Counterparties: America persists in underwhelming
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The one thing that can be said with certainty about this morning’s GDP figures, which showed the US economy advancing at a weak 2.5% pace, is that they’re ephemeral. Many of the data points that make up this advance estimate “could vanish in a flash of re-estimation,” as Matt Yglesias writes. Besides, the Bureau of Economic Analysis 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 today’s GDP figures show economic growth that’s “persistent” but “underwhelming,” in the words of Credit Suisse’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 in 10 of the previous 11 quarters. The six-month decrease in government spending was the largest since the end of the Korean War, according to 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 to 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, observes Neil Irwin.
The data on 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.
It’s unclear what this resilience in consumer spending means for the future. Ryan Avent says this month’s numbers suggests that “household deleveraging may have many families feeling more financially secure and ready to spend.” However, it appears many consumers could only afford to spend more by drawing down savings: 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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