Strong Fixed Investment Demand Growth

The preliminary estimate for 2005QII indicates that real GDP is growing at a 3.4% per year. With consumption demand growing at a 3.3% rate and government purchases growing at a 2.0% rate, one might react to his news with a big ho-hum.

As one that has been hoping for a reversal of the bad news that we saw for export and investment demand, however, I see some good news in these numbers. Export demand growth was reported at 12.6% per year and imports fell. Fixed investment growth was reported at 9.3% with both business fixed investment and residential investment reporting strong growth rates.

Final sales of domestic product grew at a 5.8% annualized rate with the difference between growth in sales and the growth in production coming from a “negative contribution from private inventory investment”. Could this news be a harbinger of an export and investment led recovery, which would might increase the employment to population ratio to 63% by year end? One can only hope!

Update: John Podhoretz gives the standard NRO Cornerite reaction to the fact that real GDP growth was just enough to keep the output gap from increasing:

Americans who don’t know anything about macroeconomics not knowing that they’re living in a miraculously good economic period presided over by President Bush and the Republican Congress.

Americans who learn their economics from the National Review certainly don’t know anything about macroeconomics.