees at a foreign exchange trading company in Tokyo watch Donald Trump give his presidential victory speech on Nov. 9, 2016. Since early January, the dollar has lost more than 6 percent compared with the Japanese yen. Credit Yuya Shino/Getty Images        


LONDON — It is the closest thing to a certainty in the global economy. When trouble flares and anxiety mounts, people who manage money traditionally entrust it to a seemingly indomitable refuge, the American dollar.

Yet on Wednesday, in the hours after President’s Trump’s threat to unleash “fire and fury” on North Korea if it continued to menace the United States, global investors sold the dollar. The same dynamic played out in June, as Saudi Arabia and other Arab nations imposed an embargo on Qatar, delivering a fraught crisis to the oil-rich Persian Gulf. And the dollar dipped in July after President Vladimir V. Putin of Russia expelled 755 American diplomats, ratcheting up tensions between the two nuclear powers.

Since the beginning of the year, the dollar has surrendered nearly 8 percent against a basket of major currencies.

The dollar remains the dominant instrument for global trade, a role it is unlikely to surrender anytime soon. Yet those who trade in currencies see tentative signs that the dollar may be losing some status as markets grapple with the unorthodox actions of the man leading the nation printing the money.

Donald J. Trump’s presidency has been so full of departures from the norms of international relations that uncertainty has seeped into the calculation of America’s plans. That has subjected the dollar to additional skepticism, enhancing the fundamental factors pulling it down, from worries about the strength of the American economy to improved fortunes in Europe and Asia.

The dollar has in some sense become an international medium of expression about the American political environment. Its value offers a gauge of sentiment for Mr. Trump’s prospects in achieving his economic goals, as well as worries about his potentially impulsive declarations.

“At the margin, investors may be a little more cautious in treating the dollar as safe haven,” said Jeremy Cook, chief economist at World First, a London-based company that handles foreign exchange transactions. “Certainly, the sentiment toward the viability of the Trump administration has not helped. There’s the risk that at 3 a.m., Trump tweets something and the dollar gets hit.”

Before Mr. Trump was even sworn in, many investors were buying into the so-called Trump trade, a bet that the new president’s plans for tax cuts, deregulation and a hefty dose of infrastructure spending would spur economic growth. This formulation has earned favor in the stock market. During the Trump administration, American shares have reached new highs, propelled by strong corporate profits and executives exuding optimism.

Yet the Trump trade was also a wager that the dollar would climb as investment flooded into the United States to exploit fresh growth opportunities.

Those expectations have been overwhelmed by the turbulence of the Trump presidency. Senior government officials have been hired and fired at the pace of a reality television show. Myriad disclosures have intensified questions about whether Mr. Trump’s coterie colluded with Russia to influence the American election. Big parts of his agenda have stalled.

All the while, Mr. Trump has unleashed his signature Twitter rants, sometimes undercutting the positions of his cabinet members and sowing confusion. In the estimation of many economists, the dollar’s fall reflects an assumption that his administration will be hard-pressed to deliver on key goals.

“The potential for serious investment and tax reform and economic growth in the United States is unlikely to be realized,” said Ian Goldin, a former World Bank vice president and now professor of globalization and development at the University of Oxford. “There’s just a mood that gets amplified every time we have a disaster in the White House, or a new tweet.”

Currency values are both volatile and relative. The dollar’s worth must be understood as a reflection of contrasting economic prospects in the United States and other lands.

Mr. Trump’s pro-growth initiatives have been sidelined just as the Federal Reserve has lifted interest rates, constraining American expansion. At the same time, Europe — long a morose topic in the global economic conversation — has shown encouraging signs of vigor.

The dollar dropped after North Korea test-fired a missile potentially capable of reaching major American cities. Credit Andy Wong/Associated Press        


Spain has seen its economy return to pre-crisis size. France elected a new president, Emmanuel Macron, who has engendered hopes he will deliver growth. Even Greece, still saddled with gargantuan debts, has lately flashed signs of improvement.

Given these shifts in fortune, investors have been inclined to sell dollar holdings while shifting the proceeds into euros. Since January, the dollar has lost more than 11 percent against the euro.

