Out of Control Policy Blog

GDP Continues Its Fall to 1.3%, Key Statements in the BEA Report

Second quarter GDP numbers are in, and they are not pretty. By now you have probably seen the headline numbers: 1.3% annualized gross domestic product growth between April and June 2011.

That is a very weak number. It is lower than anticipated—not that "economists" have been very accurate in their predictions of economic growth this year. But even more disconcerting, the growth rate for GDP in the first three months of 2011 was reviewed, and downgraded from 1.9% to a mere 0.4%. To make it worse, the Bureau of Economic Analysis also took another look at GDP for the last three months of 2010, and lowered the GDP number from 3.1% to 2.3%!

In short, the fauxcovery is in full form. It is hard to even call this a jobless recovery, since there isn't much recovery. Economic slow down later this year will probably be blamed on the end of the stimulus, but what is it doing right now anyway? Is there strong correlation between GDP and outlays? Not really. And the Fed has tried to blame slow economic growth on the Arab Spring pushing up oil prices and the 2011 Japanese earthquake slowing down supply chain routes, but this trend stems back at least to last Fall. With that in mind, here are a few key statements from the GDP report this morning:

  • "Real personal consumption expenditures increased 0.1 percent in the second quarter, compared with an increase of 2.1 percent in the first. Durable goods decreased 4.4 percent, in contrast to an increase of 11.7 percent. Nondurable goods increased 0.1 percent, compared with an increase of 1.6 percent." Translation: people are not buying as much stuff as they were earlier this year.
  • "Real federal government consumption expenditures and gross investment increased 2.2 percent in the second quarter, in contrast to a decrease of 9.4 percent in the first. National defense increased 7.3 percent, in contrast to a decrease of 12.6 percent. Nondefense decreased 7.3 percent, compared with a decrease of 2.7 percent. Real state and local government consumption expenditures and gross investment decreased 3.4 percent, the same decrease as in the first." Translation: the government spent a lot more money in the second quarter, making what little growth we did see largely dependent on taxpayer dollars just getting recycled into the economy.
  • "For the period of contraction from the fourth quarter of 2007 to the second quarter of 2009, real GDP decreased at an average annual rate of 3.5 percent; in the previously published estimates, it had decreased 2.8 percent." Translation: the recession was deeper than previously thought.
  • "For the period of expansion from the second quarter of 2009 to the first quarter of 2011, real GDP increased at an average annual rate of 2.6 percent; in the previously published estimates, it had increased 2.8 percent." Translation: the recovery has been slower than previously thought.

Ultimately, GDP is not a perfect measure of the economy. In fact it is quite flawed. But most of its flaws are due to over statement, not understatement. So if anything this dreary analysis is too rosy. Still, it is an indicator worth watching to develop some sense of where the economy is heading. When the stimulus, cash for clunkers, quantitative easing, and housing programs were all initiated a couple years ago was this the intended goal?

Anthony Randazzo is Director of Economic Research


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