Yes, Q1 GDP growth was revised down to 1.9% from 2.2%. But look at a basic breakout:
Personal Consumption: +2.7%
Private Domestic Investment: +6.3%
(Note: the traditional GDP calculation nets these two out, which then becomes a negative. But this blog has long held that savvy investors like to see big, heavy export and import growth.)
Government -3.9%! Essentially, the US economy is thundering along like a classic Detroit muscle car, while—and supply siders and fiscal hawks alike will love this—the government contracts big time.
Most folks will look only at the top line GDP number and perceive tepidness—looking just one level further reveals a very healthy US economic picture.
A significant deceleration in the annualized GDP growth rate of the US or global GDP does not necessarily imply a recession. More often than not, decelerations prove to be temporary slowdowns within an expansion.
Think for a moment about the perversity of this headline:
It’s perverse because it’s misinformation. The recovery is over. US GDP is at nominal and real all-time highs. There’s, of course, nothing wrong with musing about somewhat slower-than-expected growth so far this year, or pondering why unemployment remains stubbornly high; but the simple reality is the recovery ended some time ago to make way for a new expansion.
I read it last night and can’t for the life of me tell why it’s gotten any notoriety other than it’s a first entry in the new phenomenon of shorter books (or, perhaps, longer essays) being published as ebooks and sold for a few bucks. This “invention” is being touted by Amazon and others, and is a good thing—most nonfiction books these days are about 40% too long but editors pad them so they seem more substantial. The essay is the right form for most business and economic non-fiction these days. So I applaud Cowen for being a pioneer here.
As for the book itself, it ultimately amounts to another in a long and great tradition of Americans telling each other how we’ve gone wrong as a society/economy. You’ve got to love it: it’s the hallmark of a strong and great people that openly derides itself. But there are oodles of books out there telling us how bad we are right now, and they’re all mostly myopic to the present moment even if they claim not to be. (For instance, Cowen claims we’ve been on a multi-decade run of decline in creating jobs, but forgets that US unemployment was at or near historical lows for most of the last decade.) Reading this book, you’d have no sense that US GDP is already back at inflation adjusted new all-time highs, that global stocks are ~100% off their lows, or that the US is leading the developed world’s growth right now. To Cowen, we’re not innovating, we’re not really productive— Stuff like iPods and smartphones, Facebook and other social media, though they’re catching on like wildfire globally and were created on US soil, are written off as not really useful for society.
With all due respect to Mr. Cowen, the fallacy of this kind of thinking is easy to see when you realize the basic fact that the US is a developed economy—in fact the most developed in the world! It’s not a matter of “eating the low-hanging fruit” anymore—that’s precisely what developed economies are supposed to do, and we did it very well thank you very much. Cowen compares now to times like the 1890s. Why? We’re a service based economy now, still innovating better than basically anywhere. You’re not going to get huge swaths of folks rising precipitously in standard of living brackets because our country is already way high as it is.
Cowen ultimately offers something of an optimistic view about the far-flung future. That’s good, but if you want to see a more optimistic future, I still contend Matt Ridley’s Rational Optimist is second to none. It’s far better to recognize the most recent recession—bad and deep as it was and still with lingering effects (like high unemployment)—was still an example of the cyclical nature of free economies and markets.
At the very least, as I see it, the continued appearance of books like these among the intelligentsia reminds us there’s plenty of pessimism still out there.
Friday’s report that US GDP grew an annualized 3.2% in Q4 is by now common news. Less commonly reported: Real GDP officially past its 2007 peak—the economic “recovery” can now be called an “expansion.” Also, according to Thomson Reuters, 71% of S&P500 companies have beaten 4Q earnings estimates so far, and the one year forward P/E of the market is 13.3.
These facts were overshadowed by Egypt news last week. But we note that January was a fairly turbulent geopolitical month (Jasmine revolution, Chinese President visits US, Egypt, Moscow bombings, Ivory Coast, et al), and yet global markets absorbed those body blows pretty well, not to mention renewed inflation fears in China/Brazil, and a nasty UK GDP report, and the ongoing PIIGS problems.