Counterparties: America persists in underwhelming

By Peter Rudegeair
April 26, 2013

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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

On to today’s links:

New Normal
Who really needs an AAA rating these days? Not the world’s largest economies – FT Alphaville

Meet Apple, the new Microsoft – Matt Phillips

Reinhart and Rogoff defend their research on debt and GDP – NYT
Dear Robert Shiller: “not all price increases are temporary” – Adam Ozimek

Crisis Retro
Goldman’s “Fabulous Fab” is now pursuing a doctorate in economics at the University of Chicago – WSJ

Even More TBTF
Is the Brown-Vitter banking reform bill too simplistic? – DealBook
“This is the appropriate direction for regulation” – Matt Yglesias

Long Reads
Spring break for nerds: Inside the SXSW industrial complex – Noreen Malone

Our feel-good war on breast cancer – NYT
February 2012 analysis: The proportion of money the Susan G Komen Foundation spends on scientific research has been steadily declining – Reuters

Fiscally Speaking
28 slides on the Federal budget – CBO

Gray Areas
Banks won’t do business with Colorado’s legal marijuana growers – Guardian

Ties to a Russian mob-run poker ring may have cost Marc Lasry the ambassadorship to France – NY Post

Mobile Wars
Low to mid-market smartphones could undercut the Samsung-Apple war – WSJ

They’re Just Like Us
C-list socialites squabble over child support payments – DealBook

The world’s first Bitcoin local economy: “Bitcoin scares people in suits, which I like” – Guardian

Be Afraid
Thousands of radioactive pigs are wandering Europe, thanks to Chernobyl – Modern Farmer

George Soros buys a 7.9% stake in JC Penney – DealBook

And, of course, there are many more links at Counterparties.


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“The six-month decrease in government spending was the largest since the end of the Korean War”

That can’t be, Obama is a socialist who is spending the U.S. to death.

Posted by KenG_CA | Report as abusive

UK growth: 0.3%
US growth: 2.5%

Now tell me the US has it bad!

Of course personal income and spending was relatively untouched when disposable income went down; the tax cut was geared at the richest who hadn’t spent this upper tranche of their income anyway, but saved it instead. That’s why the savings rate decreased as well. Only puzzling to Tea Party Republicans.

As for the cut in government spending, this *will* have a negative effect on growth by the end of the year.

Posted by FifthDecade | Report as abusive

FifthDecade; US GDP growth is annualized; use 0.6% to compare to UK’s 0.3%

without the swing in inventories, 1st quarter GDP would have been lower than the 4th..

Posted by rjs0 | Report as abusive

@Fifth, the 2% payroll tax increase hits everybody, and is a larger increase than the token gesture of raising the top tax rate on the ultra-wealthy.

I’m sure the cut in government spending is having an impact on growth, but that is simply not a sensible or cost-efficient avenue for generating growth.

And I’m not surprised that the savings rate is falling. We are trying to cut our own savings rate (simply not doing a very good job), as we over-saved during the recession, profited heavily from the stock market rebound, and at this point have more than we need for investments.

We are holding a large amount of cash at this point, as the greatest risk to our financial future is a stock market collapse — but we are also generating new cash rapidly, so there is no need to accumulate even more.

It has been an uneven recovery. Those who are doing well enough to even consider saving have already put enough away that they can afford to cut back at this point. Those who need to save more can’t afford to do so.

Posted by TFF | Report as abusive