Friday, April 27, 2012

Private Real GDP Grew at 3.4% in First Quarter, Twice the 1.76% Average Growth Rate Since 2000

The BEA reported today that the overall economy (real GDP) grew by 2.2% at an annual rate in the first quarter of 2012. However, the private components of GDP (personal consumption expenditures, gross private domestic investment, and net exports) grew by 3.4% from January-March, following a 4.6% increase in  Q4 2011 (see chart above). In contrast, there was a 3.1% decline in "government consumption expenditures and gross investment" in Q1, which created a drag on overall economic growth and brought real GDP growth down to 2.2%.  The decrease in government spending was driven by a 12.1% decline in first quarter spending on national defense and ongoing cuts in state and local government spending (-2.2% in Q1).   

The average growth rate in private real quarterly GDP since 2000 has been 1.76%, so the private sector of the U.S. economy expanded in the first quarter of 2012 at twice the average rate over the last 12 years (see chart).  And going back to 1947, private real GDP has grown at an average rate of 3.27% per quarter, so the expansion of private GDP in the first quarter is slightly above the long-term historical average.

Bottom Line: Perhaps today's GDP report is actually better than what is being reported, as the private sector of the U.S. economy grew at a rate slightly above the historical average, and twice the average rate since 2000.  

37 Comments:

At 4/27/2012 9:39 AM, Blogger morganovich said...

or perhaps it is a bit worse.

the gdp deflator was under cpi again (though not as badly as in the last 2 q's.)

if you use cpi to deflate gdp instead of the bea price index, growth drops by about 50bp.

that said, given that pretty much all the growth in the last 2 q's came from the gdp-d being so far below cpi (q4 gdp was sub 1% using cpi as a deflator) q1 actually looks a bit better than q4 (1.7% vs 0.9%) but still pretty meager even using the bls inflation figures.

 
At 4/27/2012 10:00 AM, Blogger juandos said...

"..., the private components of GDP (personal consumption expenditures, gross private domestic investment, and net exports) grew by 3.4% from January-March, following a 4.6% increase in Q4 2011..."...

Hmmm, really?

Excuse me for being skeptical of what the BEA is reporting...

Personal consumption expenditures include the high cost of gasoline?

Is the growth rate in personal expenditures measured in real money or Bernanke Bucks?

 
At 4/27/2012 10:18 AM, Blogger Moe said...

grew by 3.4% from January-March, following a 4.6% increase in Q4 2011

Shouldn't that be "decreased to 3.4% from the 4.6% increase in Q4" - assuming 4Q comes before 1Q...

 
At 4/27/2012 10:31 AM, Blogger Benjamin said...

The government sector grew like topsy under Bush jr. It is retreating now.

Lots of more parasite-cutting to do.

We need huge reductions in the federal workforce---some of these guys qualify for lifetime pensions and medical care after just 20 years of service. Lifetimes on the federal dole!


Below is list of largest federal agencies financed by capital gains and income taxes on productive Americans, ranked by "employees" (tax-eaters).


Let's cut, and let's cut using a chainsaw.

Defense 3,200,000
Veterans Affairs 240,000 

Homeland Security 200,000
Treasury 162,119 

Justice 124,870 

USDA 100,000 

DOT 100,000
Health and Human Services 62,999 

Interior 57,232 

Commerce 41,711 

NASA 19,198 

EPA 18,879
State 18,000 

Labor 16,818 

Energy 14,000 

GSA 14,000

 
At 4/27/2012 10:47 AM, Blogger Methinks said...

Wonderful. Can we please now recall the "temporary" stimulus that was thrust into the budget on the pretext of the Great Recession?

 
At 4/27/2012 10:47 AM, Blogger Jon Murphy said...

Is the growth rate in personal expenditures measured in real money or Bernanke Bucks?

Real dollars deflated by the GDP deflator.

Shouldn't that be "decreased to 3.4% from the 4.6% increase in Q4" - assuming 4Q comes before 1Q...

No. The growth in Q1 was an additional 3.4% above the 4.6% growth in Q4. The way you write it implies the economy decreased by 3.4%, which is not correct.

