GDP Reax: It Could Have Been Worse

Andrew Sullivan —  Apr 27 2012 @ 11:20am


Ryan Avent puts today's report in context:

Americans continue to hope for a real recovery. During the first three years after the 1981-82 recession, the economy grew above 3% in 11 of 12 quarters and at greater than 5% in 7 of 12. Eleven quarters into this recovery, the economy has managed 3% or better only four times and has yet to reach 4%. But America's underlying fundamentals look increasingly strong. A gridlocked Congress and an inflation-averse Federal Reserve may try to gum up the works. But this morning's disappointing number is by no means a reason for despair.

Mark Perry points out that a decrease in government spending significantly lowered the GDP number:

Perhaps today's GDP report is actually better than what is being reported, as the private sector of the U.S. economy grows at a rate slightly above the historical average, and twice the average rate since 2000.  

Daniel Gross takes a closer look at government spending:

So in 2011, declines in government consumption sapped economic growth by .44 percentage points. But in the first quarter of 2012, contraction in the government sector took a bigger bite out of growth—subtracting .6 percentage points from the growth rate. And it's not because Republicans in Congress pushed through tough cuts in social spending. No, a decline in defense spending accounted for most of that reduction.

Jared Bernstein's quick take:

2.2% is about the trend growth rate for the economy right now, and so you could look at this and say "steady as she goes."  That’s not how I see it.  The trend is what you want to return to after you’ve made up your losses, which we have yet to do.  Coming out of such a deep trough as we experienced in the great recession, we need a number of consecutive growth quarters well above trend.  Then we can be content to settle back into trend growth.

Harm Bandholz is encouraged by consumer spending:

Private consumption rose at the fastest pace since late 2010, “financed” by a sizeable decline in the savings rate. More than a third of that pick-up was attributable to surging car sales. In addition residential investment jumped by almost 20%, the most since 2Q10, probably supported by the unusually mild winter weather. While we expected consumer spending and residential investment to be the main growth drivers at the beginning of the year, their contributions were even larger than we anticipated.

David Semmons differs:

I think this is not a good report, the much stronger print from the consumer will fade as the income growth isn’t there to support it

Brad Plumer notes that GDP reports are often revised significantly:

Advance estimates of GDP growth are very frequently wrong. On average, the study [from the Federal Reserve Bank of St. Louis] found, the GDP numbers got revised by 0.5 percent and 0.54 percent on the second and third passes. And when all ofthe numbers since 2007 were redone in July 2011, the corrections got even bigger.

Derek Thompson makes related points about revisions:

Overall, 2.2% is neither great, nor bad, nor, perhaps, meaningful. It could be revised up to 3% or down below 2% in the next few months. No matter what, it could always [be] worse.  We could be Europe.

(Chart from Calculated Risk)