Perhaps, like financial statements for US utility companies, government accounting statistics should...
Perhaps, like financial statements for US utility companies, government accounting statistics should be taken with a pinch of salt. The preliminary fourth-quarter US gross domestic product (GDP) figure, announced in January, showed growth of just 0.2%. This was low, but understandably so in the wake of 11 September.
In the event, US growth was substantially underestimated. Official figures issued at the end of March showed the US economy had grown by 1.7%. The upward revision was because both the strength of consumer demand and levels of government spending were greater than expected. Of course, this has had a positive impact on the consensus forecasts for US growth during 2002.
So has the US economy turned the corner? In February, the world's stock markets seemed to think so. The improved economic data is the main driver behind a sharp rise in most of the world's equity markets.
A strong recovery in the US is clearly good news for the rest of the world, and there is increasing evidence that the rebound in the US is spreading.
Recently, there has been a marked improvement in European business optimism, highlighted by a strong rise in business sentiment surveys. However, this optimism is not yet reflected in the current industrial statistics. German output has continued to fall and euro area industrial production is now stable rather than growing.
Consumer and retail confidence remains close to its lowest level in four years, and it is hard to visualise a strong rebound in private consumption when unemployment is rising, inflation is low and levels of household debt are high.
One bright spot, however, is the European export sector, which has proved the quickest to reflect US recovery.
Even in Japan, there are signs of a cyclical recovery. Forward-looking indicators are improving and production and exports seem to be turning the corner. However, structural problems persist, highlighted by continued bankruptcies and entrenched deflation, and the longer-term outlook is uncertain.
In the UK, the consumer has remained the driving force behind growth. Despite an upward blip in inflation, the longer-term prospects are healthy and goods price inflation is hovering near zero. Given the stronger global financial picture, manufacturing output, exports and investment should all pick up.
Bond markets, on the other hand, have weakened as investors raised their interest rate expectations. In bonds, valuations currently look broadly neutral, particularly following the recent rise in yields.
The market moves during February and March left equity and bond markets looking close to fair value. The stronger near-term pick-up in the US economy, however, suggests corporate profits could be stronger than currently expected. This would leave some room for equity markets to progress.
US Q1 growth stronger than initial forecasts.
European business optimism improving.
Longer-term prospects in the UK healthy.
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