Perspectives Blog

Why GDP deserves less attention

Zach Pandl, Portfolio Manager and Strategist | August 12, 2013

In our view, gross domestic product (GDP) data are deeply flawed. To form a more accurate assessment of the economy, investors should include other measurements, such as gross domestic income. Official GDP growth was relatively soft in the first half of this year, but the broader set of activity data suggests the U.S. economy is doing just fine. Before joining Columbia Management I worked for several years as an economist at a few of the large…

The bean counting on second quarter GDP

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | July 25, 2013

Second quarter GDP data looks soft, including a wider trade deficit and cuts in government spending. Positive factors include steady consumer spending and upcoming changes in the way GDP will be calculated. Growth is poised to improve in the second half, but the Fed’s models and forecasts seem overly optimistic. Final second quarter GDP data reports are trickling in, putting the footprint of economic growth into focus. It looks soft, weighed d…

The U.S. economy — a gain in GDP?

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | May 2, 2013

First quarter advance estimate of GDP shows annualized growth of 2.5%, which was below expectations. Positive contributions from personal consumption, fixed investment and inventories were shaved by negative contributions from net exports and government expenditures. This quarter’s weaker economic data will temper views of the Fed backing away from quantitative easing (QE) sooner rather than later. Growth trends still appear range-bound near 1%…

Rebalancing the U.S. economy

Marie M. Schofield, CFA, Chief Economist and Senior Portfolio Manager | January 13, 2014

…m spending cuts by federal and state governments. While painful, these cuts have rebalanced budget deficits. A year ago, the U.S. budget deficit was 6.5% of gross domestic product (GDP). It will likely fall to less than 4% of GDP in last year’s fourth quarter and looks to decline to something near 3% this year. Receipts are up 13% and outlays are down 5.5% in the last year—this is admirable progress. The easing fiscal drag will add to GDP via les…

Gaps, not growth

Zach Pandl, Portfolio Manager and Strategist | February 25, 2014

…uation says that the output gap—which is just a technical name for spare capacity or economic slack—improves when growth is above potential, and worsens when growth is below potential: Output Gap = β * (GDP growth – Potential GDP growth) where beta is the Okun’s Law coefficient. The relationship is also commonly written in terms of the unemployment gap—the difference between the unemployment rate and its structural rate. Okun’s Law is at the cent…

Looking for diversification in emerging markets

Columbia Management, Investment Team | July 30, 2013

Emerging markets have become a significant component of the global economy, with higher GDP growth rates compared to developed markets. The wide range of local conditions and growth drivers present in emerging markets makes them particularly interesting as a diversifier for investors already exposed to developed markets. We believe that, for diversification, investors should consider small-mid cap emerging markets investments. By the Columbia…

Quality milestone in the European recovery story

March 17, 2014

…tios are close to their 2005 highs of 9.5% for constituents of the Euro Stoxx 600 Index*; last time round this presaged a capital expenditure and M&A boom in Europe. Exhibit 2: Eurozone non-residential capex as a share of GDP Source: JP Morgan Equity Strategy, December 2013 An increase in average net debt/EBITDA to 2x from the current 1.6x would provide €400 billion of firepower for growth. As with U.S. corporates, the short-term focus is li…