2Q2011 Advance GDP: 1.3% Economic Growth is Not Growth

by Steven Hansen and Doug Short

Surprise!!!!  The story is not second quarter gross domestic product (GDP)– the output of goods and services produced by labor and property located in the United States – “fell” to 1.3% from 1.9% (analysis here).  The story is that it rose from a hugely downwardly revised 1Q2011 GDP of 0.4%.

Either way, 1.3% economic growth is really sick growth if you consider the population grows at 1%.  And 0.4% growth is an economic contraction.

The really stunning part of today’s BEA release is not only the much the weak Advance Estimate, but also the extensive downward revisions over the past three years.

What the BEA says about the revisions:

The revised estimates reflect the results of the annual revision of the national income and product accounts (NIPAs). In addition to the regular revision of estimates for the most recent 3 years and the first quarter of 2011, this “flexible” annual revision results in revisions to current-dollar GDP and some components back to the first quarter of 2003.1 The reference year remains 2005. In cases for which the estimates for the reference year (2005) are revised, this results in revisions to the levels of the related index numbers and chained-dollar estimates for the entire historical period; revisions to percent changes
before the first quarter of 2003 are small.

Annual revisions, usually made each July, incorporate newly available and more comprehensive source data, as well as improved estimating methodologies. In this annual revision, the notable revisions primarily reflect the incorporation of newly available and revised source data. For example, the revised estimates of profits reflect newly available Internal Revenue Service tabulations of tax returns for corporations for 2009 and revised tabulations for 2008.

Here is what GDP looked like a month ago:

And here is GDP breakdown today:

The bottom line summary in 2Q2011 is:

  • Consumers spending did not grow
  • Anemic private domestic investment
  • Imports shrunk slightly
  • Government spending shrunk slightly

Overview Analysis:

The consensus of the WSJ survey of economists was for 1.9. The Briefing.com consensus was for 1.7, and Briefing.com’s own estimate was a cheerful 2.1.

Here is a look at GDP since Q2 1947 together with the real (inflation-adjusted) S&P Composite. The start date is when the BEA began reporting GDP on a quarterly basis. Prior to 1947, GDP was reported annually. To be more precise, what the lower half of the chart shows is the percent change from the preceding period in Real (inflation-adjusted) Gross Domestic Product – including recessions, which are determined by the National Bureau of Economic Research (NBER).

Here is a close-up of GDP alone with a line to illustrate the 3.3 average (arithmetic mean) for the quarterly series since the 1947. I’ve also plotted the 10-year moving average, which, at 1.6, is above the Q2 advance GDP number.

Here is the same chart with a linear regression that illustrates the gradual decline in GDP over this timeframe. The latest GDP number is about 0.7 below the approximate 2.1 of the regression at the same position on the horizontal axis.

And for a bit of political trivia in this post-election period, here is a look a GDP by party in control of the White House and Congress.

In summary, the Q2 GDP Advance Estimate of 1.3 is less than half the long-term 3.3 GDP average, below the regression and below the 10-year moving average. The second quarter of 2011 doesn’t offer evidence of a strong recovery from the Financial Crisis and Great Recession.

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