The nation’s economy expanded at an annual rate of 2% last quarter, according to this morning’s GDP report. That’s faster than last quarter’s 1.3% and a bit above what most analysts were expecting, so that’s good. But it’s also just trend growth—2% is about what it takes to keep the job market pretty much where it is.
A few observations about the report:
–The positive factors boosting the economy’s growth last quarter were consumer spending and government. Investment and net exports were both drags on growth. The latter likely reflects slower growth in China and recessionary conditions in much of Europe.
–If you dig a bit into the investment accounts, there’s a bit of good news consistent with a theme I’ve been stressing of late: improvement in the housing market. Investment in housing added a third of a point to growth last quarter and has been a plus factor for the last six quarters (see figure below).
–On a year-over-year basis—a less volatile gauge of the underlying growth pace—GDP growth has done a little better, up 2.3%.
–Unlike home investment, business investment in capital goods and structures was down last quarter. I suspect this in part reflects a “wait-and-see” attitude by businesses right now. Questions like “who’s going to win the election?”…and “how will the fiscal cliff get resolved?”…may be weighing on businesses’ “animal spirits.”
–I could easily write the campaign press releases: Rom/Ry: growth too slow! Ob/Bid: 13th quarter of expansion, growth picked up from last quarter, no time to change horses (I’d add: especially when the other horse wants to run hard in the wrong direction).
The President has the edge on these talking points. It’s momentum that matters right now, and thus the fact of faster third quarter over second quarter growth helps him more than the fact that growth is at trend (and not faster).
Moreover, the President and the D’s have two strong talking points here, both of which have the added advantage of being true—not always the case with talking points these days. First, had Republicans considered the President’s American Jobs Act from over a year ago, GDP would be growing faster right now, probably by about a point according to outside estimates, and the difference between 3% and 2% would actually be a big deal right now.
Second, Congress could resolve the fiscal cliff if the R’s would agree to the expiration of the Bush tax cuts on only the top 2% of households. Or, as business leaders suggested yesterday, introduce a different compromise that includes new revenues along with the cuts we’ve made so far. Even beginning to move in that direction would be a useful signal that could help with the “wait-and-see” problem noted above.