First Quarter GDP Report: Economic Growth Sluggish At Best
A disappointing beginning to 2012.
After showing fairly decent growth in the final quarter of 2011, the nation’s Gross Domestic Product showed that the economy grew at a slower than expected, and somewhat sluggish, pace during the first three months of 2012:
The economic output of the United States grew at an annual rate of 2.2 percent in the first quarter of the year, largely on the strength of consumer spending and a surge in residential building helped by unseasonably warm weather.
The pace of growth slowed from the prior quarter’s rate of 3 percent but maintained what many economists have started to refer to as a “sustainable” recovery speed.
But as with so much economic data lately, there was plenty of forage in the gross domestic product report for both the sanguine and the skeptical. Business investment, which had been a bright spot in the previous quarter, declined, and some economists warned that consumer spending could not continue without more hiring and wage growth.
“There are mixed messages in this report,” said Dean Maki, the chief United States economist at Barclays. “None of this is going to change fundamental views on the economy.”
The United States may be lumbering, but it has not followed the euro zone, where growth halted in the fourth quarter and where the first quarter is expected to show a contraction. Britain said this week that it is already in a double-dip recession.
But even a growth rate of 2.2 percent is too slow to make up for lost ground. “I don’t think the issue is whether or not the growth rate is sustainable,” said Steven Blitz, chief economist of ITG Investment Research. “I think the question is whether the growth rate that’s sustainable is acceptable — politically and socially acceptable.”
The American economy has been growing since the second half of 2009, and the recovery accelerated throughout 2011. Economists had initially predicted a much weaker showing this quarter, with growth accelerating a bit in the second half. But in the past few weeks, many revised their numbers upward as several economic indicators came in better than expected.
Then, some of the numbers seemed to soften. Shipments of durable goods increased last month, but new orders showed their steepest drop since January 2009. The trade balance improved, but job growth weakened and, more recently, new claims for unemployment benefits have risen.
Some analysts shrug off the oscillation as normal, pointing out that economies do not move in a straight line. Others see momentum breaking down. “The G.D.P. report was disappointing,” economists at Morgan Stanley wrote. “The mix of activity pointed to slower growth ahead.”
This comes after a final quarter of 2011 in which GDP growth was originally pegged at 3.2%, but later revised downward to 2.8% when the final report came out in January, and a year in which real GDP growth for all of 2011 was a pathetically weak 1.7%. That, combined with the fact that much of the growth that we saw later in the year was due to businesses building up inventory that had depleted over time suggests strongly that the economy never really was as strong as those 4th Quarter numbers were telling us it was. Over the next six weeks, these number will be revised, of course, and the real question will be whether they’ll be revised upward or downward, something that is quite honestly anyone’s guess. At best, though, an upward revision would end up meaning that the economy is growing that the expected but hardly much better rate of around 2.5% per year, or that it’s potentially growing at less than two percent per year which is barely sustainability level.
Jared Bernstein comments:
-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.
As Jack Nicholson might put it: “You want the trend! You don’t deserve the trend!!”
Bernstein’s comments are largely in line with what Steven Blitz says in the highlighted section above, and goes to what I think is the core of our problem. Yes, the economy is growing, which is certainly better than the alternative, but this is hardly the kind of growth that one would normally expected after a major economic downturn, and hardly what’s needed to get us out of the trough that we fell into. At this point in 1984, after what were in reality to successive deep and painful recessions, the economy was growing at an 8% clip, but even a sustained growth rate of 5% would be in the neighborhood of what we need to get the economy moving again. The question is how we get there. The levers of government policy don’t seem to be having the same impact that they used to, and the Federal Government’s fiscal problems mean that the idea of simply blindly dumping money into the economy just isn’t possible anymore. The Federal Reserve has dropped interest rates to near zero and it’s two attempts at Quantitative Easing have had little impact on the economy outside of Wall Street, and even there it was temporary.
That raises the possibility, of course, that we’ve entered a period of “new normal,” where economic growth is sluggish (which also means that the danger of recessions is higher) and unemployment has a higher “natural” rate. Whether people find that acceptable politically is, of course, a separate question.
What happened in late 2008 was not a “major economic downturn”. It was a heart attack.
That’s pretty much what Robert Reich said in 2009. There is no road to take us back to where we were.
More news that proves the end is near from today’s WSJ:
Upbeat Earnings Buoy Stocks
Quarterly reports from consumer-oriented stocks like Amazon.com led shares higher, offsetting data that showed weaker-than-forecast economic growth in the first quarter.