“Foreign exchange markets were persistently discounting Europe’s strength,” said Adam S. Posen, a former official at the Bank of England, and now president of the Peterson Institute for International Economics in Washington. “They are playing catch-up.”

But the dollar has slipped even against currencies of nations in precarious positions.

Since early January, it has lost more than 6 percent compared with the Japanese currency, the yen. The strength is perhaps a testament to recent signs of burgeoning activity in Japan’s economy even as the government contends with a series of scandals.

After Britain’s decision to abandon the European Union, the pound plunged last year, lifting the price of imports while diminishing growth. Britain is now consumed with fractious divorce proceedings that seem likely to end its inclusion in Europe’s vast common marketplace, threatening its exports. Still, the pound has gained more than 7 percent against the dollar since the middle of January.

For American exporters, a weaker dollar effectively makes goods cheaper on world markets. Not coincidentally, multinational companies based in the United States have seen their earnings soar.

A weaker dollar also makes vacations in the United States cheaper, attracting more international tourists and bolstering employment in the hospitality industries.

But given that the United States imports more than it exports, a cheaper dollar effectively increases prices on wares for American consumers, from clothing to electronics to tools.

A weaker dollar may be pleasing to Mr. Trump. He has previously called for a cheaper greenback to make it easier for American companies to sell goods abroad. He has railed against countries that have large trade surpluses with the United States, such as China and Germany, while accusing them of profiting from undervalued currencies.

Yet if a weaker dollar is part of the administration’s designs, it does not appear to be jibing with other elements of its plans. Since January, the dollar has slipped nearly 4 percent against China’s currency, the renminbi. At the same time, Trump administration officials have been readying a case aimed at punishing China for unfair trade practices.

Currencies tend to be nudged by scores of factors that play out at once, rendering speculative any conversation about daily price movements. Evidence is mixed on whether the dollar is less of a safe haven. While the value of the American currency has dropped, so has another traditional refuge, the Swiss franc. This may indicate that geopolitical events have simply not reached a point at which investors are seeking shelter.

“Risk factors are playing out as opposed to ‘head for the hills’ kind of panic,” said Lutfey Siddiqi, a visiting professor at the London School of Economics. “What has certainly happened is that the outlook for the United States is dramatically less clear than it was at the start of the year.”

But the reaction on Wednesday to the latest tensions on the Korean Peninsula bolstered the notion that the dollar is functioning differently. The yen rallied, and so did gold — both safe havens. The dollar dipped.

The fate of the dollar is now subject to the influences of a presidential administration that has given markets an expectation for the unexpected. As traders seek to divine the risks of geopolitical hot spots, this appears to be weighing on the American currency.

“There is some erosion in the relative stability of the United States in light of this administration’s inconsistency on global affairs,” said Mr. Posen of the Peterson Institute. “The U.S. is at relatively more risk than we thought in the past.”


Amazon and Walmart Battle for Retail’s Future

By Neil Howe, Saeculum Research
 
The two firms are aggressively scaling up and branching out:
Who will rise as the rest of retail sinks?
 
Amazon turned heads last month when it acquired Whole Foods for $13.7 billion. On the exact same day, Walmart announced its own $310 million purchase of clothing e-tailer Bonobos. The timing is no coincidence: As the de facto leaders of U.S. retail, Amazon and Walmart are each spending heavily in an attempt to unseat the other. Which company has the advantage? Amazon is a forward-thinking e-commerce heavyweight with many far-flung (if not profitable) business lines. Walmart is unmatched in brick-and-mortar retail, with a surging (if still small) e-commerce business. With the future headed online, investors are betting heavily on Amazon—but is this a mistake?
 
The two retail giants have been stepping on each other’s toes lately. Amazon’s Whole Foods deal has been widely interpreted as a defensive move against Walmart’s thriving grocery business. Amazon is also playing offense: The company is going after Walmart’s predominately lower-income customer base by offering a discounted Amazon Prime membership to U.S. consumers who rely on government assistance.
 
