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Growth Still Tepid



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Real GDP growth is still hovering in a tepid limbo, rather than the strong growth you’d expect to see coming out of a recession. Real GDP grew at a 1.5 percent annual rate in the second quarter, right in line with consensus expectations. Real “private” GDP (real GDP excluding government purchases) grew at a 2.2 percent annual rate in Q2 and is up 3.3 percent in the past year. The brightest spot in the report was that home building increased at a 9.7 percent annual rate in Q2, the fifth consecutive quarterly increase. 

Today’s report included “benchmark” revisions to GDP data over the past few years, including upward revisions to the pace of growth in 2009 and 2011 and a downward revision to 2010. So for example, as of yesterday the government was saying real GDP only grew 2 percent in the year ending in the first quarter; now it shows growth of 2.4 percent in the same period.  Corporate profits were revised down for the past few years, all due to domestic firms. However, the growth rate of profits in the past year was revised upward. 

More relevant to policymakers, we find no justification for a third round of quantitative easing in today’s report. The benchmark revisions moved nominal GDP slightly upward and that figure is up 3.9 percent in the past year and up at a 4 percent annual rate in the past two years. These are not that far from the Federal Reserve’s long-run outlook of a 4.5 percent growth rate for nominal GDP and much too fast for a short-term interest-rate target near zero percent. The solution to slow growth remains with fiscal and regulatory policy, not the Federal Reserve.



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