Some New Perspectives on the State of U.S. Growth

May 31, 2012

First-quarter U.S. real GDP was revised from an annualized pace of 2.2% reported initially to 1.9%, thus becoming the fourth instance in the past five quarters when GDP failed to climb as much as 2%.  GDP only rose 2.0% over the last four quarters.  The five-year annualized growth rate (1Q07 to 1Q12) stands at 0.7%, and the GDP expansion rate for the last ten years since 1Q02 has been 1.64%.  That was less than half as fast as the growth rate of 3.53% during the previous ten years between 1Q92 and 1Q02.

Over the ten years to 1Q12, real GDP in per capita terms rose more slowly in the United States than in Japan despite the latter’s triple-whammy natural disaster that struck in March 2011.  The U.S. population rose 0.87% per year during the last ten years, which set against the 1.64% per year rise of real GDP yields per capita GDP growth of 0.76%.  In Japan, real GDP rose 0.91% per year.  Population there, which has been declining most recently, eked out a net gain of 0.02% per annum over the last ten years, implying per capita GDP growth of 0.89% or 0.15% per year more than in the United States.  A nation’s standard of living is tied to per capita growth, not absolute growth.  Since U.S. households have experienced much more polarized growth in income than Japan, Japan’s standard of living is converging on America’s at a faster rate than the 0.15% per year spread in per capital GDP growth.

All of America’s GDP growth last quarter essentially arose from a 2.7% advance in personal consumption.  Business inventories, net foreign demand,  residential construction and non-residential investment spending collectively augmented GDP growth rate by 0.74 percentage points (ppts) and was counterbalanced by a 0.78-ppt drag from a 3.9% annualized drop in government spending.  U.S. public-sector spending at all levels of government has contracted in each of the last six calendar quarters, yet the fiscal cliff still lies ahead.  Government spending was 2.3% lower than in the first quarter of 2011 and 3.4% smaller than in 1Q10. 

Inflation remains tame.  The GDP price deflator rose 1.9% over the past four reported quarters and 1.5% per year between 1Q08 and 1Q12.  The core personal consumption price deflator also increased 1.9% in the most recent statement year and at a 1.6% annualized rate over the last four years.

U.S. labor market trends have been weaker than real GDP and loom as a factor that could have the greatest influence over this November’s election results.  America’s 8.1% unemployment rate in April 2012 was 3.1 percentage points above the April 2008 level.  In the six months following April 2008, unemployment jumped to 6.5%, and a further 1.3 ppt increase to 7.8% had occurred by January 2009 when President Obama was sworn into office.  Investors will receive news of the May labor market performance tomorrow.  In advance, ADP estimated that private-sector jobs went up by 133K, 20K more than in April.  Overall non-farm payroll employment in April 2012 remained 4.67 million lower than in April 2012, but seven-eighths of that net decline occurred during the final eight months of the Bush43 presidency.  New U.S. jobless insurance claims remain below the key 400K level, implying moderate net job creation, but the downtrend in claims stalled this year.  Their 374.5K per week average level over the latest four weeks is a bit above the year-to-date mean of 368.5K but below also not much below the 392K mean in the final quarter of 2011. 

Copyright 2012, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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