Cries of Despair Induced by This Morning’s Disappointing First-Quarter U.S. GDP Growth Report
Nick Bunker is out of the gate with his take on the surprisingly low 0.2%/year first-quarter US real GDP growth rate:
…during the recovery, we should be standing by the alarms but not quite sounding them yet. Personal consumption expenditures… contributed 1.31 percentage points… a deceleration…. Net exports were the biggest drag… 1.25 percentage points… a dramatic decrease in the level of exports…. Gross fixed investment was also a drag… shaving off 0.4 percentage points….
Real private domestic final purchases… is a good measure of the underlying momentum of the economy and predictive of the next quarter’s growth rate. In the first quarter, it only grew at about 1 percent…
So let’s review:
Over the past four quarters U.S. real GDP has grown at a rate of 3.0%/year:
Over the past eight quarters U.S. real GDP has grown at a rate of 2.5%/year:
Over the past sixteen quarters U.S. real GDP has grown at a rate of 2.3%/year:
Thus there has been no gap-closing at all throughout the recovery in real GDP relative to pre-2007 trends:
The labor market has recovered between 1/2 and 1/3 of the gap between the Lesser Depression nadir and what we used to see as full employment:
But that labor-side gap closing has been offset by the shadow the Lesser Depression casts on future growth via depressed investment and depressed business organization development. And we still do not know whether the gap between current labor-force utilization and full employment remains large, or whether the Lesser Depression has also deeply and permanently damaged the job-worker matching process. The unemployment rate’s rapid decline hints at the second, but only hints.
All this makes me conclude that talking about, let alone undertaking, monetary and fiscal policy normalization in the U.S. right now seems to me to simply be not fully sane. The balance of risks and opportunities is such that we ought to be talking about how to alter fiscal, monetary, and credit policies in order to sharply increase demand and put people back to work–and then to back off such policies if the inflation numbers tell us that the Lesser Depression did so much damage to potential output growth that we are, right now, in fact close to the economy’s current sustainable productive potential.