Walmart, meanwhile, has been even more aggressive. It all started when Walmart bought e-commerce firm Jet.com for $3.3 billion back in 2016. The company earlier this year rolled out free two-day shipping for all orders over $35, and is testing a pilot program that pays work­ers overtime for delivering packages on their commute home. Walmart is even barring some prospective tech vendors from building apps and services on top of Amazon’s cloud—and is telling its for-hire truck drivers that they cannot haul Amazon goods on the side.
 
Each company has scored some direct hits in this battle. But which one is positioned to win the war?
 
Amazon’s utter dominance of e-commerce sets it apart in an era when ever-more sales are moving online. As the leading e-tailer, Amazon has been the largest beneficiary of a massive shift online: Nearly half (43 percent) of all U.S. online retail sales take place on Amazon.com. One key ingredient to this success has been Prime, which now tallies 66 million subscribers—equal to roughly one in five U.S. consumers.
 
Arguably the company’s greatest strength is its ability to build successful tech-enabled businesses seemingly from scratch. Take cloud computing. In a few short years, Amazon has transformed from a cloud newcomer to the unques­tioned market leader: Fully 57 percent of survey respondents say that their business is currently running appli­cations in Amazon Web Services, 23 percentage points ahead of Microsoft Azure. Meanwhile, Amazon Home Services—a platform on which home­owners can find credentialed experts to carry out a rebuild—is now competing with the likes of Lowe’s and Home Depot. (See 77: “Home Services, At Your Serv­ice.”) In 2012, Amazon even began renting out excess warehouses to create yet another profit stream.
 
But for all of its success, Amazon has yet to generate much in the way of actual profits. Jeff Bezos is not interested in growing the company’s profit margin, but rather in keeping prices low in order to steadily gain market share—that is, grow faster than its competitors. With a lofty P/E ratio of 187.8, Amazon is clearly benefitting from investors who believe that the company will eventually focus on profitability. Such a huge bet on deferred earnings is fraught with downside risk.
 
So what’s the argument for Walmart? First, it is still a much larger company, with revenues of nearly half a trillion dollars—nearly four times Amazon’s. That scale alone enables it to put a much bigger squeeze on suppliers than Amazon. Second, Walmart generates a large profit—and generates it today. Walmart (P/E of 17.0) is a better value proposition than the majority of the S&P 500 (average P/E of 21.6). The company is also a reliable dividend machine: Walmart will pay out dividends of $2.04 per share in 2018, marking the 44th consecutive year of dividend growth.
 
Walmart’s main revenue driver is its brick-and-mortar retail business, which continues to gain steam amid a collapsing retail space. According to Credit Suisse, 2,800 U.S. brick-and-mortar retail stores closed up shop in Q1 2017, a record full-year pace. Commercial real estate firm CoStar reports that U.S. retailers must eliminate 1 million square feet of brick-and-mortar space just to grow their sales per square foot back to where it was a decade ago. In this low-margin environment, cost efficiency is key—and nobody does cost efficiency better than Walmart, a company that uses its clout to negotiate favorable deals with suppliers and finance its “Everyday Low Prices.” While mall anchors like Macy’s and JC Penney continue to announce store closures, Walmart plans to add 10,000 retail jobs and 59 new/renovated properties by the end of the fiscal year.
 
So what does the future hold? Amazon certainly has the look and feel of a winner in the digital age. The company epitomizes a blue-zone, mold-breaking, Silicon Valley mindset. Its leaders aren’t afraid to spend big today to solve tomorrow’s problems. Walmart, on the other hand, was founded in the deep-red, lower-middle class Bentonville, Arkansas (where it still keeps its headquarters) and built upon the paradigm of penny-pinching—hardly the type of company that inspires effusive praise as a forward-thinking leader.
 
But this line of thinking may be off the mark. For one, both companies acknowledge that tomorrow’s retail likely will be a blend of online and brick-and-mortar. As TechCrunch columnist Sarah Perez puts it, “Amazon wants to become Walmart before Walmart can become Amazon.” And the fact is that it may be easier—and cheaper—for Walmart to become Amazon. Walmart has already shown that it is willing to spend big on top tech talent. It would be a lot tougher, on the other hand, for Amazon to pour enough concrete to become a brick-and-mortar powerhouse while still maintaining the company’s culture.
 
