Counterparties: America persists in underwhelming
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The one thing that can be said with certainty about this morningâ€™sÂ GDP figures, which showed the US economy advancing at a weak 2.5% pace, is that theyâ€™re ephemeral. Many of the data points that make up this advance estimate â€ścould vanish in a flash of re-estimation,â€ť asÂ Matt Yglesias writes. Besides, the Bureau of Economic AnalysisÂ is about to recalculate all GDP data back to 1929 in order to better account for the value of intellectual property.
Those caveats aside, the todayâ€™s GDP figures show economic growth thatâ€™s â€śpersistentâ€ť but â€śunderwhelming,â€ť in the words of Credit Suisseâ€™s Jay Feldman. Government spending, which fell at 4.1% rate in the first quarter, continued to be a drag on growth, as it has been inÂ 10 of the previous 11 quarters. The six-month decrease in government spending was the largest since the end of the Korean War, according toÂ Capital Economics. The fall was driven in large part by an 18.5% annualized decline in defense outlays over the past two quarters. The White House chalked up a piece of that drop-off toÂ sequestration, although those mandatory budget cuts went into effect only in the final month of the quarter.
Investment was more of a mixed bag: residential investment rose, but business investment in structures like factories and office buildings fell. Though business investment in equipment and software was up, it increased by a lower rate than earlier in the recovery, observesÂ Neil Irwin.
The data onÂ personal income and spending were also a bit puzzling. Disposable income fell by over 5%, thanks in part to the increase in the top marginal tax rates, the expiration of the cut in the payroll tax, and more expensive energy. However, that dip seemed to have little impact on personal consumption expenditures, which rose at a 3.2% annual rate.
Itâ€™s unclear what this resilience in consumer spending means for the future.Â Ryan Avent says this monthâ€™s numbers suggests that â€śhousehold deleveraging may have many families feeling more financially secure and ready to spend.â€ť However, it appears many consumers could only afford to spend more by drawing down savings:Â Jared Bernstein points out that the savings rate fell by two percentage points to 2.6%, the lowest since the fourth quarter of 2007. — Peter Rudegeair
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