In the first of three monthly reports for the first quarter of 2013, the Bureau of Economic Analysis
announced Friday that real—that is, inflation-adjusted—annualized growth in gross domestic product was 2.5 percent. That is well below the 3.2 percent consensus of Dow Jones experts surveyed ahead of time. It compares with 0.4 percent for the fourth quarter of 2012 and 2 percent for the first quarter of 2012. GDP growth for all of last year was a paltry 1.7 percent.
While it was a vast improvement over the fourth quarter, the weak first-quarter growth of GDP combined with analysts' predictions that the second quarter will be weaker still once again reflects the sluggish nature of U.S. economic growth since the Great Recession officially ended almost four years ago. That, of course, is not good news for the job market.
In May and June, the BEA will fine-tune its GDP estimate for the first quarter based on more complete data. The change in later reports can be significant.
The BEA said the rise in real GDP growth in the first quarter was primarily a reflection of "positive contributions from personal consumption expenditures (PCE), private inventory investment, exports, residential investment, and nonresidential fixed investment that were partly offset by negative contributions from federal government spending and state and local government spending. Imports, which are a subtraction in the calculation of GDP, increased."
While the BEA's key measure of consumer spending was up a respectable 3.2 percent versus 1.8 percent in the fourth quarter, the best since the end of 2010, personal income decreased by 3.2 percent in the first quarter compared with an increase of 8.1 percent in the fourth quarter. Some of that drop in income was due to the end of the payroll tax cut in January. What it means practically speaking is that consumers increased their spending by dipping into their savings, an unsustainable practice over the long haul. "Personal saving as a percentage of disposable personal income—was 2.6 percent in the first quarter, compared with 4.7 percent in the fourth," the BEA reported.
Please continue reading additional analysis of GDP growth below the fold.
Another key measure, real final sales, which is GDP minus the change in private inventories, grew by a weak 1.5 percent during the quarter, compared with 1.9 percent the final three months of 2012.
And once again, positives in the private sector were offset by austerity measures—call them anti-stimulus—in government spending. Real government spending and gross investment fell 8.4 percent in the first quarter, compared with a decrease of 14.8 percent in the fourth:
"National defense decreased 11.5 percent, compared with a decrease of 22.1 percent. Nondefense decreased 2.0 percent, in contrast to an increase of 1.7 percent. Real state and local government consumption expenditures and gross investment decreased 1.2 percent, compared with a decrease of 1.5 percent."
This was the 10th drop in government expenditures in the past 11 quarters. If the sequester is not done away with, the numbers for government spending will be even worse in the second quarter.
As I always point out, GDP is the most complete measure of all goods and services. But its flaws have long been acknowledged. As Robert F. Kennedy said 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."
These flaws have generated efforts to develop a better gauge or at least 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.