The first report on the second quarter GDP came out today. According to the flash report, growth in the GDP was at the rate of 4%. This is a very good result. The analysis of the numbers reveals that things are not as good as the 4% rate sounds, however.
First of all, the good number this quarter is partly the result of the terrible number last quarter. The rate is figured by comparing the second quarter just to the results of the first quarter. Things were so terrible during the first quarter that when the economy returned to a more normal growth pattern in the second quarter, the growth rate looks bigger. The best way to understand this is to consider that the growth rate for the first half of 2014 which includes both the terrible first quarter and the much improved second quarter was only 0.8%. That means that for the first six months of the year, the US economy could not even grow at a rate of 1% per year. On top of this, there was a big growth in inventory during the second quarter. More than a third of the difference between the first and second quarter came as a result of higher inventories, something that will work to keep growth lower in the future. Indeed, when the effect of inventory changes are removed from the numbers, we find that there was nearly no growth during the first half of 2014.
The truth about these numbers is that they provide little guidance as to the future course of the American economy. Even with a 4% top line figure, the results do not indicate that the economy is revving up into high gear. Nevertheless, these results at least let us know that America has not fallen back into a recession, and that is a good thing.
First of all, the good number this quarter is partly the result of the terrible number last quarter. The rate is figured by comparing the second quarter just to the results of the first quarter. Things were so terrible during the first quarter that when the economy returned to a more normal growth pattern in the second quarter, the growth rate looks bigger. The best way to understand this is to consider that the growth rate for the first half of 2014 which includes both the terrible first quarter and the much improved second quarter was only 0.8%. That means that for the first six months of the year, the US economy could not even grow at a rate of 1% per year. On top of this, there was a big growth in inventory during the second quarter. More than a third of the difference between the first and second quarter came as a result of higher inventories, something that will work to keep growth lower in the future. Indeed, when the effect of inventory changes are removed from the numbers, we find that there was nearly no growth during the first half of 2014.
The truth about these numbers is that they provide little guidance as to the future course of the American economy. Even with a 4% top line figure, the results do not indicate that the economy is revving up into high gear. Nevertheless, these results at least let us know that America has not fallen back into a recession, and that is a good thing.
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