Ryan Avent analyzes today’s GDP report, which came in under expectations:
Worringly, today’s figures reflect very little impact from the “sequester”—automatic spending cuts that only recently began to take effect and which may hack off a further 0.6 percentage points from GDP growth this year.
The main source of fiscal pain in the first three months of the year was instead a series of tax changes that took effect at the beginning of 2013 as part of the “fiscal cliff”. Marginal income tax rates rose on top earners at that time. Perhaps more important, a stimulative cut in the payroll tax was allowed to expire, delivering a direct blow to workers’ take-home pay. Despite this, personal consumption spending held up in the first quarter, growing at a 3.2% annual pace. That encouraging performance suggests that household deleveraging may have many families feeling more financially secure and ready to spend. That, in combination with continued contributions from residential construction, hints at the potential for healthy domestic demand growth, if only the government would relax the pace of deficit reduction.
Neil Irwin’s read on the situation:
The report should scratch any thought that our economy is heading into “escape velocity” and breaking into a higher, self-reinforcing trajectory of growth. That had appeared to be the case in the first couple of months of the year. But it just isn’t so. We’re muddling along at basically the same pace we’ve been at for nearly four straight years of this dismal recovery, with growth too slow to make up the lost economic ground from the 2008-2009 recession.
Bernstein looks at year-over-year real GDP:
[G]rowth by this measure is down a bit over the last six months, with the economy growing slightly below its trend growth rate of around 2%. If this underlying pace of growth persists, it will be very difficult to generate the jobs needed to “legitimately” bring down unemployment rate (meaning through job growth, not through people leaving the labor force).
Dylan Matthews provides the above chart.