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.And yet Stephen Roach expended thousands of pixels on Monday arguing that there is an important difference between "good growth" and "bad growth".
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."
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.