Apr 27, 2012 at 9:00 am
The nation’s economy expanded at an annual rate of 2.2% in the first quarter of this year. That’s a bit below what was expected and, like much of what’s been coming across the statistical transom lately, it’s a mixed report.
Here’s my quick take but more to come when I get a break in the day.
–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!!”
–Consumers continue to spend more freely than you’d expect given weak wage and income growth. Consumer spending grew almost 3% in the quarter and, at about 70% of total GDP, it contributed two percentage points to the 2.2 percent growth rate.
–Investment in both businesses and inventories slowed in the quarter.
–Since mid-2010, state and local government cutbacks have been a drag on GDP growth. Last quarter, the federal government moved into austerity mode as well, and together, the government sectors sucked 0.6 percentage points off of growth (see figure for state and local drag).
In a sane world for economic policy, we’d look at the very low interest rates on government borrowing, the persistently high jobless rate, the underlying slog we see in today’s GDP report, and the state and local fiscal drag, and we’d apply some serious fiscal stimulus in the form of help to the states, which must balance their budgets. But this is not the world we live in right now.
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