Another Take on GDP

April 30th, 2014 10:10 am | by John Jansen |

My last post was the TD Securities analysis of Q1 GDP. This is the less optimistic view of economist Jay Morelock of FTN Financial.

Via FTN Financial:

Today at 10:03 AM

The advanced reading of Q1 GDP rose at a 0.1% rate, far below the 1.2% consensus estimate and the lowest reading since Q4 2012.  Final sales were reported at 0.7%.

The only positive contribution to growth in Q1 was personal consumption, which would have usually been seen as a very positive development if it weren’t for the items that boosted spending.  Expenditures on services jumped 4.4%, the biggest increase in fourteen years, on big gains in healthcare and utilities.  Outlays on healthcare, a by-product of the new Affordable Care Act, climbed by $43.3 billion to a $1.85 trillion annualized pace, the most since records began over 65 years ago.  Purchases of goods, however, were up only 0.4%, the least in almost two years.

The deceleration in growth reflected downturns in all other areas, primarily business fixed investment, exports, and residential investment.  Total fixed investment in the US economy fell 2.8%, the biggest since Q4 2009, as spending on equipment dropped 5.5% and residential investment fell 5.8%.  A drop in inventories pulled 0.6% out of growth in Q1, as stockpiles built at the end of 2013 were not replaced when sold.

In plain English: business investment fell, residential investment fell, businesses did not restock inventory, foreign demand for our exports fell, consumer demand for foreign imports fell, and state and local government spending fell; while spending increased on a government mandated healthcare plan and utility bills.

Bottom Line:  It couldn’t have been much worse.  Weather certainly played a major factor in the ubiquitous decline, but four straight quarters of deceleration in total fixed investment is not a product of a harsh winter.  While consumers may revert spending to more normal patterns in the spring, until businesses decide to increase investment outlays, leading to further job creation, the economy will continue to oscillate between perceived strength and weakness, as the past four years have demonstrated.

Jay Morelock

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