In the second of three monthly reports for the first quarter of 2013, the Bureau of Economic Analysis
announced Thursday that real—that is, inflation-adjusted—annualized growth in gross domestic product was 2.4 percent, 0.1 percent lower than calculated in last month's report. The estimated growth in the first quarter compares with 0.4 percent for the fourth quarter of 2012 and 2 percent for the first quarter of 2012. GDP growth all of last year was a weak 1.7 percent.
The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures (PCE), private inventory investment, residential fixed investment, nonresidential fixed investment, and exports 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.
The acceleration in real GDP in the first quarter primarily reflected an upturn in private
inventory investment, an acceleration in PCE, a smaller decrease in federal government spending, and an upturn in exports that were partly offset by an upturn in imports and a deceleration in nonresidential fixed investment.
Although some economic news—housing sales, consumer spending and consumer confidence, for example—indicate that analysts who are predicting that second-quarter GDP will be weaker than the tepid performance of the first quarter may be overly pessimistic, there are also signs of weakness, not the least of which are the effects of the $85 billion federal budget sequester.
It is, in fact, reduced government spending—at the federal, state and local level—that is pulling the growth in GDP downward. Federal spending declined at an annual rate of 8.7 percent in the first quarter, compared with 14.8 percent in the fourth.
National defense spending decreased 12.1 percent, compared with a decrease of 22.1 percent. Nondefense decreased 2.1 percent, compared with an increase of 1.7 percent. Inflation-adjusted state and local government spending and investment decreased 2.4 percent, compared with a decrease of 1.5 percent in the fourth quarter.
It was the 11th drop in federal spending in the past 12 quarters. The anti-stimulus.
Despite some expectations that consumer spending would fall as a consequence of the restoration of the 2 percent payroll tax, that has not been the case. In fact, consumer spending for the first quarter was reported at 3.4 percent, up 0.2 percent over first estimate and well above the 1.8 percent clocked in the fourth quarter. But there's a catch. Much of that spending is being fed out of savings. Personal income only rose 0.2 percent in March, the BEA reported, the latest figures available. In the long run increasing spending while cutting savings is unsustainable.
When excluding food and energy, inflation posted at 1.6 percent annualized rate versus 1.3 percent the prior quarter.
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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.