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Thursday, July 31, 2014

'One Percent GDP Growth Is Nothing to Get Excited Over'

Dean Baker:

Curb Your Enthusiasm: One Percent GDP Growth Is Nothing to Get Excited Over: The Washington Post went a bit overboard with its lead article reporting on the second quarter GDP data. ...
Actually the 4.0 growth figure reported for the second quarter implies the economy is on a very slow growth path when averaged in with the -2.1 growth in the first quarter. Taken together, the economy grew at less than a 1.0 percent annual rate in the first half of 2014. That is hardly cause for celebration. 
And it is important to understand that the strong growth in the second quarter was directly related to the weak growth in the first quarter. Inventory growth was very weak in the first quarter, subtracting 1.16 percentage points from the quarter's growth. This meant that the return to a more normal pace of inventory accumulation in the second quarter was a strong boost to growth, adding 1.66 percentage points. Final sales grew at just a 2.3 percent annual rate in the second quarter.
Even that rate was likely inflated to some extent by the weakness from the first quarter. In particular, a sharp jump in car sales 0.42 percentage points to growth for the quarter. That will not be repeated in future quarters.
The report, taken together with the first quarter numbers, implies an underlying rate of growth close to 2.0 percent, the same as the rate for 2011-2013. This pace is at best keeping even with the economy's potential growth rate, meaning that it is making up none of the ground lost during the recession. ...

    Posted by on Thursday, July 31, 2014 at 08:09 AM in Economics | Permalink  Comments (22)


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