The first quarter GDP numbers raise more questions than they answer. Chief among them concerns the 3.6 percent increase in consumer spending, the best in three years and a key driver of the overall output gauge.
Consumer debt remains at or near historic highs and some 15 million are unemployed with millions more underemployed. Even though personal consumption is said to make up 70 percent of GDP, if much of it remains on credit this is not a sustainable trend. Nor is the inventory restocking part of the 13.4-percent increase in business spending on equipment and software.
Meanwhile, state and local government spending fell for a third straight quarter, shaving 0.5 percent off overall GDP. According to economist Josh Bivens of the Economic Policy Institute, “This decline is surely in part a function of the extreme fiscal crisis facing states. Given balanced budget rules at the state-level, this implies that states will be cutting spending and/or raising taxes for years to come and hence exerting a powerful drag on growth.”
The big enchilada remains high unemployment, and the trajectory of the recovery so far doesn’t provide the GDP growth to result in large-scale hiring, much less begin to address the years of nearly flat wages most workers take home. So far this is a slow recovery and a fragile one.
One interesting side-note: The Wall Street Journal reports that unlike previous downturns, the Great Recession actually increased income inequality. The top 1 percent increased their share of national wealth from 34.6 percent in 2007 to 35.6 percent at the end of last year. The bottom 90 percent saw their share fall from 27 percent to 25 percent.
Today’s Econ Haiku:
What’s BP’s slogan?
It’s “Beyond Petroleum”
Pretty slick, those guys