Comment on U.S. GDP

July 30, 2015

The U.S. economy rebounded in the spring from a weather depressed first quarter.  At 2.3%, the annualized growth of real GDP was very close to market expectations, four times faster than the first-quarter pace, but hardly better than what’s come to be the economy’s average performance.  The six-year-long post-Great Recession upswing has produced an average rise in real GDP of 2.1% per year.  Outside of personal consumption, which accounted for all but 0.3 percentage points of last quarter’s growth, the economy did not perform with any real inspiration in the spring.  Contributions  in the quarter from residential building and non-residential business investment to GDP growth amounted to 0.21 and -0.07 percentage points. Net exports and government expenditures enhanced the growth rate by 0.13 and 0.14 percentage points, but inventories exerted a 0.08 percentage point drag. 

Although the U.S. economy has outperformed many others, perhaps the biggest takeaway from the data is that what constitutes the norm in the United States isn’t what such used to be.  The 2.1% per annum rise of real GDP through the first 24 quarters of this recovery compares unfavorably with a pace of 2.8% over the first six years of the previous business upswing and 3.4% per year through the initial six years of the upswing that occupied most of the 1990s.  The bang from the internet and applications of the internet and revolution in telecommunications has not measured up to earlier breakthroughs in technology.  Viewed somewhat differently, real U.S. GDP since the beginning of calendar 2000 has averaged 1.81% per year, down from 3.37% in the 1990s, 3.13% in the 1980s, 3.27% in the 1970s, 4.44% in the 1960s and 4.30% a year in the 1950s. 

The profile of the current 24-quarter-long upswing shows quarterly growth ranging from as low as -1.5% in 1Q11 to as much as 4.6% seen twice in 4Q11 and again in 2Q14.  There have been two quarters of negative growth, four quarters when GDP rose but by less than 1.0%, 5 quarters when growth lay between 1.0% and 1.9%, six quarters of between 2.0% and 2.9% annualized growth including the last one, four quarters of 3.0-3.9% growth and three quarters of at least 4.0% but not more than 4.6% economic growth.

The national income account statistics were revised for the past several years, a practice that is done at this time each year.  The most significant change involves economic growth in 2013, which was revised down 0.7 percentage points to 1.5% from 2.2% reported previously.  This changes ends the uncannily steady profile previously assumed in the upswing.  The data now show GDP rising 2.5% in 2010, 1.6% in 2011, 2.3% in 2012, 1.5% in 2013, and 2.4% in 2014.  Quarter-over-same-quarter-one-year-earlier comparisons show four-quarter real GDP growth rising from 0.9% in 2Q13 to 2.6% in 2Q14 before dipping to 2.3% in 2Q15.

Inflation remains subdued in spite of the Fed’s much larger balance sheet.  The on-year rise of the personal consumption price deflator in 2Q15 of 0.2% is the same as posted in the first quarter, and the on-year core PCE deflator’s pace of 1.3% last quarter also matched that in 1Q15.  In the year to 2Q14, the core PCE price deflator had risen 1.6%.

Copyright 2015, Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



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