Stunned Home Buyers Find the Bidding Wars Are Back
the bidding wars caused by tight inventory provide the latest evidence that housing demand is starting to pick up after a six-year-long slump.
WTF…do you have amnesia?
Growth averaged the same rate…2.2%…for the eight years of the Bush43 administration. So todays numbers…which will probably be revised upward…have come down to Republican levels. Why weren’t you poo-pooing it, calling it pathetic, and declaring a new normal then??? And 43 was spending money on the Military like a drunken AWOL Nat’l Air Guardsman.
Reduced Government consumption lowered economic growth by .44 percentage points in ’11. In the first quarter of ’12 shrinking Government subtracted .6% from the growth rate.
You want smaller Government…you get smaller growth.
You want smaller Government…you get higher unemployment.
It’s pretty simple math.
If this is, in fact, the new normal, then it doesn’t really matter whether it’s acceptable or not is it? That’s what they’re gonna get.
With oil over $100 bbl 2 percent is the best you will see. With oil over $90 bbl 3 percent growth is about the max. Since it takes about $90 bbl to get much of the new sources out of the ground, including the tar sands, it is the new normal.
@Hey Norm: That’s the point: Economic performance has been dropping for over thirty years now. 2.2% is very poor performance.
This report was predictable: none of the fundamentals are there for stronger growth and won’t be for at least the next couple of years. In fact I specifically stated a couple of months ago (and caught hell from certain regulars) that the economy would slow by the second quarter and perform sluggishly at best throughout the rest of the year. The private sector cannot spend sufficiently and our trade deficit drains hundreds of billions every year, leaving inadequate government deficits as the only fuel for the fire.
Really? Based on what exactly? Please tell me when a similar economy has climbed out of a similar hole any faster?
If you say the Great Depression then let’s have a discusion about real stimulus and what that would look like today.
The trajectory of this recovery is near parallel to the last 3 Republican recessions…which were not anything near the collapse of the ’07-’08 Bush Contraction.
http://mjperry.blogspot.com/2011/06/current-recovery-in-perspective.html
Should have said last two…not three recessions.
Dude. Seriously?
That was from Econbrowser, but I’ve read several break-downs this morning that make the same point. Consumer spending is up, government spending is down, combined that produces a lower GDP growth than even flat government spending would do.
Really, I expected your straddle as soon as I saw the headline. You want to complain about Obama’s slow growth, but you don’t want to connected it to the very policy you have endorsed .. lower government spending.
Note that Romney and the GOP are going to attempt the same straddle. They are going to complain about slow growth, even as those numbers are right in front of them. Consumer spending is up, but that is offset, not helped, by lower government spending.
See also Suddenly no one likes austerity
That also will be a problem for any deep analysis of the GOP “cut it and it will grow” economic plan.
@john personna: Unfortunately credit is again expanding at the same time consumer spending is up. This is the exact opposite of what we need to happen in order to dig out from under a decades-long private debt mess, and it’s entirely predictable when wages are again barely keeping pace with inflation. We need to increase the deficit by having government supplement worker wages on a permanent basis.
Maybe because the policy is different, or the underlying circumstances are different (or both)?
You were anti-Stimulus, right? The Stimulus was basicaly swallowed by state-level austerity, which is what you want, right? Government is shedding jobs. THIS IS WHAT YOU WANT.
All in all, I think that we’ll continue to see this sort of “muddle through” level growth for some time yet. There’s still a lot of deleveraging that needs to happen. I think government policy could help some, but any such policy is currently politically impossible.
If we’re going to talk about the 80s, shouldn’t we talk about how the early 80s recession was triggered deliberately by the Fed, and also talk about gas prices (which, IIRC, fell dramatically after the 70s oil shock)?
Today, gas prices remain high (which you know has almost nothing to do with US government policy). The recent recession was a full-blown financial panic. People are still up to their eyeballs in debt. Demand is meh. Scarily, as Ben notes, to the extent demand recovers but only b/c of borrowing, that’s not improvement.
” The levers of government policy don’t seem to be having the same impact that they used to, and the Federal Government’s fiscal problems mean that the idea of simply blindly dumping money into the economy just isn’t possible anymore. ”
Since 2010 when has rebuplicans even allowed “policy” to take place? And your second point is clearly an opinion – why would you believe the notion that anyone would “blindly” dump money into the economy? I for one do believe there is a strategy involved by which they believe that, get this, STRATEGICALLY INVESTING into the econnmy will yield a return. Obstructionism has just as much to do with the sluggish economy as anything else. I don’t buy your premise that the first stimulus (which was not big enough) and policy (or lack thereof since the affordable healthcare act through no fault of the president’s own) are the only causes of the sluggish growth.
