August 29, 2014
The NYT had a piece on the upward revision of second quarter GDP data to a growth rate of 4.2 percent from 4.0 percent in the advance report. It would have been worth reminding readers that the jump was a reversal from a weather induced plunge of 2.1 percent in the first quarter. This leaves the economy growing at annual rate of just 1.1 percent for the first half of the year. Even if the growth rate is 3.0 percent for the second half that would still leave year-round growth at just 2.0 percent. This is below almost all estimates of the economy’s potential which means that rather than making up ground lost during the recession, the economy is falling further below its potential level of output.
The piece also is a bit off in a couple of other areas. It noted the upward revision to investment and told readers:
“Since the economy emerged from the recession five years ago, companies have been hesitant to spend heavily on new capacity, but these figures and other recent data indicate that is finally changing.”
Actually the revised 8.4 percent growth rate for investment is not especially impressive. There have been many previous quarters in the recovery where investment grew more rapidly. For example, in the second, third, and fourth quarters of 2011 investment grew at 8.8 percent, 19.4 percent, and 9.5 percent annual rates, respectively. As recenly as the fourth quarter of last year it grew at a 10.4 percent annual rate, so the most recent quarterly rate is not impressive, especially since it follows growth of just 1.6 percent in the first quarter.
One area where it paints an overly pessimistic picture is in reporting the split between wages and profits:
“Despite the faster overall growth rate, businesses still seem to be benefiting more from the economy’s upward trajectory than many individual consumers are.
“The revision on Thursday, for example, lowered the estimate of workers’ wage and salary growth slightly in the first half of 2014, with income rising 5.8 percent in the second quarter. Corporate profits, on the other hand, jumped 8 percent in the second quarter, the Commerce Department said.”
The comparison with the first quarter is misleading. The profit data are always erratic and the first quarter showed a surprisingly large drop in profits. If the comparison is made with the second quarter of 2013 nominal before-tax profits are actually down by 0.3 percent. By contrast, labor compensation is up by 4.4 percent. These data are too erratic to make much of this shift, but the numbers actually suggest some redistribution from capital to labor over the last year.
Comments