Comment on U.S. GDP Clunker

April 30, 2014

Real GDP edged only 0.1% higher last quarter at an annualized rate.  Most other governments don’t bother with Washington’s custom of annualizing quarterly growth and would have reported today’s growth rate as a mere 0.03%.  Either way, the result was far below forecasts centered on 1.5%.  A number of analysts also have been predicting full-2014 GDP growth of 3.0%, a view that now appears very remote. Assuming that today’s growth estimate is not revised higher, annualized growth would have to average 4.75% over the three remaining quarters of the year to produce expansion in 2014 of 3.0% from 2013, when GDP went up just 1.9%.  In the thirteen years from 2001, the year of the 9/11 attacks, through 2013, real GDP grew as much as 3.0% in just 2004 and 2005.  In only four other years did growth reach as high as 2.0%: 2003, 2006, 2010 and 2012.  If GDP averages a hefty 3.5% per quarter over the rest of this year, full-2014 growth will be 2.5%, and if the quarterly pace is 2.5%, full-2014 GDP will be just 2.1% higher than last year’s level.

Personal consumption was the only component of demand to rise last quarter, and such enhanced GDP growth by 2.0%.  Meanwhile, negative impacts on the growth rate by rank were 0.83 percentage points (ppts) from net foreign demand, 0.57 ppts from slower inventory accumulation, 0.25 ppts from non-residential business investment, 0.18 ppts from residential investment, and 0.09 ppts from government spending.  The personal consumption price deflators, both total and core, were only 1.1% higher than in the first quarter of 2013, so Fed officials will continue to be more worried about the risk of deflation than of accelerating inflation.  Cost-push pressure continues to be minimal as attested by a mere 0.3% quarter rise of the employment cost index.  The wage component was just 1.6% greater than in 1Q13. 

Weather was a substantial growth depressant in the first quarter.  But unless you are one of the diehard few who still believe that global warming is a figment of Al Gore’s imagination, it may be mistaken to think the weather factor is cyclical and temporary.  In winter, the problem was severe cold and relentless snow.  This spring has seen a rash of tornados.  Come summer, farms will be dealing with scorching heat, and round and round the cycle goes.  In the 14-1/4 years since Y2K, U.S. real GDP has expanded 1.82% per annum, down from a pace of 3.70% per year over the previous half century.  So much for the touted benefit to living standards of the proliferation of electronic devices. 

Copyright 2014, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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