Just my two cents…
@ JP…
And it’s the same story with UE numbers. They want to cut Government jobs, and then complain because public sector job losses are driving the UE numbers up.
Reagan and Both Bushes depended on Public Sector job growth to puch recoveries. Now Republicans refuse to allow that Public Sector growth…then blame Obama policies. If Obama was growing the Governmment like a Republican the economy would be in much better shape.
Republicans however want the economy to fail for political reasons. Treasonous if you ask me.
http://www.epi.org/publication/public-sector-job-losses-unprecedented-drag/
“…We need to increase the deficit by having government supplement worker wages on a permanent basis. …”
I don’t know about that.
We need to build stuff. While money is still cheap and there is excess labor force. It will never, ever be cheaper to invest in the future by building fixing and upgrading infrastructure.
Build, baby, build.
In related news the Social Security Trust Fund issued its annual report yesterday. The “drop dead” date for the Disability Trust Fund is now 2017; the “drop dead” date for the Social Security Trust Fund is now 2026. That assumes a) GDP growth averaging 3% per year; b) no recessions for the next ten years.
In related related news the Illnois TRS fund assumes a return of more than 8% per year.
@ Dave Schuler
SS is not a terribly difficult fix if you take the obstructionist congress out of the picture. President Reagan worked with congress to get it done in his day.
Of course today’s GOP is the party of Norquist, not the party of Reagan, and it is not wild speculation to say that conservatives WANT social security to fail…
@anjin-san:
Yes let’s appoint a dictator and just forget about that whole nasty representative democracy thing
@anjin-san:
That’s right, anjin-san, but it gets tougher to fix every day the Congress postpones considering it. I honestly don’t know what the Republicans want but the Democrats haven’t exactly been a Profile in Courage on this subject, either.
@Stormy Dragon: @Stormy Dragon: People get restive and maybe even get festive with idle hands, being told it ain’t getting no better. Expect the State to continue to grow and some sort of citizen’s stipend maybe even a return to the old days of factory town.
@Doug Mataconis:
Yes let’s appoint a dictator and just forget about that whole nasty representative democracy thing
You know that is not what he was suggesting. SS could be fixed if the Congress wanted to fix it, or if/when we get a Congress that will.
mantis,
On this and so many other issues, we get the Congress we deserve.
@Dave Schuler:
Unfortunately this resolves very simply:
1) Is the date in question after November, 2012?
Yes – No worries.
No – Kick the can.
2) See rule 1
@Doug Mataconis:
Unfortunately, you have a blind spot.
Lobbyists get the finest Congress they can buy. We are not so closely involved.
Now … did you have a solution for that?
A few trillion dollars in wealth, income, and demand was vaporized from the economy in the 2008 crash of the financial and housing markets. Anyone who expected anything other than anemic growth following that near Depression was delusional.
No real argument there, but at least Democrats want to govern and try and solve some of our problems. Tea Party types are in congress look like old school Soviet apparatchiks in their blind adherence to party doctrine. They appear to feel we have to destroy the village in order to save it.
Unfortunately Q2 is shaping up to be worse than Q1. It wouldn’t be all that surprising — except of course to the media — if we have a recession this calendar year. At best it appears as though we’re looking at a rather pitiful growth rate. It’s pretty darn bleak out there.
As for whether this sort of mess is a “new normal,” the ghastly irony is that it doesn’t have to be. Given the near impossibility, however, to effectuate the sort of sweeping political changes necessary fundamentally to change course — taxes, spending, regulations, entitlements, monetary policies, trade policies — it’s looking indeed like a self-fulfulling prophecy in motion.
I’ve talked to two CFOs & a CEO this week who said they are pretty encouraged by the overall economic picture. Things are certainly starting to cook in SF, but then our economy is not based on chicken ranching.
@Hey Norm: Infrastructure just isn’t a solution because it doesn’t require nearly the manpower it once did. Much better to send a check every month to every household and let individuals spend it as they will. Put it in the Fed’s hands as a fiscal tool and you free it from political manipulation. It’s a permanent boost to spending which means more jobs and incomes, it increases the freedom of each american and it will be spent much more effectively than large, capital intensive government programs.
@Doug Mataconis:
On this and so many other issues, we get the Congress we deserve.
Agreed.
The private sector is still deleveraging and the government won’t spend as much to make up for the consumption shortfall therefore GDP goes up by a smaller amount. This isn’t very hard to grasp, however if we could massively reduce the trade deficit many of our problems would be mitigated. That means we either need to weaken the dollar or force other currencies to appreciate against the dollar, copy the incentives used by other countries to increase investment, or maybe even engage in…gasp…industrial espionage like other countries to get ahead.
