I’ve become a little obsessed with this report, because it’s such a beacon of light pointing the way forward, while policy makers muck (that’s with an ‘m’) around in the darkness.
In this biz, you’ve got to be a “stat-whisperer,” able to hear what the dry statistical reports are whispering to you. Except for this GDP one along with the recent jobs reports are not whispering for policy makers to pivot to jobs policies: they’re shouting it.
First, these useful graphics from my CBPP colleague Hannah Shaw provide a breakdown of the component parts of GDP growth. Clearly, the contraction in the gov’t sector—mostly state and local gov’ts—is a major factor in the slowdown in the first half of this year, but the sharp decline in consumer spending—70% of total GDP—was also an important past of the story last quarter.
Second, there’s been some buzz in the business pages that there’s evidence of inflation accelerating in this report. That didn’t seem right given how much excess capacity there is in the economy, and it’s important to get this right or policy makers will have yet another excuse to sit on their butts and not do anything about all this (“we’re overheating!!”).
So I took a closer look. The best way to measure inflationary pressures is to take out volatile food and energy prices—their volatility distracts from the question of whether persistent price pressures are building—and look at core inflation on a year-over-year basis. As the figure below reveals, that measure is growing a bit more quickly in recent quarters, but it’s well within the safety zone (central bankers typically don’t start raising eyebrows until this measure flirts with 2%).
Based on inflation
There should be no hesitation
To help the nation
Through more stimulation.