The assumption that Amazon is far ahead in the court of public opinion is also untrue. Decades ago, Walmart was panned for decimating communities with bargain-bin consumerism. But today, Amazon is reviled by many consumer advocates who say that its e-commerce dominance—powered by its robot-filled warehouses—is killing retail jobs. In an era when consumers pride themselves on buying local to support their community (see SI: “The New Localism”), Amazon represents a faceless global entity without roots.
 
Even Millennials, who at first glance should be overwhelmingly pro-Amazon, show strong support for Walmart. According to YouGov BrandIndex, Walmart ranks as the fifth-favorite brand among Millennial consumers—just one spot behind Amazon and ahead of brands such as Netflix (#6) and Apple (#8). Why? Community-oriented Millennials likely realize the value of a company that creates 1.5 million U.S. jobs—and are won over by its ultra-low prices.
 
Both companies may very well outperform the broader market in the years to come. But don’t be surprised if Walmart eventually emerges on top. And even if the homely Bentonville retailer does no more than stick around, that makes it a big long-short winner relative to its Seattle-based rival.
 
TAKEAWAYS
  • Take notice: The Amazon-Walmart rivalry will determine the future of retail. Each firm is making moves in the other’s area of expertise: Amazon bought Whole Foods to scale up in the grocery business, while Walmart is ramping up its own e-commerce capabilities. Which company has the upper hand? Conventional wisdom points to Amazon, which has a dominant foothold in a surging e-commerce space and owns a reputation as a forward-thinking market leader. But the future of retail will likely be a blend of online and brick-and-mortar—which favors Walmart. Why? It may be easier to acquire tech capabilities (i.e., buying talent) than a physical footprint (i.e., building thousands of stores).
  • Keep in mind that market “duopolies” can save consumers money. Look at Coca-Cola and PepsiCo, two companies that together control roughly three-quarters of the soda market. Their duopoly status has helped to keep prices lower: The CPI for carbonated beverages has risen less than half as quickly as the CPI for all food since the early 1980s. Similarly, it’s easy to see how the Amazon-Walmart price wars are already benefitting consumers. In February, shoppers had to buy $49 worth of Amazon goods to qualify for free shipping. Today, that same perk costs just $25. Walmart.com shoppers can now save up to 5 percent on more than 1 million items through in-store pickup.
  • Expect Amazon and Walmart to continue to play hardball with suppliers. All of these discounts come at a price—to vendors. Walmart recently told suppliers that it wants to offer the lowest price on 80 percent of the products that it sells—a feat that would require some suppliers to shave 15 percent off of their rates. Amazon is equally notorious for its tough negotiations. The company often threatens to boot unprofitable products (known as “CRaP,” short for “can’t realize a profit”) from its virtual store shelves if the vendor won’t budge on prices. Insiders suspect that this is why all Pampers products mysteriously disappeared from Amazon.com earlier this year.
  • Keep tabs on the hotly contested grocery market. Today, Walmart controls more than one-quarter of the U.S. grocery market—more than double the share of its closest competitor (Kroger). But an influx of competition, especially from abroad, threatens this market share. German discount chain Lidl recently opened its first U.S. outposts, and its fellow German competitor Aldi is planning a $5 billion, 900-store U.S. expansion. Amazon’s Whole Foods acquisition will further turn up the heat on Walmart—though the move may be far more damaging to Target, which has been trying to get into the fresh grocery game for ages.
Suggested Reading
  • Jason Del Ray. “Amazon and Walmart are in an all-out price war that is terrifying America’s biggest brands.” Recode. March 30, 2017.
  • Neil Irwin. “The Amazon-Walmart Showdown That Explains the Modern Economy.” The New York Times. June 16, 2017.
  • Sarah Perez. “Amazon wants to become Walmart before Walmart can become Amazon.” TechCrunch. June 16, 2017.
 


Buttonwood

Tech stocks have regained their dotcom-era highs

But the sector has changed a lot since the last peak
.



CAST your mind back to when Bill Clinton was president, Tony Blair and Vladimir Putin were fresh-faced new leaders and tweeting was strictly for the birds. That was when technology stocks, as measured by the S&P 500 tech index, last traded at their current levels.