As a general rule, you should never use the term "decreased" when talking about an increase.

 
At 4/27/2012 11:01 AM, Blogger Moe said...

I stand corrected.

 
At 4/27/2012 11:21 AM, Blogger morganovich said...

jon-

"No. The growth in Q1 was an additional 3.4% above the 4.6% growth in Q4. The way you write it implies the economy decreased by 3.4%, which is not correct."

not exactly. those are year on year numbers, so they do not compound on top of one another that way.

despite being up 3.4% from a year ago, q1 is actually smaller than q4 due to all the seasonality around holiday spending.

 
At 4/27/2012 11:25 AM, Blogger Jon Murphy said...

Oops, you're right Morganovich. Sorry about that!

 
At 4/27/2012 11:29 AM, Blogger VangelV said...

Will you ever figure it out Mark? The weather was absolutely great for the optimists and should have produced a higher GDP reading. The fact that it did not should be a signal that even you should pay attention to. So should the inventory build and the low deflator.

 
At 4/27/2012 11:33 AM, Blogger VangelV said...

The government sector grew like topsy under Bush jr. It is retreating now.

You are still asleep Benny. Both the GOP and the Democrats cause government to grow rapidly. Look at the Ryan or Romney budget proposals. They keep spending growing and growing and take credit for not being as stupid about it as Obama. What got to me was the negative comments from Bernanke after the FOMC meeting. It was obvious that the Fed knew that the data would be lousy and would have to keep adding liquidity to the system.

 
At 4/27/2012 11:34 AM, Blogger Buddy R Pacifico said...

The private sector grows and government shrinks is good news.

Some bad news is that personal consumption is up, at the expense of continued falling of savings.

 
At 4/27/2012 12:25 PM, Blogger Unknown said...

@morganovich:

If you used CPI to deflate GDP instead of the GDP deflator, GDP would have grown a stunning 9% in Q4 2008, while the stock market and seemingly everything else was crashing.

LINK

The CPI is *not* the thing to use to transform nominal GDP to real GDP.

 
At 4/27/2012 12:28 PM, Blogger Unknown said...

"Will you ever figure it out Mark? The weather was absolutely great for the optimists and should have produced a higher GDP reading."

Table 1.5.2. from the BEA website:

"Housing and utilities" subtracted 0.41% from Q4 GDP, and subtracted 0.23% from Q1 GDP.

No it was NOT great for the optimists. Reduced utility consumption due to warm weather was a considerable drag on GDP. If we had had normal Jan-March weather, GDP would have basically hit the consensus estimate.

 
At 4/27/2012 12:33 PM, Blogger VangelV said...


No it was NOT great for the optimists. Reduced utility consumption due to warm weather was a considerable drag on GDP. If we had had normal Jan-March weather, GDP would have basically hit the consensus estimate.



That is offset by more driving, more excursions to shopping malls, even more tourism activity. My wife and I took the kids to New York in early March. Had there been a cold winter we would have stayed home. I suspect that many people did exactly the same thing.

 
At 4/27/2012 12:40 PM, Blogger Jon Murphy said...

Some bad news is that personal consumption is up, at the expense of continued falling of savings.

True, but savings are currently in line with the historical average after being unusually high for the past few years.

 
At 4/27/2012 12:41 PM, Blogger morganovich said...

unknown-

are you seriously trying to tell me that a 1.1% deflator made sense in q4 when cpi (which understates inflation dramatically as it is) was running in the mid 3's?

pretty much all the real gdp growth reported in q3 and q4 of last year came from using outlandishly low inflation assumptions.

the 2.5% growth in q3 used a 2% deflator vs cpi of over 3.7% and q4 was even worse using 1.1% vs 3.4%.

those numbers are just unrealistically low and dramatically overstate h2 2011 growth.

this q was a bit better in that respect, but i still think the BEA is trying to pass off inflation as growth and that using a more realistic deflator like the ones used before the 90's gets you an economy at or below stall speed.

that's why jobs are barely recovering at all etc. this "growth" is just statistical shenanigans.

