Recall just a few short months ago how Obama crowed about the 5.7% 4th Quarter 2009 GDP:
President Barack Obama in his weekly address said that new economic growth figures are “an affirmation” of his administration’s extraordinary measures to revive the troubled economy last year, but that he planned to step up efforts to create jobs this year.
Citing government data showing that fourth-quarter gross domestic product had risen by a bigger-than-expected 5.7% rate, Obama said the new figures are “a sign of progress.”
“It’s an affirmation of the difficult decisions we made last year to pull our financial system back from the brink and get our economy moving again,” Obama said.
Which was later revised down to 5.6%.
Now the 1st Quarter 2010 GDP number is in, and its down to 3.2%.
Stocks fell Friday after the government said the economy grew at a slightly slower pace in the first quarter than was expected. A drop in consumer sentiment contributed to the selling.
The gross domestic product rose at a 3.2 percent annual pace in the January-March period. That’s below the 3.4 percent rate economists polled by Thomson Reuters had forecast.
Even lower then predicted and guess who is finding another reason to crow in the world of Obama:
The change in private inventories was smaller this quarter – adding 1.7% to GDP in Q1 2010 compared to 4.4% in Q4 2009. It is important to note that the inventory contribution to Q4 GDP was from a slowdown in the liquidation of inventories, but in Q1 businesses were building inventories – and this inventory build will probably slow in Q2.
As I noted earlier, the two leading sectors, residential investment (RI) and personal consumption expenditures (PCE), were mixed. RI declined to a new record low as percent of GDP, however PCE increased at a 3.6% real annualized rate.
The increase in PCE does not seem sustainable unless employment and incomes increase soon. A large portion of the increase in PCE came from a decrease in personal saving.~~~
- Personal consumption expenditures (PCE) increased $130.7 billion
- Personal saving declined $88.5 billion.
- Government social benefits to persons increased $61.1 billion.
So the boost in PCE came from the decline in saving and the increase in benefits. That is not sustainable.
The second graph shows real personal income less transfer payments as a percent of the previous peak.
Unlike the recovery in GDP (previous post), real personal income less transfer payments has barely increased and is still 6.6% below the pre-recession level.
The peak of the stimulus spending is in Q2 2010 (right now), and then the stimulus spending starts to taper off in the 2nd half of 2010. So underlying demand better increase soon – and that means jobs and incomes going forward.
The last time the US suffered this kind of recession and unemployment, in 1982, it took several quarters of annualized growth of between 7%-9% in order to generate sufficient numbers of jobs to seriously lower unemployment. The long-term trend of the American economy is growth between 2.5-3%, which makes the 2010Q1 result barely a blip above average. It indicates that the current job situation may well become the “new normal,” with high unemployment remaining in place for years to come.
We will not see the kind of growth necessary to put people back to work until the government stops sending pricing signals of higher taxes and more burdensome regulation regimes.
Who thinks jobs and incomes will be increasing anytime soon with Obama at the helm?