At Least Consumption Demand is Still Growing
The Bureau of Economic Analysis provides us with the Advanced Estimate for real GDP growth in 2007QI. While Kash cautions that this is only a very early estimate, he calls the 1.3% growth rate and the details “yucky”. But is there any silver lining? Let’s look at the details for a moment. Kash notes that net exports fell, which the “glass is half filled” crowd might interpret by noting the gross domestic purchases rate exceeded the real GDP growth rate. But this growth rate was only 1.7%, which is still weak. The fiscal hawk in me is sort of happy that the government purchase growth rate was only 0.9% as defense spending fell. So the growth rate of the sum of consumption and private investment was even higher than the growth rate of gross domestic purchases. But wait a second – investment demand fell – both in terms of residential and overall fixed investment demand (OK, nonresidential rose a bit but not as much as it fell in 2006QIV). So the only silver lining is that consumption demand is still growing at a 3.8% per year – at least for now. Yep – a further decline in national savings is keeping us of a recession. Not exactly the best news from a long-term growth perspective.
Update: Cactus in the comments asks how Lawrence Kudlow might declare today’s bad news to be actually good news. Actually, Kudlow discussed economics last night with Art Laffer himself. Kudlow starts off by trying to argue that we’ve never seem higher tax revenues adding this:
This reflects, almost always, capital gains tax receipts from the bullish market at the record low 15 percent marginal tax rate on investment. Did someone say Laffer curve?
Laffer is joined by Forbes’ Liz MacDonald as they continue to babble on as if investment demand was really strong. Yes – I wonder how this crew will spin today’s news that investment demand has declined!