 
At 4/27/2012 12:44 PM, Blogger Mark J. Perry said...

No, those are **quarterly growth rates** calculated from the previous quarter, and are not year-over-year growth rates. And so the quarterly rates DO compound on top of the previous quarterly growth rate, as Jon Murphy suggests.

 
At 4/27/2012 12:47 PM, Blogger Unknown said...

"That is offset by more driving, more excursions to shopping malls, even more tourism activity. My wife and I took the kids to New York in early March. Had there been a cold winter we would have stayed home. I suspect that many people did exactly the same thing."

That could be true - let's say people spent more at the mall with the money they saved from their lower winter utility bills.

In that case it would be a wash, and the weather made no difference at all. Then, neither the optimists nor the pessimists have anything to crow about.

 
At 4/27/2012 12:47 PM, Blogger morganovich said...

jon-

say what?

savings are dangerously low and have resumed a scary downtrend.

sure, we are up off the outlansish lows of 2% from 2004, but we are not even at half the 8% that was common (and healthy) in the 80's much less the 9 and 10% rates we saw in the 50's-70's.

i don't think you can characterize a 3.7% savings rate as either historically typical or healthy.

 
At 4/27/2012 12:53 PM, Blogger Jon Murphy said...

Oops, my bad, again. I wrote "Historical average" when I meant to write "10-year average." Sorry.

Man, I am not on my game today

 
At 4/27/2012 12:53 PM, Blogger juandos said...

"The government sector grew like topsy under Bush jr. It is retreating now"...

pseudo benny making sure there is at least one stupid comment for each and every posting...

Good job!

Nothing like consistency...

 
At 4/27/2012 12:56 PM, Blogger morganovich said...

mark-

i don't think that is quite correct.

you are correct that they are quarterly growth rates (sequential not year on year) but not that they compound, at least not as they are presented.

those numbers are annualizations of the growth rate q to q.

thus, the economy did not grow 2.2% from dec-mar, but rather 2.2%^1/4 = around 0.55% sequentially. you only get that 2.2% figure if you annualize it.

compounding those numbers as they are presented would get you double digit annual gdp growth.

 
At 4/27/2012 1:05 PM, Blogger Mark J. Perry said...

Yes, it would be the quarterly growth rates that would be compounded.

 
At 4/27/2012 1:08 PM, Blogger juandos said...

"Reduced utility consumption due to warm weather was a considerable drag on GDP"...

Well unkown I would've guessed that the price of gasoline would've more than made up for lack of utility consumption...

Note the following from Center for Economic and Policy Research: An across-the-board fall in government consumption and investment subtracted 0.60 percentage points from overall economic growth, the bulk coming from a fall in defense spending, which fell at an 8.1 percent annualized rate. State and local government expenditures fell at a 1.2 percent rate in the quarter, subtracting 0.14 percentage points from growth in GDP. This report marks the seventh-consecutive quarter of decline in this category, which has shrunk more than 6 percent since the recession began in the fourth quarter of 2007...

 
At 4/27/2012 1:14 PM, Blogger morganovich said...

also:

aren't those bea figures seasonally adjusted?

my understanding is that q1 qdp is actually lower that q4 gdp before those adjustments as q4 has such intense holiday spending.

 
At 4/27/2012 1:14 PM, Blogger Jon Murphy said...

Reduced utility consumption due to warm weather was a considerable drag on GDP.

That is, of course, assuming the money people saved from their utility bills wasn't spent elsewhere.

 
At 4/27/2012 1:20 PM, Blogger Unknown said...

"Well unkown I would've guessed that the price of gasoline would've more than made up for lack of utility consumption..."

Not necessarily. Gasoline consumption is more of a discretionary purchase than heating your home in the winter. If gas prices go up, one can simply drive less where possible. On the other hand, when it gets cold in the winter, most people aren't going to let themselves freeze, so they'll turn on the heat anyway.

In fact, from the same Table 1.5.2 on the BEA website, gasoline purchases *subtracted* 0.14% from GDP in Q1, suggesting that people did, in fact, drive less to more than compensate for the higher gasoline prices.