The horrendous decline in share prices that followed the peak in 2000 was the first financial calamity of this millennium. The dotcom crash had much less impact on the broader economy than the mortgage and banking crisis of 2007-08. Nevertheless, the tech revival has caused some twitchiness among investors. Might history be repeating itself?

In the intervening years the world, and the tech industry, have changed a lot. In the late 1990s enthusiasm for tech shares was so great that the sector’s market value rose far faster than its earnings. The gap is nothing like as great today (see chart). Back then, leading firms like Microsoft and Oracle were valued at more than 20 times their annual revenues, let alone earnings. This time around, with the exception of Facebook, price-to-revenue ratios are much less stretched.

What boosted tech businesses in the late 1990s was that everyone was discovering the internet at the same time. Both companies and consumers were buying computers and associated items like modems. That led to rapid revenue growth. But the sudden enthusiasm for tech was also its greatest weakness; every college graduate seemed to have a plan to start a dotcom company. The market became overcrowded. Investors struggled to tell the long-term winners from the losers.

Since then, investors have focused their enthusiasm on companies that can exploit “network effects” and become dominant in their sector—Google in internet search, for example. The latest rally has been led by a small number of stocks, sometimes dubbed the FAANGs (Facebook, Amazon, Apple, Netflix and Google’s parent, Alphabet) and sometimes FAAMG (replacing Netflix with Microsoft). In June Goldman Sachs said this latter group had been responsible for 40% of the S&P 500 index’s gains in the year to that point. The tech industry was Wall Street’s best performer in the first half of the year.

Eddie Perkin of Eaton Vance, a fund-management company, says that investors started the year with too much enthusiasm for the “Trump trade”, the idea of owning stocks that might benefit from the new president’s policies. Companies with high tax bills, and those exposed to infrastructure spending, were two examples. As hopes for action from the new administration faded, enthusiasm for tech stocks surged; this industry can generate profits growth regardless of the economic outlook. Tech companies in the S&P 500 are likely to record double-digit year-on-year profits growth in the second quarter.

Earnings expansion on that scale means that few investors can afford to ignore tech stocks. Since 2009 the industry has been the most favoured by global fund managers for 80% of the time, according to a regular survey by Bank of America Merrill Lynch. But the latest survey reflected fears that the enthusiasm may have gone too far: 38% of managers thought that betting on tech stocks was the “most crowded trade”; a net 9% had cut their exposure in the previous month.

The risks facing the tech industry now are rather different from those that surfaced in 2000.

Then, it became clear that many companies would burn through their cash long before they made a profit. This time, the industry is more mature; Apple’s fastest growth is surely behind it, for example. Whereas the sector was generally held in high regard in 2000, it is now the object of more suspicion, whether it is public concern about individuals’ privacy, Donald Trump’s anti-Amazon tweets or EU fines against American tech giants. Regulation may yet prove a barrier to tech’s long-term growth.

So, history isn’t repeating itself exactly. There is nothing like the same stockmarket euphoria as there was at the turn of the century. Few people are trying to day-trade their way to riches or setting up a dotcom franchise to sell dog food. And tech stocks are not as much of an outlier as they were (along with media and telecoms firms) in 2000, when many investors abandoned “old economy” companies in retailing and heavy industry.

But there is still plenty that can go wrong. The overall market is on a cyclically adjusted price-earnings ratio of 30—a level surpassed only in 1929 and the late 1990s. If the Federal Reserve tightens policy too aggressively, or the American economy slips into recession (or both), tech investors will get that sinking feeling again.


IMF Executive Board Concludes Article IV Consultation with the United States

 
 
On July 24, 2017, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation with the United States. [1]

The United States is in the longest expansion since 1850. The unemployment rate has fallen to 4.4 percent and job growth continues to be strong. The economy has gone through a temporary growth dip in the early part of this year but momentum has picked up and the economy is expected to grow at 2.1 percent this year and next, modestly above potential, supported by solid consumption growth and a rebound in investment.

Labor market indicators suggest that the economy could be effectively at full employment. Inflation has remained subdued and, indeed, has weakened moderately in recent months. Wage indicators have shown a modest acceleration. Over the next 12–18 months personal consumer expenditure (PCE) inflation is expected to slowly rise above 2 percent, before returning to the Federal Reserve’s medium-term target of 2 percent.

