Last Look at 2011q2 GDP, I Promise

July 30th, 2011 at 11:03 am

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%).

Source: BEA


Based on inflation
There should be no hesitation
Nor procrastination
To help the nation
Through more stimulation.

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6 comments in reply to "Last Look at 2011q2 GDP, I Promise"

  1. Raul L. says:

    I’d like to point out that the numbers you have posted for the First Quarter 2011 graphic do not match the BEA data. Consumption should be 1.5% and Investment should be 0.5%.

    Is there any suggestion out there as to how one can convince policymakers to pass another stimulus package? I support the idea, but this seems very unlikely given the current athmosphere.

    • Jared Bernstein says:

      Thanks for that catch and sorry about that…fixing now.

      Agree re ‘very unlikely’ but I’m still going to go down trying. I’d say some kind of payroll tax break is plausible before year end.

  2. perplexed says:

    Why are we not calculating and communicating the cost of the output gap on a quarterly (monthly, weekly, daily?) basis and forcing the media & politicians to discuss it & compare it other costs we are incurring. What is the contribution of the output gap to the deficit? Is there a statistic we calculate now that’s more important and relevant to the national discussion? The only place you see it even mentioned is on economics blogs. When the public sees what the output gap cost the country each day, it will lend some perspective to the other discussions. Unemployment rates, labor participation rates, GDP growth rates, etc. all tell the public “how to build a watch,” the dollar cost of the output gap tells them “what time it its.” Let’s embarrass the media & politicians into being able to intelligently discuss it and why NOTHING is being done about it!

  3. Misaki says:

    And yet one of the most common solutions suggested by economists for a high public debt is “a short round of inflation”.

    Taxes or inflation, and both of them are unpopular enough that the majority of the public is opposed to government spending to create jobs.

    • Joseph Patrick Bulko MBA says:

      Even if the public were not opposed to government spending to create jobs, it’s unlikely that we’ll see even a useful penny anytime soon during this sudden era of concern about the more or less artificial “debt crisis.” What we need is a private-sector solution, one that uses the power of capitalism and free enterprise (and not whining about the government’s inaction). The mortgage-backed security (MBS) based financial industry meltdown provides the perfect template. Simply replace the MBS with what I’ve designated as a venture-backed security (VBS) and, voila, a tsunami of new business creation and lots and lots of new jobs (=incomes =increased consumer spending) and the U.S. economy is turbo-charged back to full employment. Read the details of the proposal here:

      Joseph Patrick Bulko MBA

  4. Jim Edwards says:

    Even core inflation is impacted strongly by higher energy costs. Removing that factor drops inflation to a rather insignificant number. But nobody wants the true number. They want the number that says do what I’ve always wanted, i.e. Republicans, or see there’s nothing I can do, i.e. Obama.