Jack Dunn - Reclaiming Common Sense

7The First Quarter Real GDP is better than Seven of the past Ten Years


The ultimate trailing indicator is the Gross Domestic Product Number. This data, when it is released, is three months old. The quarterly data released today was for January, February, and March of this year. It is the "advance" number. Next month we will receive the preliminary data. We will receive the final first quarter GDP number at the end of June.  The problem that the public has is that the media focuses on the advance number, shrugs at the preliminary number, and sighs when the final numbers are published - because they are waiting for the next quarter GDP report.  We have had such anemic growth since 2007 that "nobody" realizes that first quarter has been sluggish for nearly a decade. Second and third quarter are key to the economic indicator. Fourth quarter can be strong.


Another problem is that most people spend their energy focusing on the Table 1 "Annualized" rate of GDP growth. This is the hypothetical growth for the year if the economy grows at the same pace for the entire year if each quarter grows at the same pace. The "Real GDP" is the same quarter growth, year over year. How much did we grow from first quarter of 2016? This is a seriously lagging economic indicator. This is important because federal budgets are factored on real GDP growth. The previous presidency was hanging its hat on Federal Debt as a function of GDP. Adding $10 trillion to the debt wasn't so bad because the economy was growing.  The rest of the media will be moving on to the topic du jour while I compose and publish this column. It takes effort to dig into the data to explain why the Annualized GDP grew at 0.8% (lower than this column projected,) and the Real GDP grew at 1.9%, right between the expected values of 1.7% to 2.3%. Both of these values were better than what were recorded during the first quarter of 2014 and 2016.


The Headline Annualized GDP was 0.7% - Comparable to 2016 and better than 2011 or 2014. We have seen negative growth four of the past ten years during the first quarter. There was some fiddling with the math over the past two years to make sure that the seasonality of the figures did not take it negative when it was actually growing.   The thing that confused most people was the serious spike in second quarter GDP during  2011 and 2014. The Table 1 data is the quarter to quarter change. If there was any growth after a contraction then there would be a larger spike than if it was calculated on a zero base.


The Real GDP Rate was 1.9% - Better than 2010, 2013, 2014, and 2016. First Quarter GDP this year was better than seven of the past ten years should be really good news. Crickets in the media. The previous administration liked to publish a GDP histogram comparable to what is published in this column. They liked to focus on the data from 2007 forward. This is most likely because President Bush had Real GDP Growth of 2.7% to 3.2% for six quarters between First Quarter of 2005 and  ending the second quarter of 2006. President Obama only had two months of 3.0% growth during his 96 months in office.


What is Happening? There is  a cornucopia of data that is available in the report.

  • The Table 1 data indicates that there was a huge spike in Gross Private Domestic Investment and a REDUCTION of Government Consumption. Both of these should be good news. Good news in no news.
  • The Table 2 data indicates that Exports and a Drop in Government Spending weighed down the GDP.
  • The Table 3 data indicates that decreased federal spending by the government is negatively impacting the GDP. We are spending more in current dollars and less in "2009 Chained" Dollars.
  • The Table 5 data shows "massaging" of the quantity index.
  • The Table 6 data shows "massing" of the price index.
  • The Table 8 data shows solid growth in Personal Consumption Expenditures, and  Gross Private Domestic Investment - some of the best first quarter data since 2014; 
  • Table 10 data reveals that Personal Income is Up, Personal Disposable Income is Up, and that Personal Savings is at 5.7%. This rate of savings is not as high as it was first quarter of 2016. This can be a good news/bad news situation. People feel good about the economy and are spending more money. The bad news is that they may not be in as good a situation if the economy softens. 

This column produced a forecast column where it was asked if there was good news in the report would it be reported?  The prognosticators were expecting a weak Annualized GDP number for the first quarter. The first quarter tends to be the weakest quarter. This is like expecting the sun to come up tomorrow. The real GDP,. the true annual rate of growth, was virtually unchanged at 1.9%. This is lower than the 3.0% goal that many would like to see. We never had a year of 3.0% growth under President Obama. We only had two quarters of annual growth of 3.0% or higher. How remarkable will it be when the Real GDP ticks above 3.0% for the first time under President Trump?


Next week we will receive the Jobs Report data for the month of April.  We have seen the best non-seasonally adjusted CPS job growth for February since 2003 and for March since 2003. More  jobs means more income. More income means more money to spend in the retail sector. More retail sales means more jobs in a consumption based economy. More sales and more jobs means people may consider either moving from an apartment to a home, move from and existing home to a new home, or move from and existing home to a different existing home. Home sales beget more activity in services and retail. We will see a surge in Current Population Survey Jobs, non-seasonally adjusted recorded. Will it be reported? We will probably see a surge in Current Employment Statistics Workers recorded. Will it be reported? We should see dropping unemployment levels and rising participation levels through the Summer recorded. Will it be reported?


It's the economy.