There are two-sided risks to the growth outlook. A medium-term path of fiscal consolidation, such as the expenditure based consolidation proposed in the budget, would address medium-term fiscal imbalances but result in a growth rate that is below staff’s baseline. On the upside, spending reductions could be less ambitious and tax reforms could lower federal revenues, providing stimulus to the economy and raising near-term growth.

Over the longer term and despite the ongoing expansion, the United States faces a confluence of forces that may weigh on the prospects for continued gains in economic wellbeing. Secular structural shifts are occurring on multiple fronts including technological change that is reshaping the labor market, low productivity growth, rising skills premia, and an aging population. If left unchecked, these forces will continue to drag down both potential and actual growth, diminish gains in living standards, and worsen poverty.

The consultation focused on the policies needed to raise productivity and labor force participation, reduce poverty and income polarization, and help restore the economy’s adaptability and dynamism.

Executive Board Assessment [2]

Executive Directors agreed with the thrust of the staff appraisal. They commended the strong performance of the U.S. economy, including a rebound in growth, improved consumer confidence, low unemployment, and steady job increases. At the same time, they noted that the favorable near‑term outlook is clouded by important medium‑term challenges, including rising public debt, potential growth below historical averages, declining labor force participation, and income growth that is not broadly shared. Against this background, Directors welcomed the authorities’ goal to raise productivity and competitiveness, and underscored the importance of further clarity regarding the authorities’ policy plans.

Directors noted that the economy is close to full employment and inflation is near the Federal Reserve’s price stability mandate of 2 percent. They agreed that policy rates should continue to rise gradually, and the increases should continue to be data‑dependent. Directors noted that well‑communicated plans for unwinding the Federal Reserve’s holdings of securities have been important in ensuring a smooth normalization of U.S. monetary policy, and welcomed the recent addendum to the policy normalization principles and plans. In this context, Directors highlighted the need to be mindful of potential global spillovers as normalization proceeds.

Directors agreed that addressing the medium‑term challenges will require measures on various fronts. Reforms should include building a more efficient tax system; establishing a more effective regulatory system; raising infrastructure spending; improving education and developing skills; strengthening healthcare coverage while containing costs; offering family‑friendly benefits; maintaining a free, fair, and mutually beneficial trade and investment regime; and reforming the immigration and welfare systems. Directors noted that the authorities’ objectives are broadly aligned with these priorities.

Directors considered that such a reform package could raise productivity, labor supply, and investment, and ultimately improve living standards. While such a plan requires changes in fiscal spending and revenue priorities, measures need to be subsumed under a gradual but steady fiscal consolidation path, in view of elevated public debt and deficit levels, and public spending pressures from population aging and rising interest rates. Many Directors urged the authorities to ensure that tax reform leads to an increase in the revenue‑to‑GDP ratio and that the burden of fiscal adjustment does not fall disproportionately on low‑ and middle‑income households.

Directors observed that the financial system is generally healthy. They urged the authorities to monitor closely the rising vulnerabilities in corporate and household credit markets, and implement the remaining recommendations of the 2015 Financial Sector Assessment Program.

Directors noted that important gains have been made since the global financial crisis in strengthening the financial oversight structure. They concurred that some aspects of the system can be finetuned and the regulatory structure simplified, as has been proposed by the authorities. Directors emphasized, however, that the thrust of the current risk‑based approach to regulation, supervision, and resolution should be preserved to safeguard financial stability while facilitating economic growth. In this connection, they welcomed the authorities’ commitment to maintain a leading role in financial regulatory discussions in international fórums


United States: Selected Economic Indicators 1/ 
                                     
(percentage change from previous period, unless otherwise indicated)
                       



Projections


2016
2017
2018
2019
2020
2021
2022
National production and income
Real GDP
1.6
2.1
2.1
1.9
1.8
1.7
1.7

