We’ve had some recent economic news which, while mixed, seems to have an upbeat tone to it. This is cool, I like optimism. I’m an optimist. In the end, we win…. always. Humanity has since we were put on this earth, and it will continue to be so. The question is always, how much will humanity have to suffer to get through the next tribulation. There is, and always will be, another challenge or tribulation.
Knowledge and truth allows us to be prepared for the next one. This eases the suffering as we work through the challenge.
Growth of 2.2% is mediocre, but it’s worse than that once you peel away a few layers — about a fourth of the growth in gross domestic product was accounted for by a buildup in inventories, and half of it came from the building and selling of motor vehicles.
Strip away the inventory growth, and final sales in the economy increased 1.6%, the fourth quarter in the past five that was below 2%. Although all the headlines report on the GDP numbers, the number to watch is final sales, because that gauges demand for our products, not merely how much we made.
In its first estimate Friday, the Commerce Department said gross domestic product rose at a 2.2% annual rate between January and March, slower than the 3.0% pace in the prior three months. Economists polled by MarketWatch had expected a 2.7% growth rate.
The slower growth came despite a welcome pickup in consumer spending, to its fastest pace in over a year. The biggest negative surprise was a drop in business spending.
Our GDP shrunk in spite of increased consumer spending. This is a problem. Not a little problem, but a big problem.
Although the increase in GDP in the first quarter was disappointing, the report had some positive elements. For instance, in the past four quarters, the economy has risen 2.1%, the biggest year-over-year increase since the first quarter of 2011.
Consumer spending picked up to rise 2.9% in the first quarter, after a 2.1% rise in the previous three months.
Consumer spending added 2 percentage points to GDP.
That would be cool if the rest of the country was growing at a higher pace….. but it isn’t. This is trouble, and lots of it.
• “It is clear that the rise in consumption was driven by a decline in savings; the personal saving rate dropped to 3.9% from 4.5%, the lowest since 2007. Meanwhile, real disposable income rose just 0.4%despite the improvement in employment. Lower savings plus weak income is not a favorable combination for the consumption outlook.” — Neil Dutta, Bank of America Merrill Lynch.
“Although the economy continued to expand in the first quarter, the GDP data at face value are disappointing but also puzzling. Private sector hours worked rose 3.7% in the first quarter — what were these workers producing? The unemployment rate fell from 8.5% in December to 8.2% in March — how can this be if the economy was only growing at around its potential rate?” — John Ryding and Conrad DeQuadros of RDQ Economics.
• “While I am thankful that the economy continues to expand, the damage being done by the Obama Administration’s policies have produced a weak recovery. In the eleven quarters since the end of the recession GDP growth has averaged only 2.4%. That’s less than half the 6.1% we averaged during the Reagan recovery.” — Rep. Kevin Brady, vice chairman of the Joint Economic Committee and a Texas Republican
I’d have lots more to say, but most of this speaks for itself. These are all quotes from the Wall Street Journal… Market Watch.