Wednesday, June 29, 2005

Final revisions point to "bad growth"

There seems to be back-slapping all around this morning in the wake of the release of the final revisions to 2005:I GDP.
The economy logged a solid 3.8 percent growth rate in the first quarter of 2005, a performance that was better than previously thought and a fresh sign the expansion is on firm footing.

The new reading on gross domestic product, released by the
Commerce Department on Wednesday, marked an improvement from the 3.5 percent annual rate estimated for the quarter just a month ago and matched the showing registered in the final quarter of 2004. . . .

The first-quarter's showing was slightly better than the 3.7 percent growth rate that economists were forecasting before the report was released.

"It was a solid quarter, particularly in the face of high and rising energy prices," said Mark Zandi, chief analyst at Economy.com. "It illustrates the resilience of the economy and the durability of the current economic expansion."
And yet Stephen Roach expended thousands of pixels on Monday arguing that there is an important difference between "good growth" and "bad growth".
The former is well supported by internal income generation and saving. The latter is driven by asset bubbles and debt.
The final numbers for 2005:I point pretty strongly toward "bad growth". Nominal wages and salaries were up 1.7% in 2005:I, but PCE inflation was up 1.9%. Thus another quarter of falling real income from labor. This hardly stopped us from spending, of course; personal consumption expenditures were up 3.6% in real terms. One can't point to non-labor income as the firm foundation of this spending, however, since overall personal savings settled in at a mere 0.9% -- the second time in three quarters we have spent more than 99% of our personal income.

Final revisions also show a US economy more dependent on housing than at any time in the last 25 years -- now 5.8% of GDP -- and growing -- up 11.5% in 2005:I. As nonresidential investment cools -- growing in real terms by double-digits in six of the seven quarters 2003:II to 2004:IV, yet down to 4.1% last quarter -- more of the investment load is borne by the residential sector. And it should be no surprise in light of the miniscule 1.1% annualized inflation rate in housing.

Even though the Fed is all but certain to raise the federal funds rate to 3.25% tomorrow, it's been a long time since Alan & Co. really had the power to take the punch bowl away from these party-goers. Everybody is riding high on Mad Dog and Cisco -- promising painful headaches the morning after.

69 Comments:

At 11:09 AM, Blogger Elaine Supkis said...

Bush needs high unemployment so he can force us into the military to die for Halliburton and big oil. So he is happy with what is coming next. Depressions are good for fascists.

Oh, and by the way, much of the "manufacturing" in the foreign auto makers who have trojan factories all over non-unionized, no tax states, is fake make-work so they can continue to import autos while trumpetting that they are building cars here in America.

Our industrial base is much more rotted than the government lets on.

 
At 11:45 AM, Blogger CalculatedRisk said...

So the two leading factors in the upwards GDP revision were services (mostly military sales) and housing investment.

Usually I'd say any growth is good growth, but I think growth based on military and RE investment (when RE is already in a bubble) qualifies as "bad" growth.

Best Regards!

 
At 1:02 PM, Anonymous Anonymous said...

Agreed, General and CR!

 
At 3:27 PM, Anonymous Anonymous said...

GDP is like the bathroom scale, it measure weight. Whether it's fat or muscle requires further investigation, the type if investigation the cheerleading media would rather not do.

-- a different chris

 
At 3:41 PM, Blogger Camille Roy said...

It seems to modest me that growth in the current scam of things simply means the rich get richer and the poor and middleclass get poorer.

It's not *my* growth in other words. So pish on it.

 
At 7:31 PM, Blogger calmo said...

This is new: recognizing good and bad growth.
Not only viewed from Roach's position as growth funded by debt but also considering the war in Iraq that produces the military hardware growth at the expense of other more constructive enterprises and the general war on terror which does not expedite the general business of this country.
The respectable number 3.8%, does not pacify many, for good reasons.
Could be it does not respect the more glaring elements of the economy: a growing debt and a growing military component that gets special and separate consideration.

 
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At 12:15 AM, Anonymous cm said...

At some conceptual level, it is quite straightforward, even if not invariant over "ideology" -- what is the purpose of running an economy, what are productive and unproductive ventures/activities, how efficiently are outcomes delivered based on resource inputs, etc.

When postulating that the purpose is to enhance aggregate welfare (perhaps a heroic assumption, but one supported by official propaganda), and efforts to that end are productive, and considering what is put on the table and how many resources (energy, commodities, labor) it takes and the effect on the environment and people's health, then the US and indeed the world economy does not look very favorable.

 
At 9:04 AM, Anonymous dd said...

Maybe not "bad growth" maybe just "bad numbers." Quote Barry , "GDP numbers, IMHO, have now entered the realm of Santa Claus, the Easter Bunny, and honest politicians. They are all fictional characters."

Strange things are indeed afoot with the GDP and to to think some chastised me for suggesting that the federal employees would succumb to adjusting the numbers just to keep their jobs.

 
At 11:21 AM, Blogger calmo said...

"...to think some chastised me for suggesting that the federal employees would succumb to adjusting the numbers just to keep their jobs."
I feel recognized with that [some] and need to hurl back something, anything.
How about Barry has an accomplice? Barry needs to show the work to make his "fictional" claim stick or be beaten over the head with his own stick.
Sorta.

 
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