The estimate for the growth of the GDP for the first quarter of 2014 was refined again this morning. According to government statistics, the US economy shrank at a rate of 2.9% during the quarter. This is not just bad news; it is terrible news. Indeed, it is so bad that all of the excuses that were previously used to justify a poor quarter no longer come close to explaining it away.
1. When the first two estimates of the GDP for the first quarter were released, the so called experts told us that the decline was due to bad winter weather. That is no longer the case. These same experts told us that the bad weather cut the growth rate by 1-1.5% during the quarter. Even if that is true (which we will never know), that means that aside from the weather effects, the economy got SMALLER by between 1.4% and 1.9% in the first quarter. That is a terrible result.
2. When the previous estimates of GDP showed a decline, the same experts told us that there was good news if one just looked deeper into the numbers. After all, personal consumption expenditures had increased at a rate of 3.1%, and that would drive growth in the following quarters. Well today's revisions have brought that claim back to reality. Personal consumption expenditures for the first quarter were updated; they now only grew at an annual rate of 1%. The good news that the experts found in the details is now gone.
I won't go further into the weeds in discussing these figures. Suffice to say that today's report is probably the worst bit of economic news during the entire presidency of Barack Obama. Oh, the GDP figure during the first quarter of Obama's first term was worse than this, but that number was clearly attributable to George Bush; today's number is all Obama's. Even worse, the most important figure indicating where the economy goes from here was much worse than the GDP number itself. Gross private investment declined during the first quarter at a rate of 11.7%, a significant decline. Investment is the major engine that powers the growth of the GDP.
I hope I am wrong, but it really looks like the American economy is back in recession.
1. When the first two estimates of the GDP for the first quarter were released, the so called experts told us that the decline was due to bad winter weather. That is no longer the case. These same experts told us that the bad weather cut the growth rate by 1-1.5% during the quarter. Even if that is true (which we will never know), that means that aside from the weather effects, the economy got SMALLER by between 1.4% and 1.9% in the first quarter. That is a terrible result.
2. When the previous estimates of GDP showed a decline, the same experts told us that there was good news if one just looked deeper into the numbers. After all, personal consumption expenditures had increased at a rate of 3.1%, and that would drive growth in the following quarters. Well today's revisions have brought that claim back to reality. Personal consumption expenditures for the first quarter were updated; they now only grew at an annual rate of 1%. The good news that the experts found in the details is now gone.
I won't go further into the weeds in discussing these figures. Suffice to say that today's report is probably the worst bit of economic news during the entire presidency of Barack Obama. Oh, the GDP figure during the first quarter of Obama's first term was worse than this, but that number was clearly attributable to George Bush; today's number is all Obama's. Even worse, the most important figure indicating where the economy goes from here was much worse than the GDP number itself. Gross private investment declined during the first quarter at a rate of 11.7%, a significant decline. Investment is the major engine that powers the growth of the GDP.
I hope I am wrong, but it really looks like the American economy is back in recession.
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