Since before we got the first estimate of first-quarter growth in gross domestic product in April, forecasters knew the tally was going to be weak. But most of them missed just how weak it would be. They did so again for the second estimate. And again ahead of the third and final estimate released Wednesday by the Commerce Department. That report
estimated that GDP contracted at a seasonally adjusted annual rate of 2.93 percent, the worst showing since the first quarter of 2009 in the depths of the Great Recession. As always, the third estimate is based on more complete data than are available for the first two.
The consensus of experts surveyed before Wednesday's announcement was that the contraction would be between 1.8 percent and 2.0 percent. On a year-over-year basis, GDP has grown a weak 1.5 percent.
Having blamed harsh weather for much of the poor first-quarter showing, most forecasters expect a strong rebound in the second quarter. But even if second-quarter GDP were to match its best quarterly result in the past five years, annualized growth for the first half of 2014 would be below 1.0 percent. And that's going to make it a lot harder to reach the 3-4 percent growth economists were predicting for 2014 late last year.
Five years after the official end of the Great Recession, the economy is still plagued by choked growth, acute levels of high unemployment and chronically stagnant wages. But, as they have been for that entire period, happy-talkers are telling us the good times are just around the corner.
There is more analysis below the fold.
Of the details of the third GDP estimate, the Commerce Department stated:
Real [that is, inflation-adjusted] personal consumption expenditures increased 1.0 percent in the first quarter, compared with an increase of 3.3 percent in the fourth. Durable goods increased 1.2 percent, compared with an increase of 2.8 percent. Nondurable goods decreased 0.3 percent, in contrast to an increase of 2.9 percent. Services increased 1.5 percent, compared with an increase of 3.5 percent.
Real nonresidential fixed investment decreased 1.2 percent in the first quarter, in contrast to an increase of 5.7 percent in the fourth.
One key element of the GDP measurement can be found in real final sales of domestic product. That is, inflation-adjusted GDP minus the change in private inventories. That measure fell at a 1.3 percent pace in the first quarter, revised down from the 0.6 percent growth level reported in the first estimate.
Neil Irwin at Economix writes:
[T]he fact that the economy as a whole could show such a sharply negative result thanks to a few combined idiosyncratic factors is also a reflection of an underlying weakness.
When growth is strong, even some bad weather and an unexpected inventory swing don’t cause a contraction in the economy, or at least not a contraction on the scale reported for the first quarter of 2014. But because the pattern of growth has been roughly in the 2 percent range or a bit below that for years now, the economy is more vulnerable to shocks that leave G.D.P. growth in negative territory.
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
"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