The U.S. economy may have contracted more than originally estimated in the first quarter. New healthcare spending data suggests the economy may have shrunk as much as 2% (the original estimate was just slightly over 1%). However, a lot of that GDP drop was due to low inventory accumulation, says Peter Coy, and that’s actually good news for next quarter, when firms will likely produce more to make up that inventory.
Goldman Sachs’ top economist, Jan Hatzius, thinks that “the US economy is now growing at an above-trend pace”, despite the drop in Q1 GDP. This is partially because Hatzius sees good things going on in the housing market, and sees a growing trend of millennials (finally!) moving out of their parents’ houses and forming households. Joe Weisenthal agrees with Hatzius’s conclusion, mostly, he says, because the credit markets are expanding. David Wessel tweets Macro Advisors’ GDP tracking: -2.1% for the first quarter of 2014, but anticipating 3.7% for the second quarter.
A piece by Binyamin Appelbaum in the New York Times today looking at the broader picture suggests the economy is stagnating. Appelbaum quotes Larry Summers’ April speech on secular stagnation — “A soft economy casts a substantial shadow forward onto the economy’s future output and potential” — and generally concludes that the US economy is stuck in a period of slow growth.
Dean Baker says the economists quoted in Appelbaum’s story seem confused. “If economists really have no clue about the economy, why do we waste good money on them?” he asks. He thinks economists need to be paying more attention to low productivity growth. It might be a long-term structural trend; on the other hand, “when the economy is weak and therefore not generating decent jobs, even highly educated workers end up taking low paying low productivity jobs … This leads to lower economy-wide productivity”.
Jared Bernstein also has thoughts regarding the confusion in the Appelbaum piece. He says it’s fairly clear that what we need is stimulus:
Investing in public infrastructure, helping the long-term unemployed with extended benefits or direct job creation, targeting the trade deficit to help our manufacturers, pressing on the fiscal and monetary accelerators—I know there are those who will disagree, but these are well-established and well-understood responses, or at least they used to be.
Speaking of fiscal stimulus: Eric Cantor lost his primary to Tea Party contender David Brat this week, making it even more likely there will be another debt ceiling standoff in Congress next year. — Shane Ferro
On to today’s links: