Economy Grew At Anemic 1.7% Rate In 2nd Quarter
The first report for 2nd Quarter GDP growth is out and, while its better than expected, it’s still not very good:
The United States economy performed a bit better than expected in the second quarter, shrugging off some of the impact from higher taxes and lower federal spending in the spring, the government reported Wednesday.
The gross domestic product grew at an annual rate of 1.7 percent, hardly indicative of an economic boom, let alone enough to bring down elevated levels of unemployment soon. It is also the third quarter in a row in which growth failed to top 2 percent, the average since the recession ended in 2009.
Still, the increase was an acceleration from growth in the first quarter of 2013, which was revised downward to 1.1 percent from an earlier estimate of 1.8 percent by the Bureau of Economic Analysis.
“It was a reasonable performance,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics. “In the long run, it’s not enough but I’ll take growth wherever I can get it.”
The economy’s trajectory is being closely watched by the Federal Reserve as it determines whether to ease its huge stimulus efforts. Fed policy makers will conclude a two-day meeting Wednesday and issue their latest statement on the economy early Wednesday afternoon.
On Wall Street, stocks rose modestly as traders readied for the Fed announcement, watching closely for any change in the language of the statement that might indicate the central bank’s course.
Many economists had anticipated growth of below 1 percent in the second quarter, as automatic spending cuts imposed by Congress and higher taxes that went into effect this year began to bite.
Federal spending did decline by 1.5 percent in the second quarter, but the drop was not as severe as the falloff in government spending in earlier quarters. Meanwhile, exports rose 5.4 percent, reversing a decline in the first quarter.
Most experts predict growth will pick up in the second half of 2013 as the drag from the federal spending cuts and higher taxes begins to fade.
“On balance it was a positive report showing a healthier economy than previously believed,” said Michelle Meyer, senior United States economist at Bank of America Merrill Lynch. “But growth has slowed in the past few quarters, reflecting fiscal tightening in Washington.”
The chairman of the Federal Reserve, Ben S. Bernanke, has hinted the Fed will soon begin tapering, or winding down part of its extensive bond purchases aimed at stimulating the economy, but the timing is uncertain.
On Wall Street, analysts and traders are speculating the Fed could start tapering as early as September if the economy enjoys healthier growth and the job situation improves, or it could be delayed to December or beyond on evidence of weakness.
While the Federal Reserve is not expected to announce a change in policy later in the day Wednesday, the economic data in the second quarter paints a more vigorous picture than anticipated and may increase the odds that the Fed will taper sooner rather than later.
Neil Irwin explains why this report isn’t exactly good news:
[T]he bad news is this: The better-than-expected second-quarter number came at the expense of a downward revision to estimates to the first part of the year, from 1.8 percent to 1.1 percent. Add in anemic growth (at only an 0.1 percent pace) in the fourth quarter of 2012, and we’ve now faced nine months of an expansion at a bit less than a 1 percent annual rate. Every two steps forward for growth seems to be accompanied by a step and a half back.
It would be one thing if that kind of slow growth was happening in a time of full employment, when the economy was basically sound. But with 7.6 percent unemployment, the nation could really use a few quarters in a row of 4, 5 or 6 percent growth to get us back to where people can really be pleased with the economy. It’s not an outlandish view; that’s exactly what happened in the early 1980s, in the aftermath of the last very deep recession.
Those of us who pore over government economic statistics have on some level become so accustomed to mediocrity in the U.S. recovery, and know enough about Rogoff-Reinhart (research showing slow recoveries tend to follow financial crises), and how much worse things are in certain other advanced nations (cough, Spain, cough) that we grade these economic reports on a curve.
The numbers may be objectively quite unimpressive, but after four years of seeing data almost exactly like this, we can only approach this report with a bit of resignation. The economy is doing about what we thought it was doing — maybe a little better, maybe a little worse.
But 1.7 percent growth isn’t good in the environment we’re in, even if it is a little better than economists thought the number would be. It isn’t even mediocre. It’s terrible. It’s a sign of the diminished economic expectations that economy-watchers have set for themselves that it’s anything to crow about at all.
In other words, welcome to the new slow-growth normal? It’s beginning to feel that way, and that’s not a good thing.