So *both* gasoline consumption *and* utility consumption subtracted from GDP.

 
At 4/27/2012 1:27 PM, Blogger morganovich said...

gasoline prices cannot offset anything in gdp.

gdp is reported in real terms, so the price move is already taken out (at least in theory).

what might have made a difference is more gasoline usage due to a warm winter and easier driving, or, as jon pointed out, that money left over from using less utilities might get spent on dinner or new clothes or whatever.

 
At 4/27/2012 2:02 PM, Blogger Moe said...

gasoline prices cannot offset anything in gdp.

gdp is reported in real terms, so the price move is already taken out


I'm confused (not an uncommoon occurrance) - how is the price move "taken out".

GDP reports always refer to offsetting of this and that.

I read reaports like this from S&P's most recent "Lookout Report"

"Furthermore, while crude oil prices are currently heading higher, natural gas prices are at the lowest levels recorded in at least a decade. While consumers are definitely paying more at the pump, many consumers are benefiting from the lowest winter heating bills in years due to the combination of natural gas prices and the exceptionally mild winter in the northeastern U.S."

 
At 4/27/2012 2:05 PM, Blogger Moe said...

I always assumed price moves up or down (whether gas, oil, utilities)are actually "captured" in the quarterly snapshot.

 
At 4/27/2012 2:19 PM, Blogger PeakTrader said...

One major reason there's little inflation is the U.S. economy has the capacity to produce $1 trillion a year more in output (although peak oil and overregulation can place constraints on some growth).

However, demand is too low to take out the slack in supply, and accelerate inflation.

 
At 4/27/2012 2:35 PM, Blogger morganovich said...

moe-

gdp is reported in real terms. read "real" as "inflation adjusted".

so, assuming you get all the measures correct, price gets taken out like this:

lets say q1 has 100 gallons of gas at $4 and then q2 has 105 gallons of gas at $4.50.

clearly, much more is spent on gasoline in q2 (nominal terms) but in real terms, you take out the change in price and just count units, so you get a 5% move, not the full 18% jump in nominal sales.

thus, no matter how much the price of 100 gallons of gas goes up, it cannot add to gdp unless the actual amount of gasoline goes up.

does that help?

this gets more complex when you look at the other effects though.

so, if you pay more for the same gas, that in itself is no GDP growth, but it might create a drag by taking up money you would have spent on somehting else. if you then buy fewer doughnuts because the same gas cost you more, the high gas price would wind up actually dropping gdp.

 
At 4/27/2012 2:42 PM, Blogger Moe said...

I am unconfused - just had to read "inflation adjusted".
what do I owe you?

 
At 4/27/2012 2:46 PM, Blogger VangelV said...

That could be true - let's say people spent more at the mall with the money they saved from their lower winter utility bills.

In that case it would be a wash, and the weather made no difference at all. Then, neither the optimists nor the pessimists have anything to crow about.


Things do not exactly work that way. If you look at the data you find that warm weather means more housing starts, more industrial activity, more spending on consumer items that cost far more than the savings in the lower utility bills. I would expect that a warmer than average Q1 would pull automobile sales from Q2. It would also pull more sales from furnishing, electronics, etc.

Mark looks for any data from any source that would imply that a recovery is somehow either here or on the way. But if you look at the inflation adjusted data you find that the US has not left the recession that it fell into in 2004/2005.

 
At 4/27/2012 2:52 PM, Blogger PeakTrader said...

After 4 1/2 years and an additional $5 trillion in federal debt, which didn't make up for over $3 trillion in lost output from underproduction, U.S. Annual Per Capita Real GDP remains below the 2007 peak (in 2005 dollars):

2007 43,726
2008 43,178
2009 41,313
2010 42,205
2011 42,671

 
At 4/27/2012 2:57 PM, Blogger PeakTrader said...

And the 10-year moving average of U.S. Real GDP fell from above 3% in 2007 to below 2% in early 2012.

Chart:

http://www.advisorperspectives.com/dshort/charts/indicators/GDP-overview.html?GDP-since-1947.gif

 

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