Net exports 2/
-0.1
-0.3
-0.2
-0.2
-0.2
-0.1
0.0

Total domestic demand
1.7
2.3
2.3
2.0
1.8
1.7
1.7

Private final consumption
2.7
2.2
1.9
2.0
2.0
1.9
1.8

Public consumption expenditure
0.8
0.5
1.4
1.4
0.8
0.7
0.3

Gross fixed domestic investment
0.7
4.3
4.0
2.9
2.4
2.6
2.4

Private fixed investment
0.7
4.7
3.9
2.8
2.3
2.5
2.6

Equipment and software
-2.9
3.6
4.9
3.2
2.3
2.6
2.5

Intellectual property products
4.7
4.1
3.8
3.6
4.0
4.0
4.6

Nonresidential structures
-2.9
6.4
2.5
1.2
0.3
0.6
0.5

Residential structures
4.9
5.5
3.6
2.3
2.0
2.0
2.0

Public fixed investment
0.8
2.9
4.0
3.4
2.7
2.9
1.8

Change in private inventories 2/
-0.4
0.0
0.0
-0.1
0.0
-0.1
-0.1

Nominal GDP
3.0
3.9
3.9
4.1
3.9
3.8
3.7

Personal saving rate (% of disposable income)
5.7
5.1
5.3
5.2
4.9
4.8
4.7

Private investment rate (% of GDP)
16.3
16.7
17.0
17.0
17.0
17.0
17.1

Unemployment and potential output








Unemployment rate
4.9
4.3
4.3
4.4
4.7
4.9
5.0

Labor force participation rate
62.8
62.9
62.9
62.7
62.4
62.2
61.9

Potential GDP
1.6
1.8
1.9
1.8
1.8
1.8
1.7

Output gap (% of potential GDP)
-0.4
-0.1
0.1
0.2
0.2
0.1
0.0

Inflation








CPI inflation (q4/q4)
1.8
2.1
2.5
2.6
2.1
2.2
2.3

Core CPI Inflation (q4/q4)
2.2
2.0
2.3
2.5
2.3
2.3
2.3

PCE Inflation (q4/q4)
1.4
1.7
2.2
2.3
1.8
1.9
2.0

Core PCE Inflation (q4/q4)
1.7
1.7
2.0
2.2
2.0
2.0
2.0

GDP deflator
1.3
1.8
1.8
2.1
2.1
2.0
1.9

Interest rates (percent)








Fed funds rate
0.4
1.0
1.6
2.5
2.9
2.9
2.9

Three-month Treasury bill rate
0.3
1.0
1.5
2.4
2.7
2.7
2.7

Ten-year government bond rate
1.8
2.4
2.9
3.5
3.5
3.5
3.5

Balance of payments








Current account balance (% of GDP)
-2.4
-2.5
-2.9
-3.0
-3.0
-2.9
-2.8

Merchandise trade balance (% of GDP)
-4.1
-4.4
-4.6
-4.8
-4.9
-4.9
-5.1

Export volume (NIPA basis, goods)
0.6
4.1
3.2
4.2
2.8
3.1
4.0

Import volume (NIPA basis, goods)
0.7
4.9
4.5
4.7
3.7
3.5
3.7

Net international investment position (% of GDP)
-44.8
-44.5
-45.7
-46.9
-48.2
-49.3
-50.3

Saving and investment (% of GDP)








Gross national saving
18.5
17.7
17.6
17.4
17.4
17.6
17.8

General government
-1.8
-1.6
-1.3
-1.4
-1.4
-1.5
-1.6

Private
20.2
19.3
18.9
18.8
18.9
19.1
19.4

Personal
4.3
3.8
4.0
3.9
3.6
3.6
3.6

Business
15.9
15.5
14.9
14.9
15.2
15.6
15.9

Gross domestic investment
19.7
20.1
20.4
20.4
20.4
20.5
20.6

Private
16.3
16.7
17.0
17.0
17.0
17.0
17.1

Public
3.3
3.4
3.4
3.4
3.5
3.5
3.5

Sources: BEA; BLS; FRB; Haver Analytics; and IMF staff estimates.

1/ Components may not sum to totals due to rounding.

2/ Contribution to real GDP growth, percentage points.                      

 

 
[1] Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country's economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.
 
[2] At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm .
IMF Communications Department