@john personna:
The only way for states to main the previous levels of spending would be to raise taxes. How does raising taxes help expand the private sector?
The U.S. need to “take its medicine” and stop the deifict spending at the federal levels. The economic, politics, and the culture of the U.S. cannot correct themselves until the U.S. stops deficit spending.
@Hey Norm:
The problem with adding public sector jobs during a recession is that those jobs never go away. That is what is described as the ratchet effect. Increasing government spending make the next recession worse since the private sector is smaller but the public sector is larger the next time.
What the U.S has to adjust to is that slow growth is the new normal. The only time that the U.S. achieve good growth numbers was in the middle of a speculative bubble. Given the new global economy, long term high growth rates are impossible to achieve.
Of course no one is thinking about what the chaning demographics of the U.S. will do to long term growth rates. Can the U.S. really sustain 2% growth as we become Mexico Norte.
@ Superdestroyer…
Then based on your comments I can only assume that you are content with high unemployment and slow growth.
What Republicans have done is stand economics on it’s head. They spent money when times were good. And now they want austerity when times are tough. This is the opposite of what should be happen. And then when the real economy goes all jabberwonky they want to blame the Democratic President who inherited their mess.
@ Ben Wolf…
Sorry. You’re nuts.
To get out of the Depression we spent tons of money on infrastructure.
One project was the Grand Coulee Dam. Without the Grand Coulee Seatlle and Portland never become the cities they are. That’s called investment. The returns are incalcuable.
Of course Republicans were against that project too.
Go figure.
@superdestroyer:
Maybe I’m missing something because this seems trivially false. States have two sources of funds, their own taxation, and transfers from the federal government. Only one of those is limited to current receipts.
@Hey Norm:
I am interested in growth. However, the crony capitalism of the right or the industrial planning (cap and trade, card check, green energy, ACA) are both slow growth strategy.
If you really cared about growth, you would support reducing immigration and giving jobs to Americans in order to spur growth.
However, since controlling others and centralization of power if the most important, Americans is doomed to slow growth no matter who is in power.
@superdestroyer:
Funny list. It is short on true Industrial Policy.
@ SD…
The Texas Miracle was fueled in large part by immigration so I’m not sure I buy that.
If Government spending was simply level we would be talking about 2.8% growth. Not great but nearly 30% better than 2.2%.
If Public Sector jobs were simply level since the Bush Contraction the UE would look much better.
The fact of the matter is that shrinking Government is holding back the economy in very real ways. Maybe the best thing is for Republicans to win the White House…because all Republicans do is grow Government and spend money.
@john personna:
The real politics of industrial policy is in the piciking of the winners and losers. Cap-and-trade, green energy, card check are all part of picking the winners and losers. And the real losers are designed to be private sector employers.
@Hey Norm:
If public sector employ had remained the same either state taxes would be higher or the budget deficit would be bigger. And remember, deficits are just pushing off costs into the future.
As I joke, any private company looking to open a new facility should avoid any town or city where the city hall or the school district central office is the nicest building in the town. That is not a town interested in the private sector.
@superdestroyer:
The deficit needs to be much larger.
There are no future costs to pay off. That you think there is shows a basic ignorance of how government high finance works.
@ Hey Norm: No offense, but you aren’t paying attention that it’s eighty years later. Spending on infrastructure was effective because construction was manpower intensive. Today it is capital intensive, doesn’t employ nearly as many for the same amount of work, and because of this a great deal of the money spent ends up in corporate profits rather than consumers pockets. The only way to ensure stimulus money gets to the consumer level is to inject it at the consumer level.
@superdestroyer:
It is the shallowest thing in the world to insist that environmental policies are not about the environment, and are just about “Industrial Policy.”
I get that if you are an idiot, and cannot grasp environmental chemistry, that it’s all magic. I get that. But at least pause to think that other people are doing the hard math.
@john personna:
In the clean water act, there is the concept of offset for wetlands. There is no environmental reason for offset but it was included in the act for economic reasons. If you look at NESHAPS, the air quality control regions and the emission permits were done for economic reasons.
For all the talk of helping the environment, almost all reductions in pollution in the U.S. from industrial sources has had to to with de-industiralization instead of specific regulations.
Of course, in the future, environmental regulations will be used to pick winners and loser and that is why progressives get so excited about enviornmental regulations while living in central urban areas.
@superdestroyer:
I presume the intent was to preserve wetlands, which do have a vital role in not just the ecosystem, but in environmental services we consume. (Literally, with many seafood creatures born there.)