Fisher Investments Editorial Staff
GDP, Developed Markets, US Economy

Fun Fact Friday, GDP Edition

By, 07/28/2017
Ratings824.085366

It’s Data Friday, and we have big news: Bulgarian wholesale inflation slowed a ton in June, from 3.9% y/y to 3.0%.[i] Kidding! That actually happened, but we reckon investors care more about three big Q2 GDP reports—America, France and Spain. Let’s not leave out the UK, which released GDP Wednesday. All four showed growth speeding from Q1. Backward-looking, but it’s still nice to know economic fundamentals were strong entering 2017’s second half. So here, on what Twitter tells us is #FunFactFriday, is a fun fact about each of these GDPs.

Shale Oil Producers Are Alive and Kicking

We’ll let other outlets pore over the higher-level highlights of US GDP’s 2.6% annualized growth, which showed consumers, businesses and our dear government spending and investing more. Most interesting to us is a little nugget buried in business investment’s 5.2% rise: the 116.7% jump in mining/oilfield investment. It’s actually a huge slowdown from Q1’s 272% jump, but it shows that even as oil prices sagged a bit, US oil producers were happy to put capital to work and drill, baby, drill. The level of investment isn’t back up to pre-oil-crash levels yet, but this nascent rebound shows oil flipping from economic headwind to tailwind.

You can thank technology for this. If firms’ costs and breakeven oil prices were still where they were three years ago, they’d have cut back in Q1 and Q2. WTI crude is only around $50 per barrel, a price that discouraged production even two years ago. But as firms became desperate for profits, they got more efficient. Some figured out “dead” wells were only mostly dead, and that if they left them alone for a while, they could re-claim more oil. Others tapped the “fracklog” of drilled-but-uncompleted wells. Meanwhile, new 3D seismic imaging technology made it easier and cheaper to find new oil. Now firms in some shale fields can profit with oil between $15 and $40 per barrel. OPEC might hate $50-ish oil, but it seems US shale firms don’t share the sentiment.

So Are UK Consumers

Did you hear the one about how Brexit is destroying UK consumption because the pound crashed after the vote, driving inflation far higher? In Q1, when GDP slowed to just 0.9% annualized and household spending growth dwindled to just 1.5% as retail sales fell, everyone warned Brexit’s chickens were coming home to roost. But now that looks like a hasty assessment. Not only did GDP speed to 1.2% annualized, but services growth sped from Q1’s 0.7% to 2.2%. While the preliminary estimate doesn’t include the breakdown of spending—a big reason the Office for National Statistics is considering getting rid of it—it does break services growth into four main categories. Output in the two most focused on consumers—Distribution, Hotels & Restaurants and Transport, Storage & Communications—flipped from Q1 contractions to growth topping 4%. Now, that isn’t to say consumer spending will have grown over 4% when all is said and done, but it does offer some preliminary evidence Q1 was a blip, not the start of a trend.

Something Fun Is Happening in France

Poor France has long had a reputation as a slow-growing country with too much debt and too much government. But a funny thing happened over the last year: GDP growth accelerated, boosted by private business investment, while government investment fell four straight quarters. Household investment sped, too. This isn’t some massive forward-looking positive, and we aren’t arguing France is poised for a huge private-sector-led boom. But it is a small example of how economic reality throughout the eurozone is better than the popular perception. In our view, this gap between sentiment and reality likely fuels rising French and eurozone stocks.

Exhibit 1: Stealth Austerity in France?

Source: FactSet, as of 7/28/2017.

Spain Hits a Milestone

At first we feared it would be hard to find a fun fact for Spain, because the preliminary estimate includes nothing but GDP. No breakdown, no spending, no trade, no geeky stuff. Sad! Lucky for us, headline GDP’s 3.6% annualized growth is quite fun, because it brings Spanish output to—wait for it—a fresh all-time high. Yes, Spain has officially roared all the way back from the debt crisis. And we daresay it happened faster than many thought possible. This time in 2011, the economic rain on the plain in Spain was part of the eurozone crisis bringing markets such pain. One year later, Spain rattled nerves again as its government wrangled a non-bailout bailout for its banks. GDP fell well into 2013, bottoming in Q3, by which point Spain’s economy had shrunk by nearly one-tenth since Q2 2008. Since then, it has routinely been among the eurozone’s fastest growers. Now Spain is officially out of recovery and into expansion.

Exhibit 2: Welcome to the Expansion Club, Spain!

Source: FactSet, as of 7/28/2017.


[i] This and every other data nugget in this article come from FactSet, as of 7/28/2017.

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.

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