Nelson D. Schwartz reports:
Even if growth does pick up later this year, the rate will still most likely be below the postwar average of just over 3 percent, said Dan North, chief economist at Euler Hermes North America, a larger insurer.This is the first of what will be three government estimates of real—that is, inflation-adjusted—gross domestic product between now and the end of June. The first estimate is always based on incomplete data, and the next two monthly reports for the same quarter could show significant differences from Wednesday's as better information about the economy's performance becomes available.
“We’ve been living in sub-3 percent land, and people have gotten used to that as the new normal,” Mr. North said in an interview before the Commerce Department announcement. “But it’s not. It’s anemic.”
GDP is a flawed gauge of the economy, but it is the only measure of the total output of goods and services. More on that in a moment.
Please read below the fold for more analysis.
The steep fall in growth was chalked up to lower exports, reduced levels of non-residential fixed investment, a decrease in private inventory investment, a deceleration of personal consumption expenditures and less spending by state and local governments. Federal spending rose and the United States imported fewer goods.
One key measure within the GDP gauge is real final sales of domestic product. That is, inflation-adjusted GDP minus the change in private inventories. Real final sales increased 0.7 percent in the first quarter, compared with an increase of 2.7 percent in the fourth.
Real personal consumption expenditures increased 3.0 percent in the first quarter, compared with an increase of 3.3 percent in the fourth. Durable goods increased 0.8 percent, compared with an increase of 2.8 percent. Nondurable goods increased 0.1 percent, compared with an increase of 2.9 percent. Services increased 4.4 percent, compared with an increase of 3.5 percent.Some analysts said the underlying economic situation is better than the GDP numbers indicate. One figure spurring their thoughts in that direction was the first-quarter's estimated increase in personal consumption expenditures—consumer spending—which clocked in at 3 percent. But PCE has been outpacing increases in wages. Which means consumers are spending from their savings or at least saving less. That's something that cannot be long sustained.
Jared Bernstein, now a senior fellow at the Center on Budget and Policy Priorities and previously chief economist and economic adviser for Vice President Joe Biden, wrote on his blog:
Remember, that 0.1% is an annualized number–the actual, quarterly percent growth of GDP was 0.03%, meaning that the real level of the value of goods and services in the US economy was essentially unchanged in the first three months of the year. That’s unusual and alarming, if it’s correct.As I always point out, because of the flaws in the way it measures economic activity, it is important to use the GDP in conjunction with other economic factors when measuring the economy's health. Robert F. Kennedy's assessment in 1968 still resonates:
As noted, there’s a lot of preliminary data in here and one bad report doesn’t immediately shift the longer term trend, as per the year/year rates cited above. But I and others have consistently warned about seeing “green shoots” before their time, and this GDP report is a reminder of the important caveat. As much as we’d like it to be otherwise, the US economy is clearly not yet out of the sloggy-growth woods.
"Too much and for too long, we seemed to have surrendered personal excellence and community values in the mere accumulation of material things. Our Gross National Product, now, is over $800 billion dollars a year, but that Gross National Product - if we judge the United States of America by that - that Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl. It counts napalm and counts nuclear warheads and armored cars for the police to fight the riots in our cities. It counts Whitman's rifle and Speck's knife, and the television programs which glorify violence in order to sell toys to our children. Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country, it measures everything in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans."Inadequacies in the GDP gauge have spurred efforts to develop a better measure or supplements to it. These include France's Commission on the Measurement of Economic Performance and Social Progress, Canada's Genuine Progress Index (a version of which has recently been tried out in Maryland), the Human Development Index and the Gini coefficient.