The Agenda

How Good Was the GDP Report?

The Bureau of Economic Analysis Wednesday released its first estimate of GDP growth in the second quarter this morning, and the headline number is great: They reported a whopping 4 percent increase in GDP, one broad indicator of the overall health of the U.S. economy. We’ve seen the economy grow, and even shrink, in fits and starts since the recession began (see the chart below), but with this large number making up for shrinkage in the first quarter, the economy seems to be growing at a steady, albeit slow, pace.

The BEA summarizes the major drivers of the growth this quarter:

This upturn in the percent change in real GDP primarily reflected upturns in private inventory investment and in exports, an acceleration in [consumer spending], an upturn in state and local government spending, an acceleration in nonresidential fixed investment, and an upturn in residential fixed investment that were partly offset by an acceleration in imports.

So here’s what’s going on: States and local government spending is increasing fast enough to give a noticeable boost to national GDP, making up for their reduced spending or slower spending growth over the previous few years (their budget constraints generally lag behind economic recoveries). Consumers and businesses are also spending more, especially on long-term investments — nonresidential fixed investment is things like manufacturing equipment and business buildings, while residential fixed investment is basically home construction and improvement. These are all solid signs.

But investment in inventories, which accounted for 40 percent of the quarter’s growth, may make the quarter’s numbers look better than they actually are, because businesses don’t keep increasing their inventories forever. As Wonkblog’s Matt O’Brien points out, inventory growth has seriously skewed GDP estimates to be much higher or lower than the underlying trend throughout the recovery, and the growth in inventories is often reversed the following quarter.

One notable category that didn’t really contribute to growth: health-care spending. Personal expenditures on health care grew at only a 0.7 percent annualized rate. With the Affordable Care Act having expanded insurance coverage in some noticeable way, it’s truly surprising that spending is still growing at a record slow pace. This quarter’s estimate could be a far cry from the actual number, though, because health-care spending is particularly challenging to measure. We saw last quarter’s health-care spending estimate revised down by more than ten percentage points, from almost 10 percent growth to negative territory.

The 4 percent growth rate comes amidst other good news like solid job growth, an uptick in the stock market, decreases in unemployment, and reports of increased consumer confidence — time will tell whether the good news keeps coming.

Most Popular

Elections

Bernie’s Huge Victory

Bernie had a massive night in Nevada, with a diverse nomination-winning-type coalition. According to the entrance poll, he won whites and Hispanics and did well among blacks. He won men and women. He won college graduates and did particularly well with non-college graduates. He won Democrats and independents. ... Read More
Elections

Bernie’s Huge Victory

Bernie had a massive night in Nevada, with a diverse nomination-winning-type coalition. According to the entrance poll, he won whites and Hispanics and did well among blacks. He won men and women. He won college graduates and did particularly well with non-college graduates. He won Democrats and independents. ... Read More

Elon Musk’s Plan to Settle Mars

He who follows Freedom, let him leave his homeland, and risk his life. — Adam Mickiewicz, Polish poet, 1832 Last week my wife Hope and I traveled to Boca Chica, Texas, to meet with Elon Musk. While we talked inside the SpaceX onsite headquarters, a mariachi band played outside, providing entertainment for ... Read More

Elon Musk’s Plan to Settle Mars

He who follows Freedom, let him leave his homeland, and risk his life. — Adam Mickiewicz, Polish poet, 1832 Last week my wife Hope and I traveled to Boca Chica, Texas, to meet with Elon Musk. While we talked inside the SpaceX onsite headquarters, a mariachi band played outside, providing entertainment for ... Read More
U.S.

Women’s Sports Should Be Women’s Sports

Transgender sports policies make a mockery of women’s competition. Just look at the state of Connecticut. At the 2018 state open for women’s track and field, two young men identifying as transgender took first and second place in the 100m race. Their participation not only deprived young women of their ... Read More
U.S.

Women’s Sports Should Be Women’s Sports

Transgender sports policies make a mockery of women’s competition. Just look at the state of Connecticut. At the 2018 state open for women’s track and field, two young men identifying as transgender took first and second place in the 100m race. Their participation not only deprived young women of their ... Read More
Elections

Bernie’s Houses

Mike Bloomberg scored a hit -- a palpable hit -- in the debate this week when he pointed back at Bernie Sanders and said: “What a wonderful country we have, the best-known socialist in the country happens to be a millionaire with three houses.” Many conservatives laughed and cheered and wondered why Bernie ... Read More
Elections

Bernie’s Houses

Mike Bloomberg scored a hit -- a palpable hit -- in the debate this week when he pointed back at Bernie Sanders and said: “What a wonderful country we have, the best-known socialist in the country happens to be a millionaire with three houses.” Many conservatives laughed and cheered and wondered why Bernie ... Read More

Escape from Wuhan

The onset of the crisis in Wuhan startled me like a jump scare in a horror movie. You’ve seen the kind I mean. The audience is led to believe that the monster, psycho killer—or what have you—pursuing the intended victim is still distant. Then whatever it is stands up from behind, leaps out in front, bursts ... Read More

Escape from Wuhan

The onset of the crisis in Wuhan startled me like a jump scare in a horror movie. You’ve seen the kind I mean. The audience is led to believe that the monster, psycho killer—or what have you—pursuing the intended victim is still distant. Then whatever it is stands up from behind, leaps out in front, bursts ... Read More