Friday, April 27, 2012


The BEA's advance estimate puts real GDP growth at 2.2% for the first quarter.  That's down a bit from 3.0% in the last quarter of 2011, but overall its consistent with the picture over the last two years of an economy that is growing, but not quickly enough to make up the lost ground from the severe recession in 2008-09.

For the US economy, growth in the 2-3% range is consistent with stable unemployment. If the unemployment rate was 5%, this report would have been fine, but since the unemployment rate is still above 8%, its quite disappointing.

The blue line is real GDP and the red line is the employment-population ratio (part of the dip might be due to demographics).

Things looked better on the consumer side - durable goods purchases rose at a 15.3% rate.  But businesses are still holding back on investment - equipment and software investment rose at a weak 1.7% pace.  Investment in housing is finally growing a little bit, but from a very low base.  This chart shows three sub-components of investment as shares of GDP since 1970 - equipment and software (blue), residential housing (orange) and nonresidential structures (green).
Government was a drag, again; absent the decline in government purchases, growth would have been 2.8%.  While austerity is pushing European economies back into recession, semi-austerity here is holding back the US recovery.  In this particular quarter, most of the dip in government purchases was due to defense, so it may partly reflect quirks of the timing of exactly when the Pentagon spends its money.

The inflation rate, measured by the GDP deflator, was 1.5%.  However the personal consumption expenditures (PCE) deflator rose at a 2.4% rate and core (excluding food and energy) PCE inflation was 2.1%.  Given the apparent emphasis by the Fed on keeping PCE inflation below 2%, that doesn't give them room to maneuver - i.e., it makes it even tougher for the "doves" on the FOMC, alas.

More reactions: Ryan Avent, Brad PlumerPaul Krugman.

Update: More from Calculated Risk, Jim Hamilton, and me, in a story by Kevin Hall of McClatchy Newspapers:
“Given corporate profits, you might have hoped for more investment growth,” Craighead said. The economy continues to “hit the snooze button. … It’s acceptable growth in the normal economy, but given how many people are unemployed it is disappointing.”

Read more here:

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